{"id":129823,"date":"2018-07-10T07:45:57","date_gmt":"2018-07-10T11:45:57","guid":{"rendered":"https:\/\/www.countingpips.com\/?p=129823"},"modified":"2018-07-10T06:13:40","modified_gmt":"2018-07-10T10:13:40","slug":"china-asia-and-emerging-markets-could-result-in-chaos","status":"publish","type":"post","link":"https:\/\/www.investmacro.com\/forex\/2018\/07\/china-asia-and-emerging-markets-could-result-in-chaos\/","title":{"rendered":"China, Asia and Emerging Markets Could Result in Chaos"},"content":{"rendered":"
July 10, 2018<\/div>
\r\n<\/div><\/div>

By TheTechnicalTraders.com<\/u><\/a><\/strong><\/p>\n

Recently, quite a bit of news has been originating from Malaysia, China and other areas of South East Asia.\u00a0 Much of it is concerns with multi-billion dollar projects and excessive corruption and graft.\u00a0 Malaysia is taking the lead with this issue so far with the new Mahathir administration.\u00a0 Yet, we believe these issues are far-reaching and could result in quite a bit of market turmoil over the next few months \u2013 possibly much longer.<\/p>\n

What is at risk is the exposure of \u201ccooked books\u201d across much of China, India and likely throughout the globe with infrastructure and real estate projects that were designed to boost numbers while hiding real economic concerns.\u00a0 You may remember we alerted our members and the general public to this concern in March 2018 \u2013 nearly\u00a04 months ago in this blog post<\/a>.\u00a0 If you have not read our multi-part research post regarding how China has set itself up for a massive economic collapse, please take a minute to read all of our earlier research.<\/p>\n

How has this Ponzi scheme been setup to play out for so long?\u00a0 Our assumption is that it goes something like this.\u00a0 In late 2009\/early 2010, China was feeling the crunch of the global credit market crisis and made an attempt to push easy credit out to internal and external infrastructure projects in an attempt to keep the manufacturing and export sectors in China clicking right along.\u00a0 The objective was to keep building, while the capability was available and the supply was plentiful. The only thing China needed to do was to make it easy for capital (loans) to be acquired for builders and buyers.<\/p>\n

Much like what happened throughout most of the world, China took advantage of an already steady economy to avoid any contraction in real economic output by creating capital out of thin air and allowing their banking institutions to loan capital for massive projects.\u00a0 This fueled a huge wave of investment and speculation throughout most of Asia \u2013 including external projects like those in Malaysia, Africa, India and many other countries.\u00a0 What we are learning, though, is that the projects may have been much more nefarious than we originally thought.<\/p>\n

For example, the 1MDB investigation in Malaysia has shown that graft, corruption, nepotism and a host of other issues are raising many questions as to how and where multiple hundreds of billions of dollars vanished?\u00a0 It appears one component of the 1MDB and other project were a commitment for the infrastructure project materials to be purchased from Chinese manufacturers and the payment schedule for said materials were set to be transmitted well before these materials were actually delivered.\u00a0 In other words, China made a capital commitment to loan a portion of capital for an international project with the commitment being to purchase materials from Chinese manufacturers where the host country would also have a capital repayment agreement as their joint partnership in this project.\u00a0 The problem was that China never really delivered on the materials and the host country, in some cases, has already paid for 80%+ of the project costs.\u00a0 This is a classic \u201cI\u2019ll gladly pay you in advance for materials and work that I may never EVER see\u201d.<\/p>

\r\n
\r\n

Free Reports:<\/p><\/div>\r\n

\r\n

<\/a>\r\n\t Get Our Free Metatrader 4 Indicators<\/u><\/b><\/a> - Put Our Free MetaTrader 4 Custom Indicators on your charts when you join our Weekly Newsletter<\/p>

\r\n
\r\n
\r\n

<\/a>\r\n\t Get our Weekly Commitment of Traders Reports<\/u><\/b><\/a> - See where the biggest traders (Hedge Funds and Commercial Hedgers) are positioned in the futures markets on a weekly basis.<\/p>

\r\n<\/div>\r\n

\r\n
<\/div>\n

In terms of how this type of deal cooks the books, think of it like this.\u00a0 China just \u201cbooked\u201d a $400 billion project where China must contribute 10~15% of the capital costs and the host country contributes the rest.\u00a0 This results in a \u201csale\u201d of $400 billion on the books with additional sales going out to manufacturers and suppliers.\u00a0 As the host country begins payments for this project, China can quickly recover actual costs because they have not delivered much in terms of raw materials or actual building materials for this project.\u00a0 Meanwhile they are bilking the host country out of hundreds of millions or billions on a \u201cphantom project\u201d that may never be completed.<\/p>\n

