#China Cannot Be Fixed?

Pity Poor China: There's No Easy Fix to the S-Curve 

This decline is inevitable in fast-expanding economies that depended on export growth and investment booms.

The S-Curve can be likened to a rocket's trajectory: first, there's an ignition phase, as the fuel of financialization, cheap labor and untapped productive capacity is ignited.

The boost phase lasts as long as credit-fueled production and consumption expand rapidly.

In the boost phase, investors and financial authorities can do no wrong. The high growth rate of credit and production overwhelms all other factors, as the virtuous cycle of expanding profits and production increases wages which then support further expansion of credit and consumption which then supports more production, and so on.

A vast tide of foreign investment fuels an equally vast expansion of fixed capital assets such as factories and new homes. (The chart below depicts the astronomical amounts of new square footage constructed in China every year.)

oftwominds

Are Stock Markets Crash Proof?

Good News for Bulls: All Those Open Gaps Below Will Never Get Filled

By making the stock market the only game in town, the Powers That Be can no longer afford to let it decline for any reason.

Market technicians have long observed that the holes in charts left when markets gap up or down at the open of trading almost inevitably get filled later on. When the market gaps down, it will eventually rise to fill that gap. When the market gaps up, it will eventually decline to fill that open gap.

Since there are open gaps galore lurking in the lower depths of the S&P 500's chart, that would typically suggest stocks must--gasp!--fall to fill those open gaps. The prospect that stocks might not drift higher forever without interruption is deeply disturbing, and so the Powers That Be have issued a new edict: unfilled gaps below must never be allowed to fill.

This new rule simplifies trading, confidence and sentiment: Bulls can now relax, knowing that the market will never be allowed to decline. Sentiment can stay pegged at "extreme greed" forever, and there is no longer any need to hedge long positions because markets will only move higher.

oftwominds