Back in February we asserted our opinion that China was becoming a leading indicator. They were the primary driver of the 2003-2007 bull market and their economy and stock markets clearly led the way into the bear market of 2008. Their markets bottomed in late 2008 while U.S. and European markets lagged. We are now beginning to see the first real signs of deterioration since the Shanghai began its incredible 100% move since the trough.
As we detailed in July, it’s highly unlikely that the Shanghai bubble of 2007 will end any differently than previous bubbles. In fact, it would be an anomaly. The likelihood of a long and drawn out recovery period is extremely high:
As China becomes the engine of global growth and a leading indicator of economic activity you have to wonder if China isn’t forecasting the next leg down in the market. As I type, the Shanghai is shaving another 3% off the index….U.S. indices, however, remain completely oblivious to the move just as they were at the 2007 peak and the 2008 bottom….