For as many years as I’ve been trading and analyzing markets I’ve been told time and time again….watch copper.
If you want to get a good bead on global growth / demand just make the simple connection between “that” and the obvious need for copper.
You can’t build a building without it, you can’t build a car without it, and you can´t produce anything “electronic” without it so…..I guess that about covers it.
It’s been widely correlated with “China’s growth” as a general bellweather for continued expansion and development.
Nice chart below. I guess the default of China’s Chaori Solar Energy may have caught a couple of peoples attention. Smart people anyway.
The Aussie Dollar ( my synthetic “short China” play from a few days ago ) getting hammered as we speak.
And who’s saying that saying a keen eye on the fundamentals doesn’t do much for their trading?
The biggest story in the financial markets this morning is the weakness in Chinese assets.
The Chinese Yuan sold off aggressively, experiencing one of the largest one-day declines since December.
Chinese stocks were hit hard with the Shanghai Composite dropping more than 2.8%. Although a significantly weaker trade balance triggered the selling, China’s central bank has been actively allowing the Chinese Yuan to weaken.
Chaori Solar Energy was allowed to default on its corporate bonds ( as suggested some days ago ) and is currently in the process of “selling its solar farms” in order to pay up.
Markets “appear” calm here this morning in a general sense but don’t get too comfortable as this has got some pretty far-reaching implications.
Emerging Markets “EEM” continues its downward trajectory, as the Japanese Yen looks to steady / make a move higher.
Shakey ground here “globally”……but of course – no trouble in U.S Equities.
How’s “short AUD” looking now suckas??
You know…..if I was a terrorist I’d likely start with….well I dunno…maybe I’d start foreclosing on people’s homes and pushing them out into the street where they’d be much easier targets.
Then I’d likely put considerable effort into devaluing their currency making it even more difficult to survive and provide for their families, all the while outsourcing all the manufacturing / factory jobs overseas, choking off any opportunities for employment.
At that point it only makes sense to make health care completely unaffordable, and perhaps I’d allow my friends running the insurance companies to just get away with murder there as well.
I’d kill education and even if education “was” available it would be far to expensive as….you can’t have “smart people” running around now can you?
Terrorist hate smart people.
Then if that wasn’t “quite enough” I’d likely look to monitor every single cell phone and email correspondence country-wide, looking to gather that information and use it to the best of my abilities to “really put it to em”.
Then…..just sit back in some overly priced leather chair…..write myself a big fat bonus ( somewhere in the 7 figure zone ) grab a little popcorn and watch the show.
Or maybe if I got bored, I’d throw darts at a map and look to find some other country to go and do the same in.
Sound at all familiar?
I encourage any and all to pass this one around a bit as what the hell……..perhaps I’ve now made the list on some “surveillance opp” having used the word “terrorist” in the title.
No wait……no “real terrorist” would ever be so dumb as to do that.
I imagine I’m ok.
At this point, having taken a lump er two holding a couple of USD longs, it’s an easy “stop and reverse” for a decent trade in the opposite direction.
We’re pretty much looking at the long anticipated “USD waterfall” here as of yesterday, and you’d not want to get stuck on the wrong side of that.
Pure play – a simple long both GBP/USD as well EUR/USD.
Otherwise, some great comments and ideas on AUD here overnight ( thank you everyone who’s contributed ).
As counter intuitive as it may seem I’m easy holding / adding short AUD while holding these two “new trades” for a shorter term rip. It doesn’t “appear” AUD has got much life left in her anyway.
USD looking to take out lows from October….and then some. Easiest play – long EUR and GBP.
You’ve really got to shake your head when the “poster child currency for risk” continues to move higher in the face of looming credit crisis in China, possible war in Eastern Europe and a “soon to be announced” USD debacle in the states.
Or do you?
Doesn’t it make the most sense to “those of us in the know” that things generally go “higher” before going “lower”?
I mean really…….markets don’t “crash” from the lows! Markets fall from the “highs”!
Currencies really being no different.
I imagine in a couple of days ( or perhaps even within a couple of hours ) you can look back on this and say “Ya ya Kong was early as usual…damn! That Australian Dollar really put up a good fight there near the end”.
And that will be that.
At Zero Hedge:
UPDATE: It’s happened – China has suffered its first domestic corporate bond default as Chaori fails to meet interest payments on schedule and rather more surprisingly failed to receive a last-minute mysterious or otherwise bailout…(read more)
Remember this chart from back in October?
I had suggested that the emerging markets ETF “EEM” was having trouble breaking out to new highs while the SP 500 was leaving most charts in the dust right?
So……now let’s have a look at it “again” while the SP 500 has “the October highs” way back in the rear view mirror.
In a healthy global economy, shouldn’t those emerging markets be moving higher / breaking out as well?
The “proposed taper” has obviously had an effect on EEM as we’ve discussed here several times before ( U.S dollars pulled out of these emerging economies in preparation for rising rates / economic contraction etc…) so…..the question begs to be asked.
Is the U.S Equities market “literally” the last one to fall?
This very well could be the “elusive blow off top” as not a single data point out of the U.S ( or the planet for that matter ) suggests any kind of meaningful recovery.
