Interesting Economic Order Of Market Fall

I find this chart fascinating. It is based on something heard on Fox Business I think. One of the folks being interviewed said that there was a particular order in which markets tended to roll over. I’ve expanded the idea little bit. IIRC, he listed copper, emerging markets, Germany, and then the USA last. (The claim being it typically did this).

Here’s a 5 year weekly tick mark chart of some selected things. JJN is Nickle, JJC is copper, USO is oil.

Metals, China, Europe, Oil and SPY order of rollover this market top.

Metals, China, Europe, Oil and SPY order of rollover this market top.

The main ticker is FXI – the large cap widely traded China stocks. Also on this chart is the much harder to trade Shanghai Index stocks. These are compared to three basic inputs, oil, nickle and copper. Also we have EWG Germany and SPY the main 500 USA stocks, along with the EEM Emerging Market fund.

First, lets get the odd China behaviour out of the way. China was in a nice steady slide down until middle of 2014. Then Shanghai, the green line, pops up dramatically. A smaller jump is seen in the big 25 in the FXI fund. That, then, rolls over into our present market slide. As I recall it, China loosened the limits on who could trade / buy the lower tier China stocks then. The chart looks like a flood of new money causing a rapid parabolic bubble. This link seems to confirm what I remembered:

Hong Kong and Shanghai stock exchanges open trading link
Stock Connect platform gives individual investors outside mainland China access to its stock market for first time

Stock exchanges in Hong Kong and Shanghai kicked off trading on a cross-border stock trading link that will allow foreigner investors wider access to mainland China’s tightly restricted equity market.

Officials in Hong Kong banged a gong on Monday morning to mark the start of trading under the Shanghai-Hong Kong Stock Connect platform, which will let investors buy and sell shares through each other’s exchanges.

C K Chow, the chairman of Hong Kong’s stock exchange operator, told guests at an opening ceremony: “Today we are going to witness history.”

The stock connect will give individual investors outside mainland China access to the stock market in the world’s number two economy for the first time.

So that explains some of that astounding bubble and pop. Now a bit more on the pop part…

First off, look back at the start about February 2011. Copper was rising (that reddish plum JJC line) while just above it, the golden JJN Nickle line has popped up. Nickle is needed for all sorts of specialty steels including some stainless steels. Copper is needed for everything from electrical wiring to electronics to electric motors. It is just after that point that both metals roll down. Nickle a little earlier. ( I think I remember noticing before that Nickle moved first and farther). But by February 2012, JJN has started to break out to the bottom of the stack. Copper holds up a little better, but by Nov 2014 is 2nd from the bottom, dropping fast, and would stay 2nd were it not for oil (the black line USO) also breaking down then, but much harder. Clearly commodities were starting to talk a couple of years back saying demand for some raw materials was getting light. But really bit it about Summer of last year, 2014.

Now back at China. As a major consumer of materials these days, they showed the roll down next. In 2012 both China markets are just dribbling down with the metals. Only that burst up at the end on an influx of new foreign money lifts things.

This is probably a good time to remind that all these are priced in $US, so some of this ought to be $US strength. I’m not worried about detangling this confounder for the simple reason that it helps the indicators work better. The added demand for, or lack of demand for, $US in commodities trading can help amplify the shifts of demand. For China, they have mostly been in a peg to the $US, with minor adjustments.

So back at the chart…

EEM the egg yolk yellow line, does a long slow wobble down from the start. A big part is China, but Brazil and others are in there too. Brazil being a large minerals and metals producer. EEM tends to amplify what is happening in the major demand economies of USA and Germany along with production demand shifts for commodities. Oil wobbles slightly downward with it until the complete collapse in about October of 2014. It is still dropping now and is under $40 / bbl on and off. Another sign of not much demand.

EWG Germany, the bright orange line, shows a bobble like all the others about October 2011 (we had a market drop then) but generally is floating along on top of the other lines rising in parallel with the SPY from about mid 2012 to summer of 2014, when it hits the skids. Again, I’d have chalked it up to Greece and all but for the Talking Head on the TV saying it happened in that order before. Not on this chart: the EZU Europe Monetary Union basket also follows a similar path, but likely due to being heavy on Germany. EWU the UK and EWQ France follow similar movement and timing, but at a lower level on the graph, topping about the +40% line just at the Germany inflection downward. Since those were all so similar, I’ve left them off the graph.