It all seems to work well for the books because as long as no one actually finds out what is happening, China is selling \u201cvapor projects\u201d to other nations and booking profits for simply making a commitment \u2013 a shell game with billions, possibly trillions, at risk.<\/p>\n

At the end of the day, China shows multiple massive infrastructure projects and this boosts their GDP, employment, and manufacturing data while covering the raw material and labor costs by sucking real revenues from host nations.\u00a0 As long as the host nation does not lose faith in the deal or ask too many questions, no one is the wiser and China can keep playing their shell game.<\/p>\n

We believe all of this started to change in early 2018 when the Chinese consumer sentiment started to change and when President Trump began to disrupt the \u201cglobal think\u201d in terms of trade, multi-national deals, and future economic expectations.\u00a0 As soon as the curtain was pulled back and questions started being asked, China came under real pressure as consumers, nations, and corporations began to question the ongoing financial and economic capabilities of China suspecting that it had over-extended itself, it\u2019s credit capacity and cooked the books with phantom projects, income, and economic output.\u00a0 The real threat comes when the shadow banking system in China collapses as well as the investment grade debt, corporate debt, and project liabilities become too great for collapsing revenue.\u00a0 This is when the collapse will accelerate beyond anyone\u2019s imagination.<\/p>\n

Right now, we believe we are in the early stages of a discovery process that could roil the markets a bit over the next 2~6+ months.\u00a0 Once consumers in China get an idea of what is actually transpiring (if they ever really find out), they will move into protection mode and prices will decline in a massive asset bubble collapse.\u00a0 Global debt issues will likely be resolved by the legal systems in place in various countries and a series of defaults will likely take place.\u00a0 When one of my partners was doing business in SE Asia, he quickly learned that most Chinese businessmen keep three sets of books; one for partners \u2013 showing a big loss, one for the government \u2013 showing enough of a loss to not pay too much in taxes, and the last (real) set of books that shows the real profit or loss.<\/p>\n

We believe the fallout from all of this could drop the Chinese economic credibility to new lows and could result in a massive wave of legal and financial woes as the Chinese credit, banking, manufacturing and asset markets collapse because of this.\u00a0 It will start small with the Chinese government trying to inject billions into the economy to shore up failing enterprises and banks.\u00a0 But once the total scope of this shell game is exposed, we believe it could disrupt nearly all of the Asian and partner nations economies and could land many foreign and domestic state and business officials behind bars or worse.\u00a0 This is the kind of thing the ends very badly for some people.<\/p>\n

We have been paying very close attention to the unfolding events in China and SE Asia.\u00a0 We believe, for now, the US Equities markets seem immune to most of this, yet we believe we will soon start to see some credit issues spill over as trade issues and corporate liability repayments may soon begin to falter.\u00a0 Be prepared for an unknown or unforeseen event to unfold very quickly over the next 6+ months.\u00a0 We are not suggesting that investors or traders prepare for an immediate collapse in the global markets, but we are suggesting that the Chinese Dragon economy could very quickly unravel into a Chinese Gecko with little to really support pricing and valuations.<\/p>\n

Our Custom China\/Asia index has already retraced more than 38.2% from a recent price peak.\u00a0 As of right now, we are not calling this a collapse because we have yet to cross critical price levels to the downside.\u00a0 A move below the 50% retracement level, for us, would raise some additional concerns.<\/p>\n

\"\"<\/p>\n

 <\/p>\n

The Hang Seng Index has recently rotated above long-term resistance and collapsed back to the 2015 peak (support).\u00a0 You can see from our BLUE price trend channel that support could still hold near these lows, possibly prompting a further upside rally.\u00a0 Yet, we are watching these support\/price channel levels because any break of the MAGENTA support line in conjunction with a breach of the price channel would be an ominous technical trigger that bottom has fallen out of the Chinese equity market \u2013 and possibly resulting in a massive asset valuation crisis.<\/p>\n

