Monday Market Manipulation – Another 500Bn Yuan From China Does the Trick

Another day, another $82Bn – or maybe $164Bn.  

That's what Chinese markets are excited about this morning as "people familiar with the matter" say China’s Ministry of Finance may set additional quota of 500Bn-1Tn Yuan for local governments to swap debt into Municipal Bonds, ie – "Project Rug Sweep."  Keep in mind they JUST announced $82Bn on May 15th, just two weeks ago – AND THAT DIDN'T HELP FOR LONG, DID IT?   

Since you can fool some of the people all of the time, the Shanghai Composite popped 4.7% this morning but the Hang Seng found plenty of sellers into its close and finished the day up just 0.63%,  You can't look to the Nikkei to break the tie as they ended up flat but /NKD Futures are back at our shorting line (20,600) and that makes us happy (see our Live Member Chat for our other Futures plays).  

Quick action was needed in China this morning as the official Chinese PMI report showed slight expansion at 50.2 but the private, HSBC PMI reading showed the 3rd consecutive month of contraction at 49.2 while both the Service Sector and Exports continue to contract at a dangerous pace, so it's lies AND manipulation keeping the Chinese markets alive this morning – not much of an investing premise, is it?  

Of course, $82Bn of additional stimulus is just a drop in the bucket compared to the $550Bn in value lost on the Shanghai Composite last Thursday alone.  Certainly the Government is getting plenty of bang for it's manipulative buck but on May 30th, 2007, the Shanghai also lost 6.5% and, without stimulus, was down 15% by June 4th following a rally that had also been marked by a massive increase in new trading accounts and record margin debt.  

What's different this time is that, back in 2007, the PBOC was tightening to cool off an overheating economy while now the PBOC could not be more accomodating – BUT THAT's WHAT SCARES US!!!  If the PBOC is pulling out all the stops to stimulate the economy but the PMI (and other indicators we discussed last month) ARE STILL FALLING – what's going to

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