Hercules Offshore, Inc. (HERO) – Hercules Offshore, Inc. (HERO) hit $5.79 on Monday. Molcorp (MCP) – Molcorp (MCP) trendy boutique hit $49.95 on Wednesday and then pulled back. Having piled back into equities last week the current mood should be considered as red flags to us and we really ought to run with the pack, chop the longs, swing short and whip up the doom. On the upside, I will be a buyer of AIG when the stock breaks back above $34. On the upside, I continue to watch $16.93 as a major resistance level and think that once $16.93 is closed over, the $20’s will not be far ahead. Not much has been reported about over-use of antibiotics in agriculture- a major source of human antibiotic consumption, and hence increased antibiotic resistance. 2.40 was the low on Friday and is also a major support level. The defining moment was the 2009 lows, which would be a level of technical support for Spain’s IBEX 35 Index. Technical Investors: This type of the investor always prioritizes “Price” without the psychology of the fundamentals themselves. Stresses in the Chinese financial system is likely to show up in the share price of major financials that have exposure to China and Asia, like HSBC.
I am watching the share price of HSBC. HSBC has been in a relative downtrend, but the lows of 2009 have not been violated. While this story may be an indication of a slowing economy in China and slackening commodity demand, it might have stopped there. If you see one cockroach, there are sure to be more. I think the big thing is you could see easily another half a trillion in terms of direct aid to states. Recall that my original premise for buying Spain is to wait for a period of maximum pain and panic (see How much more pain in Spain?). Spain crashes, doesn’t receive assistance, defaults and the euro and then Europe break up. While I expect the news flow from Europe to improve in the days to come, which is bullish, I also expect further stories of deterioration out of China, which has the potential to be extremely bearish.
Instead it’s running out of purchasing power due to inflation or deflation. It turns out that Chinese buyers have been buying commodities and using them as collateral to obtain financing. This type of financing is highly prevalent in the copper market, as Reuters reported that Chinese warehouse were so full that copper inventory was the red metal was being stored in car parks. Reuters recently reported a story that Chinese buyers were defaulting on coal and iron ore shipments. The results of this key question asks American and Chinese business leaders their outlook for China. It’s no different in China. Could this result in a crash landing, i.e. negative GDP growth, in China? Certainly, the unraveling of excessive leverage has seen that kind of result before. How big is the shadow banking system and how much leverage is involved? Putting it all together, we have signs of a weakening economy, a shadow banking system that is teetering and a loss of confidence by China’s business elite. Here is one offbeat way that I am watching for signs of stress in China’s shadow banking system.