Finally there is the SPY USA top 500 companies, showing an almost identically shaped ‘go flat’ into a down spike as Germany, only a year later. Hmmmm….

Makes a fella wonder

It all makes me wonder. Does it really take 4 years for a slowdown of demand to reflect first in the raw metals, then into the maker economy of China, finally 3 years after that, into Germany and the EU, and another full year to reach the USA? It sure looks like it.

It does take time to work down a raw material stockpile, and China is not as much of a “just in time” buyer of metals and materials. Then shipping to ROW and inventory can build and take time to draw down. Even longer for the economic damage of mercantilism to reflect into the EU and USA structural economics. A couple of years for economies to slow, unemployment to build, demand to slacken?

Now What?

Now we have that odd China Bubble. Rocket ride up to parabolic, then the inevitable return to trend…

FXI looks to be very close to back on trend (slightly down) while Shanghai still has quite a ways to go. That implies a bloodbath in the domestic China stock markets. And ripples from that. No wonder the Chinese Government are throwing pension money at that bubble…

But the continued dive of metals, oil, and EEM all argue for ongoing contraction globally and a disinflationary (or even deflationary) global economy. Normally Central Banks would ease Monetary Policy and cut interest rates to help keep things just a touch on the side of inflation. Maybe even reduce bank reserves requirements (so more bank money creation could happen). But at this point, from Japan to the EU to The Fed rates are already near zero. Not a lot of room to cut.

Shows Sweden and Switzerland with negative rates, so I guess one can cut to below zero… and pay people to take money. Only 2 central banks are shown with the direction of interest rates being rising: South Africa and Brazil.

So if things go deflationary, it will be very hard to manage from this base. Also, Euribor rates for less than 6 months are all negative:

Euribor maturity / rate	               08-21-2015	08-20-2015	08-19-2015	08-18-2015	08-17-2015
 Euribor interest rate - 1 week	        -0.142 %	-0.143 %	-0.143 %	-0.143 %	-0.142 %
 Euribor interest rate - 2 weeks	-0.130 %	-0.131 %	-0.132 %	-0.131 %	-0.130 %
 Euribor interest rate - 3 weeks	-	-	-	-	-
 Euribor interest rate - 1 month	-0.092 %	-0.091 %	-0.089 %	-0.089 %	-0.088 %
 Euribor interest rate - 2 months	-0.054 %	-0.054 %	-0.054 %	-0.053 %	-0.052 %
 Euribor interest rate - 3 months	-0.031 %	-0.030 %	-0.029 %	-0.028 %	-0.027 %
 Euribor interest rate - 4 months	-	-	-	-	-
 Euribor interest rate - 5 months	-	-	-	-	-
 Euribor interest rate - 6 months	0.042 %	0.042 %	0.042 %	0.043 %	0.044 %

Libor too. (Must be nice to be in a business where people pay you to take their money…)

 EUR	                08-21-2015	08-20-2015	08-19-2015	08-18-2015	08-17-2015
 Euro LIBOR - overnight	-0.18000 %	-0.18000 %	-0.18000 %	-0.18000 %	-0.18000 %
 Euro LIBOR - 1 week	-0.16143 %	-0.16571 %	-0.16714 %	-0.16714 %	-0.16571 %
 Euro LIBOR - 2 weeks	-	-	-	-	-
 Euro LIBOR - 1 month	-0.10500 %	-0.10429 %	-0.10429 %	-0.10429 %	-0.10000 %
 Euro LIBOR - 2 months	-0.05929 %	-0.06143 %	-0.06143 %	-0.06143 %	-0.06000 %
 Euro LIBOR - 3 months	-0.03000 %	-0.02643 %	-0.02643 %	-0.02643 %	-0.02571 %
 Euro LIBOR - 4 months	-	-	-	-	-
 Euro LIBOR - 5 months	-	-	-	-	-
 Euro LIBOR - 6 months	0.05200 %	0.05200 %	0.05271 %	0.05271 %	0.05271 %

So what does all this imply to me? That things have been rolling over, if a bit slowly, for about 4 years. That it is due to a fall off in consumption. (And given what I know of humanity, given any income at all, most folks spend all of it, so I suspect this strongly implies that not enough people have jobs and can buy things). Given the youth unemployment rates in Europe, the complete lack of functioning economies all over the “Muslim World” ( Libya, Egypt, Lebanon, Iran, Iraq, Syria, …) and the very high youth and minority unemployment in the USA, that all fits.

