But But But… China Will Save The World!

China Heart

Or so they said…

(Reuters) – Baoshan Iron & Steel Co (600019.SS) (Baosteel), China’s biggest listed steelmaker, said it has suspended production at a loss-making plant in Shanghai, in a sign of the intense pressure on the sector as steel prices trade near three-year lows.

The steelmaker is one of the first major Chinese mills to publicly announce it is suspending production, but with the world’s second-biggest economy cooling and banks restricting lending to an industry that built up $400 billion of debt during years of double-digit growth more suspensions are likely.

Does anyone remember even recent history?  Like, for instance, how the 07/08 collapse was foreshadowed by a market crash in China in early 2007?  That, incidentally, was what woke me up as a trader and investor and led to the publication of The Market Ticker — the break in correlations was statistically significant, and once I started digging around for the cause I became quite alarmed.

So do you think it’s all that wise to ignore it this time, with the old saw “this time it’s different”?

Probably not, right?

Last night the Shanghai index was up 2.7% on the premise that the Chinese government will “stimulate.”  May I ask something simple — how?

That’s the $64,000 question no?  This is a real problem because as we have repeatedly discovered meaningful and effective stimulus via money-printing and lowering rates doesn’t work when the economy has too much debt in it.

And China’s economy does.

So……. wanna bet they can pull this one off over there?

Discussion (registration required to post)