BarroMetrics Views: China and Its Inflation Rate

As a known technical trader, I am often asked: do I consider fundamentals.

My answer? “Yes” as a context to my trading and within that context I use model based on Austrian economics.  The headlong rush south by the US Bonds indicates that inflation expectation has built into the US economy. This is in line with my scenario that once the FRED graph starts to show that US Banks are again lending, we’ll see strong inflation signs in the US. But that is not the only danger. If inflation expectations build too much, there is a risk that confidence will be lost in the US$ as the world’s reserve currency. If that occurs, the US Government’s capacity to continue printing money at will (quantitative easing) will be severely hampered.

These are the risks in the Northern hemisphere; what about the US counterpart, China. It’s not faring that much better?

Figure 1 and its comments show why I consider the Shanghai Index is weaker than the S&P. Why this is so and the ramifications of my view, I’ll consider tomorrow.

FIGURE 1 S&P cf Shanghai Index

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