Basically, it is hard to sell a whole lot of low priced bicycles, dishes, shoes, and TV sets to the very top tier who benefited from all the cash being slushed into paper assets via Central Bank Easing. There’s only so many yachts a fellow can own. Meanwhile those of use being displaced by a flood of H1b Visa folks, factories moved to China and Mexico, and working only 1/2 time due to Obummercare are not able to buy all the stuff we would love to buy, if we only had a job. Ditto the “Nini” folks in Spain and across Greece and…

From about that 2011 onset:

Doug Saunders
Nini and the European Dream

Barcelona— From Saturday’s Globe and Mail
Published Saturday, Jul. 17, 2010 5:00AM EDT
Last updated Saturday, Jul. 17, 2010 10:28AM EDT

Estudias o trabajas?” When young Spaniards gather around the bars and patios, that’s their traditional icebreaker line: “You study or work?” In the past year, it’s become almost mandatory to answer, with a self-effacing smirk: “Nini.”

It is half a joke, for nini is a way of saying “neither-nor,” and NINI is the Spanish government acronym for “Not in education or employment” – that is, lost to the economy.

But it’s not really a joke, because now almost everyone is NINI. The under-30 unemployment rate in Spain has just hit 44 per cent, twice the adult rate. Italy also has passed the 40 per cent mark, and Greece has gone even further. If you count all the people who’ve given up looking, it means the number of people between 20 and 30 who have any form of employment in these countries is something like one in five.

An entire European generation is leaving school to discover they have no place in the economy.

Oddly, I find myself realizing that I, too, am a “NINI”. Neither in education nor employment. Who knew? I have a label! AND it’s a bit of a “hip” one ;-)

Guess, given my new ‘trendy’ status, I need to move to more “trendy” links… like maybe even someone who “tweets” and has a cool name like “Claire” or “French” and can even name drop about cultural amabassadors…

The Spanish cultural ambassador asked for my take on the nini generation a few months ago. Nini is used to refer to a young person neither in education nor employment. A generation thought to being doing nothing, nada, nini. Or NEETS (not in education, employment or training, to be precise), as the less loving Labour government called them.

NEETS was the naughties category used to define those not in work or education by national and local government,. Their chronic media depiction represents the same as the hoodies that Dave envisaged that giving a hug would help. But this pool of people is backing up. They are the ones who are fresh out of school, they are also the recently out of university or just out of a job.

Spain’s youth unemployment sails high at around 40 per cent – the highest in Europe. But this isn’t just ‘our’ problem. The nini generation is everywhere. Tunisia’s ‘jasmine revolution’ is said to have sparked off after a young unemployed man, Mohamed Bouazizi, set fire to himself. Tunisia’s unemployment figure too is concentrated to the under-24s, of which around 30 per cent don’t work.

Egypt, where 50,000 people have joined the Facebook page for a protest organised for Wednesday has seen a number of people set fire to themselves in recent weeks. As reported in the Observer today, a UN report described Egypt’s young people as being in “waithood” – forced to wait for their lives to begin.

Oooohhh…. I can even be a “Neet Nini!” I think I’m beginning to like the sound of this… Not liking the idea of everyone from North America through Europe and into Africa and the Middle East having economic collapse and social breakdown, but hey, what can I do about it? may as well go party… ( I think I’m getting the hang of this…)

Can it really be that it has taken 4 years of steady erosion to oh so slowly reach the USA? Have we reached the point where China has so many of the jobs that there Rest Of World is becoming a “Nini World” and just not buying enough?

I have often said geology, climate and economics all moved slowly, but that slow? Hmmmmm…. Maybe.

