Asia Falling

The S&P500 managed to slip again last week, but this time by only 0.3%. Volume was light, which does not support the drop; however volume is always lighter in the week before Labor Day. But the VIX index jumped 15%, which does suggest that something bad could be brewing. Complacency seems to be eroding, and we’ll soon see if it leads to a truly notable spike in volatility and fear.

In US macro news, the housing market seems to be the lone bright spot. After almost seven years of post-bubble collapse, the housing market is finally finding some footing….at least for now. Per the Case-Shiller home price index, prices rose  slightly on a year-over-year basis—without the benefit of a home buyer’s credit gimmick. This is the first time prices have risen like this since the mid-2000’s. But housing aside, all is now well. Initial jobless claims rose, missing expectations. Chicago PMI met lower expectations, as did personal spending and personal income.

Technically, the S&P500 is still in a slight downtrend, using the daily charts. Breadth, as measured by the percent of firms above their 150 day moving average, is not strong, certainly not as strong as it was when the S&P peaked earlier this spring. The sane is true for the percent of firms above their 50 day moving average.

Internationally, things are getting downright ugly. Europe is still a mess, but there—as in the US—equity and corporate credit markets have bounced simply because of expectations of more monetary stimulus from the central banks.

In Asia, on the other hand, the markets have not bounced back very much at all. While India’s stock market has recovered slightly, Japan’s and China’s are near multi-year lows. And their economies are also slipping badly.

Japan is re-entering a recession, for the umpteenth time since the lost decades era began in 1990. And China is suffering from a hard landing, without the benefit of a huge fiscal and credit stimulus that helped rescue its economy back in 2009.

Chinese exports, new orders, PMI’s and production are rapidly falling to levels not seen since 2009. But since China has created a credit and real estate bubble, along with painful inflation in food stuffs, it cannot pull out the stimulus bazooka that it did in 2009. If it did, the credit bubble would get even larger and more dangerous; ditto for the real estate bubble. And food inflation would sky-rocket…possibly leading to social and political unrest.

So as the rest of the world is playing a waiting game….waiting for the central banks to restart their printing presses and “save” their economies, Asia rapidly falling into a nasty recession, taking its equity markets down with it.

It’ll be interesting to see if this time, Western money printing can come to the rescue of Asia, the way Asian stimulus did back in 2009.

It’s not very likely, but we’ll just have to wait and see.

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