\"\"<\/p>\n

 <\/p>\n

Lastly, our BRICs custom index chart is showing a much deeper price correction that has already established a new downside price channel (in RED).\u00a0 This is one of the bigger concerns that we have in regards to this Chinese debt\/liability fallout.\u00a0 China may be able to absorb some, or most, of the crisis by nationalizing companies and increasing capital through central bank activities.\u00a0 But what happens to the other foreign nations that are left holding the empty bag of these failed infrastructure projects?\u00a0 They could be out hundreds of billions with nothing to show for it except a \u201cChinese IOU\u201d.\u00a0 This Chinese shell game to \u201ccook the books\u201d could result in a global crisis involving some of the weakest and most vulnerable nations on the planet.\u00a0 Yes, the BRICs emerging markets could be taking a wild ride in the near future if the fallout from all of this extends as we believe it could.<\/p>\n

\"\"<\/p>\n

 <\/p>\n

Our opinions at this point is that China is in a very fragile position; protect itself from complete disgrace and economic collapse by going \u201call-in\u201d with central bank and currency manipulation while delaying or canceling projects in an attempt to gain control of this mess; or orchestrate a planned and organized economic crisis event that exposes the shenanigans that have been ongoing for a decade or more while attempting to \u201csave face\u201d and maintain some level of credibility throughout the world.\u00a0 Remember, one of the most important aspects of the Chinese culture is \u201cAsian face\u201d. The term implies that one never disrespect or disgrace a leader or person of power.\u00a0 It is, in some ways, the most disgusting and horrid thing that can happen to anyone \u2013 to lose honor and respect in front of one\u2019s peers.<\/p>\n

China is stuck between the proverbial \u201crock and a hard place\u201d.\u00a0 The only option they have at the moment is the \u201ccontrolled\/planned economic crisis event\u201d (to the best of their abilities) while praying that nothing massive hits the news wires which could cause further damage to their fragile footing.\u00a0 If something (think Malaysia\/Mahathir and neighboring countries) does hit the news wires to further erode China\u2019s plans \u2013 it could result in an all-out collapse of the Chinese economy.\u00a0 Something that has really not been seen in well over 500 years (prior to the Qing Dynasty: 1644-1912).<\/p>\n

We are advising our clients with regards to this unfolding event and continue to dedicate a large number of resources toward protecting our clients from unexpected and unknown issues.\u00a0 We have developed a unique set of trade positions that we believe assist our clients in executing successful future trading strategies as well as executing a protected style of trading based on our research and objective analysis.\u00a0 Our job is to deliver success for our clients and to keep them aware of the market turns and risks as we find and execute successful trades.<\/p>\n

Visit\u00a0www.TheTechnicalTraders.com<\/strong><\/a>\u00a0to learn how we can help you create success, stay ahead of these market moves and deliver greater success for you as these incredible opportunities unfold over the next 6~24+ months.<\/p>\n

\"\"<\/a><\/p>\n

By TheTechnicalTraders.com<\/u><\/a><\/strong><\/p>\n","protected":false},"excerpt":{"rendered":"

By TheTechnicalTraders.com Recently, quite a bit of news has been originating from Malaysia, China and other areas of South East Asia.\u00a0 Much of it is concerns with multi-billion dollar projects and excessive corruption and graft.\u00a0 Malaysia is taking the lead with this issue so far with the new Mahathir administration.\u00a0 Yet, we believe these issues […]<\/p>\n","protected":false},"author":1,"featured_media":0,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[],"tags":[],"class_list":["post-129823","post","type-post","status-publish","format-standard","hentry","no-post-thumbnail"],"_links":{"self":[{"href":"https:\/\/www.investmacro.com\/forex\/wp-json\/wp\/v2\/posts\/129823","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.investmacro.com\/forex\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.investmacro.com\/forex\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.investmacro.com\/forex\/wp-json\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"https:\/\/www.investmacro.com\/forex\/wp-json\/wp\/v2\/comments?post=129823"}],"version-history":[{"count":1,"href":"https:\/\/www.investmacro.com\/forex\/wp-json\/wp\/v2\/posts\/129823\/revisions"}],"predecessor-version":[{"id":129824,"href":"https:\/\/www.investmacro.com\/forex\/wp-json\/wp\/v2\/posts\/129823\/revisions\/129824"}],"wp:attachment":[{"href":"https:\/\/www.investmacro.com\/forex\/wp-json\/wp\/v2\/media?parent=129823"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.investmacro.com\/forex\/wp-json\/wp\/v2\/categories?post=129823"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.investmacro.com\/forex\/wp-json\/wp\/v2\/tags?post=129823"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}