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About E.M.Smith

A technical managerial sort interested in things from Stonehenge to computer science. My present "hot buttons' are the mythology of Climate Change and ancient metrology; but things change...
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13 Responses to Interesting Economic Order Of Market Fall

  1. Jack says:

    So how does it turn around?

  2. philjourdan says:

    @Jack – it has to find bottom first. Then start building again. It always does, it always will.

  3. M Simon says:


    Nothing is going to turn it around until we figure out who the real controllers are. It is part of the plan to decimate the world population. If you can keep a woman from producing babies until she is 40 odds are she will never make any. And women like resources before they start a family. Keep the boys out of jobs and there will be no families.

    You might like this video (about 30 minutes) which basically says the wold economy is being run by psychopaths.

  4. Wyguy says:

    E.M. Please no setting self on fire. Stay a cool NEET NINI.

  5. Larry Ledwick says:

    Another leading indicator (as I recall it is leading) is shipping. I remember in the past reading an article where the commentator mentioned that he liked to keep an eye on total shipping contracts.
    I do not recall if he was talking rail trucking or shipping, perhaps all three.

    Bottom line is you cannot dump inventory in warehouses without shipping stuff. You cannot start to gin up production for new surge of production and sales without shipping stuff. People cannot empty their wallets and buy stuff without shipping stuff. His comments led me to see shipping as perhaps a more sensitive indicator and even more accurate indicator than GDP etc.

    For example fuel prices skyrocket, result shippers start consolidating shipments, tonnage shipped stays about the same but idle trucks, rail cars and ships goes up as they try to use a few of them more intensively with less waste. If consumer consumption contracts, tonnage drops as stores are ordering less, or burning on site inventory to empty warehouses rather than ordering more.

    In theory an economy built around “on demand delivery” should be even more sensitive to changes in shipping (or perhaps I have that backwards and shipping will be a more immediate indicator of true demand).

    Are there any plots you can find (indexes) that capture shipping info? It would be really interesting to see how shipping changes meshed with down turns in key commodities?

  6. omanuel says:

    @E. M. Smith. I hope you understand economics. I certainly do not.

    I agree with M. Simon’s concerns that modern economics may be fake.

  7. Paul, Somerset says:

    @Larry: The Baltic Dry Index is your friend:
    This is an index of the cost of moving dry goods by sea. There is traditionally a rise in the index in August as China exports tat and crap for Christmas. Not looking too healthy so far.

  8. E.M.Smith says:


    Yes, as far back as Dow Theory the Transports figured into it. Even before that, folks used to watch Tall Ship arrivals in ports…

    Baltic Dry is the usual index (there was a link on that a posting or two back in comments). I’ll see if I can work up a fair chart / index set from {somewhere}…


    I think you can easily understand economics as soon as you allow yourself to. See the prior posting for a starting point.

    The only reason not to audit the Fed is:

    1) If done by the Government, it weakens the “independence” of the Fed. (IMHO that might not be all so bad since who controls the Fed is not exactly as transparent as I’d like).

    2) It just might scare the begeezus out of everybody.

    @M. Simon:

    Not watched the video yet. But…

    Sociopaths and Psychopaths are known to be over-represented in ranks of power. Doesn’t matter if it is Government or Corporations or NGOs or whatever. Need that lack of empathy to crush others and manipulate your way to the top. (Why I’m unlikely to ever be there…) Not a big surprise and been that way since about 5000 B.C. See the history of Kings and Empires …

    Much of modern social structure and law is in a (failed IMHO) attempt to limit their damage. See W.W.I and about 50,000 dead in a day or two as an example of the failure. Who could order that, then turn around and do it again the next day? Certainly no sane person.

    This is what I call the “Evil Bastard Problem” – and I’ve had a posting ‘in the works’ on it for a while, but no round tuit yet.. ;-)


    No worries. I’m not prone to hurting myself deliberately. Though I do like a bit of time in the hammock in the garden with “bottle and bunny” ;-) I feed her bean leaves while I sip the vino… and both of us just enjoy the warmth and sun. Don’t really need more than that to be happy ;-)

    And due to that understanding, no need for flames – applied to self or others…

    So I’ll bitch about the State Of The World… but then it’s off to the garden for some R&R (or is that H & B … Hammock and Bottle or Bunny ;-)


    Short form: What Philjourdan said.

