Shanghai Index , the engine of the World’s growth?

Shanghai  aug 1 2013shanghai vs s&p aug 1 2013

China’s economy has been growing at somewhere between 11 to 6% for the past decade or longer. In 2009 they launched a stimulus package of nearly 700 bln., which, relative to the economy was arguable larger than in the US or anywhere else for that matter. The state owned banking system has carte blanche to play fast and loose with all the normal constricting concepts such as capital adequacy, return on capital etc.etc. A more liberal environment is hard to imagine, yet the stock market is down by 2/3 from the peak and even 43% from the rebound high in ‘09. The S&P500, in contrast, is up more than a 100% from the lows and about half of that after the initial rebound.

Very judiciously I chose 1996 as the starting year for this chart. That was the year when the Maestro Greenspan coined the phrase “irrational exuberance”.  Now 17 years later we are still higher by 200%, amazingly enough on BOTH indices. China and the US performed in an identical way over that period. Today the US made new highs, supposedly on the good ISM numbers in, of all places, China. Apparently the US Pavlov dogs are better trained than those in China, and in the end, of course, it is all about the mood. The picture below from the World Health organisation might explain a lot of the difference;

China Pollution Poses Test for Regime as Middle Class Protests - Bloomberg - Goo_2013-07-12_08-21-06

And , of course, shanghaiing refers to the practice of kidnapping sailors described  as  follows.                                                                                                                                     The most straightforward method for a crimp to shanghai a sailor was to render him unconscious, forge his signature on the ship’s articles, and pick up his "blood money." This approach was widely used, but there were more profitable methods.    Wikepedia.

Could it be that the Americans have perfected the art and found the more profitable methods?

POT, Potash update, Live by the sword …………………… .

POT july 30 2013

We commented  just 4 days ago (see previous blog)  that this stock should accelerate to the downside soon. 20% in a single day is more than we expected but also nowhere near where we think it will end (about $10 ). For today it is probable a bit overdone but clearly today’s move is a third wave of some degree so , as a minimum, expect a 4th and 5th.

Today’s comments on BNN and I am sure other entertainment channels are interesting for their complete and total stupidity. One commentator suggested that this was entirely predictable (inventories are 37% above 10 year averages, wheat is selling at substantial lower prices and China is less hungry or is now producing it’s own.) In reality, of course the cause is pretty simple. A monopoly (and almost all of Canada is a monopoly or an oligopoly) allows the producer to manage (restrict) supply and collect “rents” well above their wildest dreams. Often this is confused with good management. Under globalization these setups that used to be illegal (see anti trust laws etc.) are increasingly attacked by the market itself. Takes a long time (see banking, telecommunication, dairy products, wine etc.etc) but eventually it happens. The surprise is that in this case it is the Russians (not known for their free-market leanings) that gave the impetus to this change leaving the Canadians as swing producers instead of price setters. Those that bought Mr Brad Walls story how Pot. was worth more than the $62 take-over price now may regret not having sold. If not they probably will in the future.