They’re trying to put in a bottom—–again! The sell-off earlier this week amounted to the sixth sizeable “dip†since November 20—-so the market’s ingrained reflex was back at work buying up the “bargainsâ€.
But the roundtrip to the flat-line shown below is not a classic wall of worry and its not a “bottom†that’s being put in. This market is dumber than a mule, and the nation’s central bank and their counterparts around the world have made it so.
^SPX data by YCharts
The plain truth is that six years of torrential money printing and worldwide ZIRP have not happened with impunity. On the one hand, massive, sustained and universal financial repression caused an artificial growth and investment boom in much of the world, especially China and the EM, which has now run out of steam and is visibly and rapidly cooling.
There is probably no better proxy for the global investment boom than the spot price of iron ore because it captures China’s massive infrastructure construction spree and the waves of waves of mining, shipbuilding, steel-making and construction materials spending that set off all over the world. But this huge tidal wave has now crested, leaving behind the worst of both worlds.
For the first time since around 1980, China’s steel consumption is projected to fall in 2015——with demand slumping from 830 million tons toward 800 million tons, and that is just the beginning as its credit-fueled construction frenzy finally comes to a halt. In fact, during the boom that took iron ore prices from a historic level of around $20 per ton to a peak of nearly $200 in 2011 China’s iron and steel capacity grew like topsy from about 200 million tons at the turn of the century to upwards of 1.1 billion tons at present.
Yet this year’s decline of demand to around 800 tons does not begin to reflect the coming adjustment. That’s because there is still a residual component of one-time demand in that number that is in no way sustainable. Even if the pace is slackening, they are still building high-rise apartments which will remain empty and airports, roads, rails and bridges that are hideously redundant. Eventually that will end because even the red capitalist rulers in Beijing are terrified of China’s towering mountain of debt——$28 trillion and still rising by hundreds of billions every month.