    Markets turn around after a bottoming process. Often it requires a long long time. Economies turn around after an even longer bottoming process (that can take generations… see the “Great Depression”) so each time is a bit different.

    In the present case, the major “issue” is the demographic overhang. All over the world in the developed world (and China) there is a big bubble of aging folks who are expecting care and feeding from an ever smaller cadre of young ones. In China, it is horribly so due to the 1 child policy (now being oh so slowly loosened just a little) We ( I’m a boomer too, if on the cusp of the trailing edge…) are moving from working to being carried. That’s the fundamental issue with Social Security and all those loverly Government Pensions. Not enough new workers to pay the old dead weight and keep the game going.

    That is what has Greece in a bad spot (now made worse by driving the young out of Greece and into business in Bulgaria…) and Spain (where idiot Fiscal Policy buying solar has left them with all their young unemployed, so being carried too). And that is why the US Government (especially Democrats who don’t want to admit the system of Social Security is unsustainable and broken) has a “Come On IN!!!” sign hung out for anyone from Mexico and points south (in addition to expecting nice Big Government voters…).

    When does it end? How does it end? When those processes and pressures are reversed, and / or the system breaks down and restarts. Until then we are just waltzing in circles with drift toward the cliff on each cycle…

    Do I expect that Cliff Moment this year? Nope. Demographics is much much slower than that. This is just a cycle on the way. About 2030 is the cliff (plus or minus a decade or so depending on Policy changes).

    How does this cycle end? Well, that’s the $20 Trillion Dollar question, now isn’t it? It will depend a lot on who gets elected where.

    Will Greece agree to the belt tighten? If so, will they ALSO take the steps needed to have competitive market rates for labor and lower taxes? If not, they tank and we take the riot and revolution path. (See the movie “Z”…) Will Greece change who is in charge (having now bagged the ‘bail out’ cash) and just say F-U to the EU / ECB / IMF and print Drachma and have a party? That will work, but as something of a social pariah in the EU (though I might actually get that Greek Vacation then…

    Will Spain do something similar, one way or the other?

    Will the UK pull out of the EU in time to avoid being sucked down that Central Authority sewer as it oh so slowly implodes and dissolves into the new Caliphate? (See southern France as the new North Africa…) Or will it ‘tough it out’ until Hindi is one of the national languages as dictated by the EU Parliament? Decisions decisions….

    In the much shorter term, China has announced a rate cut from their Central Bank. “This Time For Sure!!!” – like it has worked so well for Japan in the last, what is it, 30 years now? Or the EU, or the USA, or… But that will blow more hot air yuan into their stock market for a while. (The goal being to hold it steady at above trend until that trend line can grow into the valuation of that height… now figure it’s about 50% over trend for the Shanghai, and compound 3% to 6% growth (not the 12% that is now done and gone – they are no longer Mao’s China basket case) and figure how long THAT will take.

    For The West: We continue to be the blood supply for the various parasites until either drained dry or we decide to do something to stop the mercantilist blood sucking. Since we’re well on our way to ‘sucked dry’ that’s the most likely path. Then again, Trump is capturing the mood, so maybe a critical mass of folks are aware of that dizzy blackness overtaking them as the blood drains…

    Then there are the Muslims. Cranky and not very productive in their own Muslim World; they think they can make a better life in ours (which they can as long as they don’t break it). Unfortunately, they are of the “more is always better” babies demographic and eventually swamp any population where they move in (this is by design and promoted by the Koran.) At that point, “their rules” i.e. Sharia, are installed and a new hell hole is born. So until the Western World realizes that and basically says “stay in your ‘Muslim World’ until you find a way to fix your culture” we are all on our way to being transformed like the pearl of the Levant that was Christian Lebanon into the hell hole of riots that is is today. (See southern France and car burnings at various times over the last decade or two in various riots…)

    Basically, it will all hinge on that bastion of comfort, politics…. (Yes, OMG! Panic NOW!).

    Unfortunately, their track record is one of “war as the solution”.

