Can China lead the world out of a recession?

Abraham George Macro View

During the GFC 2008 while the world was suffering and asset prices were collapsing, China was stock piling on cheap commodities. With a war chest of more that 1.7 trillion dollars they went on a commodities buying spree, hoarding up the world’s most valuable resources on the cheap. In less than a year crude oil prices tripled and copper made an amazing run in 2009. China’s copper inventory went up four fold. The binging included even food items like corn, pork and soybeans.

It was a sort of power play. While major market economies were suffering, China was doing well. The rise in commodity prices created great economic burden for the rest of the world. But that didn’t last long. Very soon it became clear that the Chinese economy, couldn’t sustain, without healthy global trading partners. Ultimately, the Chinese economy plunged and so did the commodity prices.

With another economic crisis, China is again on a mission to accumulate commodities. They have much more dollars too. Will they be leading the world in economic activity in coming out of the global recession? If they do, they surely need to work on their global trading relationships.

Yesterday was the final day to resolve all election related disputes assuming the Electoral College would vote in five days from now. The Republicans have elevated matters to the Federal Supreme Court attempting to delay the Electoral college vote. Markets are paying no attention to it. The chances of an election overturn at the Federal Supreme Court is not on anybody’s mind. But it is not over until it is over.

Equities

Vix is trading at near pandemic era lows. Stock index option investors are purchasing two and a half calls for every one purchase of a put. The put/call ratio of options is at its lowest level of .394 as of last Friday and it is the lowest in almost 21 years.

The strongest signals occur when the 10 day ratio starts to reverse trend. Traders in general are trend followers. They become more optimistic as prices rise and pessimistic as prices fall. At some point there is an exhaustion point and that’s when the fun changes hands. With yesterday’s high in the S&P 500 at 3705, we were expecting that to be the highest level. Either the pattern is complete or some other pattern is developing.

Bonds

The Bond markets may have a bit more upside left before the larger degree decline will resume.

Euro

The Euro continues to subdivide and the rally pattern is not complete. It could move more higher before we can consider shorting.

Gold

Gold has made an intermediate low at 1765 and could be headed to 1875-1890.

Abraham George is a seasoned investment manager with more than 40 years of experience in trading & investment and portfolio management spanning diverse environments like banks (HSBC, ADCB), sovereign wealth fund (ADIA), a royal family office and a hedge fund.