Dr. Copper's Chinese Friends...

Chinese industrial production numbers for May came in at a respectable +16%, but that is still down -210 basis points from last year's growth rate. Dampening Asian Industrial Production growth rates have explained most of copper's weakness in Q2.

However, as the facts change we do, and copper prices have done just that in the last week. We continue to hear that demand for building materials in Sichuan is starting to kick in, and that the process of rebuilding is only just beginning. This renewed Chinese demand story has provided a bullish narrative for copper prices.
  • Supply: More compelling supply data points come from the mining sector where there are some growing concerns that many of the major new copper projects that are supposed to come online internationally may not become operational on time.
  • Why? Credit constraints, rising transportation costs and, particularly in the case of Latin America, a deteriorating political situation.

Charting Brazil: Breaking Down?

Since I wrote my "Fading Fast Money" morning call on 5/21, Brazil's stock market is down -12.1%. Call us lucky or call us right, we're cool with both.

The chart of the Brazilian Bovespa Stock Index is as interesting as any Global Macro one that I am currently looking at. Within my macro model, its critical to differentiate between a "Trade" (short term) and "Trend" (intermediate term). From this perspective, Brazil is actually broken on a short term "Trade" basis, for the 1st time in Q2. Brazil's central bank continues to raise rates aggressively, and economic historians will recall that Brazil has indeed had economic cycles in the past!

The Bovespa got crunched on Friday, closing down -3% at 64,613, underperforming the US stock market, which has rarely happened in 2008. This was an important macro callout and negative divergence.

"Trend" line support for the Bovespa is 61,300. Clearly, for the "own everything agriculture community" this levee line needs to hold. On the upside, a recovery rally closing above 66,082 would definitely be incrementally bullish.

As always, I remain data dependent.
(chart courtesy of


May unemployment numbers were released recently and they weren't promising. The seasonally adjusted unemployment rate jumped to 6.2% from 5.7% in April. This is the biggest monthly jump we've seen in at least 30 years and the highest rate since 1994. Clearly, growing unemployment and the lousy housing environment are not good for the Las Vegas locals gaming market. Considering the precipitous drop in Boyd Gaming's stock price, Wall Street expectations for the locals business are already dismal. The high unemployment rate is also indicative of Strip layoffs due to weakening business levels and more importantly for stock prices, management expectations of a further slowdown. We can all tout the historical resiliency of Las Vegas but I'll be watching layoffs as one metric to help gauge the true tone of executives' outlook.

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Charting India: Finally Oversold!

On Friday, we finally got the weekly inflation report out of India that really woke people up to the reality of Asian Stagflation. Now that the BSE Sensex Stock Exchange is down -19% since we got aggressively short it at the beginning of May, it's time to lock in some gains here.

With India trading off another -1.9% overnight, taking the Sensex down to 11,162, I am going to be covering the India Fund (IFN) short position in my fund at some point in the next few days. I'll be re-shorting it on an up day.

(chart courtesy of

Charting China: Next Support, -7% Lower...

Chinese investors continue to run for the exits. The Shanghai Stock Exchange closed down another -2.5% overnight at 2895, and I do not see support for this chart until the 2701 line.

At 2701, the Chinese crash will be -62% from the "it's global this time" October 2007 peak.

The Olympics are in August, and I don't see the payoff of getting long this river card of geo-political risk factors until at least late July.

(chart courtesy of

Great Expectations...

Not surprisingly, Fed Funds Futures have moved back to reality, pricing in a 90% chance that Bernanke will NOT raise interest rates this week.

I have focused on this current mania of Fed Centricity as one of the major risk factors to the US stock market. We have the likes of Larry Kudlow and Vince Farrell on CNBC parroting whatever it takes to push the Federal Reserve to do something that helps prop up the US stock market. Three months ago it was give us shock and awe, cut, cut, cut . Today, it's the reverse, hike, hike, hike. Its manic, short term, and unsustainable behavior.

Government intervention is not the answer to our problems. This is America - the great bastion of capitalism, not a Keynesian social net.

De-leveraging and saving continues to be my investment strategy of choice, until all of this nonsense clears itself from our screens. The new range I am using for the S&P 500 is 1311-1340.

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