China Lehman: Right on Time
One week after the Fed unleashed shock and awe on markets with a .5% rate cut, the PBOC just went ALL IN currency debasement as the world's most Ponzified economy implodes:
No amount of monetary stimulus has so far halted China's slide, therefore the PBOC just pulled out the long awaited bazooka. This is the moment that Asian investors have been waiting for all year long, however it's a risky gambit because it means that follow-on stimulus is unlikely.
The fact that China's deflationary collapse is taking place amid massive rate cuts remains beyond the intellectual capacity of global investors to grasp. They see China imploding and a central bank increasingly desperate, yet all they want from their own central banks are more deflationary rate cuts.
Fittingly China's shock and awe arrives a week after the Fed cut rates .5% last week which was the anniversary of Lehman collapse. Most people seem to forget that there was a MASSIVE short covering rally after Lehman collapsed and then the wheels came off the bus. Is that what we are witnessing right now?
It seems highly possible.
Making matters even more tenuous right now is the fact that the only policy BOTH U.S. political parties agree upon is escalation of the trade war with China. It's only a matter of time before Trump declares this latest PBOC action to be an act of currency debasement worthy of another 100% tariff. Imploding the world's second largest economy is the goal of both parties and they are doing a great job so far. Fittingly, China was the country that pulled the world out of recession after 2008 and now it's the first - by no means the last country to fall into the deflationary abyss. What China is experiencing is a textbook liquidity trap - one in which monetary policy has ceased to work. Central banks can only lower interest rates so many times before households are at maximum debt and then it all implodes. A global scenario which investors are now eagerly front-running.
While China has been imploding, India has been the primary beneficiary. India's stock market is now the riskiest in the entire world. It's only a matter of time before investors realize that China is now a far safer bet for Emerging Market stock market allocation. At which time the Indian market is going to go into what I call "Shanghai Surprise" circa 2015:
All while U.S. investors wait patiently for the election and the next FOMC both six weeks hence.