    So my “most likely” scenario has nuclear war in the Levant in about 1/2 decade (nobody REALLY thinks that Iran deal is slowing them down, do they?…) and at least one nuke lobbed over the USA as an EMP in the mistaken belief that will take us out in one blast (it won’t… just mess up a lot of stuff for a little while – especially in areas not used to dealing with lightning strikes…) N. Korea will then join in with a run at S. Korea after incinerating the capital with a nuke. At that time China (without whom N. Korea would not be possible) will “bring peace to the region” on their terms and with dominance of the S. China Sea. It is unclear if that brings a Japan / China war, as Japan has no nukes but China does – it will depend on how a USA that has lost much of the electronics connected to the grid and internet feels about doing a nuclear showdown in the dark…

    But that depends on our “leaders” being a bit stupid. (Unfortunately, they have been more than a bit stupid…)

    Oh, and for Europe and the EU: Expect a return of the Soviet Block by other names. As the EU ossifies and as the invasion (you don’t really think they are ‘migrants’ do you?) rots the core, it is easy pickings for Putin and his followers. There is some hope that the UK can realign with Canada and Australia / New Zealand and avoid the suckage that is the destiny of the EU. But that depends on how stupid Parliament can be and how “Euro Centric” the daft royals are.

    Even shorter time horizon than that? Like maybe next year or two?

    Hinges on the US Election. We can ‘pull our head out’ of our Socialist Wanna-be asses and get back to being a work hard earn lots nation, toss out the illegal occupying forces and clean up our house. Then do a bit of prep for the coming Eurasia collapse and have a laser ready to cook that incoming Iranian nuke on assent. No worries. Or we can embrace our collective Greed and Envy and join the EU on the path to implosion.

    (Note to anyone wanting to make something racist or anti-hispanic out of the ‘occupying forces’ line: My grandson – a work in progress – is hispanic, as are my grand nieces and nephews. Until going off to college, I spent about 1/2 my time in the home of my Mexican best friend and spoke lots of Spanish. I’ve often thought of moving to South America as I love the food and culture. This is about legal vs illegal, not about any given ethnicity. Think there are no asian or islamist folks crossing that southern border? )

    So a LOT depends on the next election. Not much can be said before then about after then.

    For the EU, it depends heavily on what the UK does, and what Greece does, and then what the other PIIGS do in reaction. Until and unless the EU Government as Head Central Authority Crushing Nations is changed, the place is a Holy Roman Empire redux and headed the same way. Note that it DID last some 800 ish years, but with a heck of a lot of “wars of succession” along the way and ending in the Napoleonic Wars… But until then, it can be reasonably stable as it slowly bleeds out of cash and ambition.

    Yes, a choice between a slow decay of ennui vs anger and violence. Hasn’t Europe mostly been that way for the last few thousand years?… All while China grows.

    And China will grow. It is dealing with a wrenching shift from 12% compounded to 6% (and might even slow down to 3% in a global recession) but grow it will. As long as China and Russia get along, the center of global power and economics continues to shift to those two. As soon as they have a falling out, it stops. So China will come out of this downturn reasonably ok, if chastened. And global growth (that is really almost entirely China growth) will continue again.

    US and EU markets will likely take a down leg “bear market” for a year or so, then start the climb up again. Basically the typical market cycles. Nothing really different, for the next decade or maybe even two. It happens inside the envelope of the demographic bombs in each and inside the envelope of Political Stupidity globally. So our ‘markets’ recover as they always have recovered. They cycle up and down in a Market Maker driven cycle of boom and bust (with the help of the Central Banks) and on a long term trajectory of about 3% driven by technological change. Everything else comes from outside as political Aw Shit happens or as demographics swamp economies and cultures on a 30 to 60 year span.

    I know, TMI – Too Much Information… but I like to be complete ;-)

  9. M Simon says:

    I agree with Paul, Somerset 25 August 2015 at 7:04 pm

    BDI is your friend. It is a long (maybe 100+ years) series.

  10. M Simon says:

    Muslim demographics are crashing too. Iran is well below replacement.

  11. M Simon says:

    Japan has no nukes? I don’t believe it. At one time we shipped them enough highly enriched Uranium for them to make hundreds if not thousands. My guess is that they are 1/2 hour from having them. i.e. No nukes is a polite fiction.

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