I’m sure I’m guilty (as we all are) in ”seeing what I want to see” but seriously….how far can U.S Equities “diverge” from what’s “really going on”?
Food for thought if nothing else.
With the dollar “finally falling out of bed” I’ve scratched a couple trades for a 2% loss.
USD has given us more than enough chances to “ditch” and in all honest I hung in there with a couple smaller “much longer” than I should have, suggesting some days ago that “I’m not interested in catching a falling knife” not having much conviction in hanging around “long USD”.
And so it goes.
Otherwise, I’m highly suspect of the “sudden surge” in commodity related currencies hence initiating some “short AUD” ideas over the past 48 hours.
It’s not often you’ll “ever” see a currency trade sideways a full month, then drop “lower” and out of the range…..then come screaming back to highs, near or even above the range highs.
A full “rinsing” if you will – and unlikely a sustainable move.
As much as the short term action would have one thinking that “AUD is on fire” – it’s really only now bumped into well recognized areas of overhead resistance in a number of pairs.
Seeing something like this “scream 300 pips higher” in a matter of a few short days, generally has it retrace a large portion of the move, coupled with ideas from my previous posts ( suggesting that “short AUD” essentially works as a play on China as well ) I’ll have no trouble holding / adding to these positions as things develop.
In case you hasn’t seen or heard yet, the Internet is “on fire” with the latest concern coming out of China, that a tiny little solar company is on the verge of default.
Chaori Solar Energy out of Shanghai, ( a maker of solar cells ) said March 4 it may not be able to make an 89.8 million yuan ($14.7 million) interest payment in full by the deadline tomorrow.
Now, while this may not “immediately appear to be that big a deal ( as we’ve all seen companies default / go belly up before ) the implications are that “if indeed” Chaori defaults on its corporate bond interest payments on Friday it will be the first “ever” corporate bond default allowed in China.
Where normally bailouts are quietly made and companies / investors are “bailed out” by the PBOC (Peoples Bank Of China) and the government, it appears that in this case China is looking to set a “new example” in simply allowing the company to default – as a simple matter of market mechanics and ever day market volatility.
The message clearly being “we are not going to be there to bail out every single company that goes off the rails” and that the “permanent backstop/endless liquidity injections” investors in China have come to enjoy ( and even come to rely on ) will “not” be there moving forward.
A bold move, with far-reaching implications.
How many other companies in China are on the brink of default? How many corporate bond holders might just look to “get the hell out of the road” now knowing the government isn’t going to be there to step in and help?
Bank of America Corp. is calling it “China’s Bear Sterns Moment”.
Do you think the sudden “blast higher” in AUD might just be indication that the big boys are front running this a bit? Providing even “higher levels” to get short from?
So we’ll see. So we’ll see.
I’m short the Australian Dollar as a simple “fundamental play” on the looming troubles ahead ( not just for China but…) for global growth in general.
China slow down = Australian blues. This trade has no holes in it…..there is no “what if you’re wrong Kong”. It’s not a hunch. It’s a trade based in a simple and solid understanding of how “one” currency is likely to perform in the face of its largest trade partner slowing down, and buying less stuff.
Consider losing one of your biggest clients, or perhaps that regular customer at your burger joint has now turned vegetarian. Buying less stuff means your business will suffer.
I “could” get into all the small details, charts and graphs, facts and figures, dollars and cents, etc.. but you know me better than that. That stuff is “flat-out boring” and frankly…of no real consequence here.
I don’t need to be an economist ( god help me ) to understand how this sets up. No….I only need to manage my money correctly and let this do exactly what “I know” it’s going to do.
The trade will pay out well – I can assure you of that.
When? I don’t care.
I’ve been building a considerable position short AUD over the past month, and have continued to add at every instance the currency shows strength. These longer term trade ideas take time, patience, conviction as well solid money management as….I will continue to add “no matter what” as the trade continues forward with the ultimate “payout” likely being more than worth the effort.
If markets are just sitting still and grinding you in the short term….see what you can do about formulating some “medium/longer term plans”. Putting these in motion “today” makes for great returns down the road.
With all the data flying around each day – it’s near impossible to put everything in neat little compartments, all organized and understood. We see markets rise on “bad news” and sell off with the good, then do the complete opposite only a week later. We’ve got the “fear of war” one day, then the “celebration of peace” the next. The market is a meat grinder, and unfortunately – you are the beef.
So when the short-term / intraday day action isn’t providing much opportunity – what’s a trader to do?
How can you feel that you’re “moving forward” when the day-to-day grind is doing nothing but frustrating you, and possibly grinding your account to dust?
Step back. Re focus, and look for the things that “you can make sense of” – and start working out from there.
A simple example of what “I’m doing” while I sit idle in a number of trades that are essentially “going nowhere fast”. I ask myself…..Kong….what “do” you know? Where can you focus your energy as to keep this thing moving in the right direction.
I immediately turn to the fundamentals.
Do you agree with me ( after everything you may have read / researched as well ) that China is set to slow in the following year / years?
I can’t be bothered to go over this again but encourage you to read this simple breakdown, then get back here.
We’ll outline some trade ideas next.
5 Ways China Slowdown Will Ripple Across Globe.