Expect China's Weakness to Continue

 | Sep 30, 2011 | 10:44 AM EDT
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I am tired of hearing how healthy China is. Tired of it. China is obviously not that healthy. We have multiple inputs that seem incredibly weak right now, and they can be ignored only at your own peril. Let's tick them down:

First, there seem to be property problems galore. There seems to be a cessation of the gigantic build-out that has used humongous amount of copper. How else do you have copper plummeting seemingly endlessly?

Same with coal. We hear coal pricing is up, but the coal stocks that export are getting killed. That has to mean the future is going to be weaker than the past. I know that Joy Global (JOYG) said demand for coal equipment in China is showing no slowdown. But the coal stocks are terrific lead indicators. I am going with what they are saying to us.

Aluminum? Frightening. I think that Alcoa (AA) is a terrific company. But the stock just can't hold its own levels, and I think that Chinese demand for aluminum -- or lack thereof -- is behind much of the decline.

Steel, forget it. The stocks say that China is dumping like crazy.

And let's not forget Wynn Resorts (WYNN), which is a direct China play. It's signaling a dramatic drop-off in business. The decline in Las Vegas Sands (LVS) tells me that the fault isn't Steve Wynn's. The stocks of Tiffany (TIF) and Coach (COH) say the same.

How can China be "fine" with these symptoms? How?

What's really going on, given that we know China has innate growth to it, if only from the endless rural to urban migration?

I think the issue is foreign demand for Chinese product. With the simultaneous disarray and slowdown in our country and in Europe, it is hard to see where the demand for China's exports is going to grow. At the same time, the energy costs, meaning oil, haven't come down, so it is difficult for the Chinese government to stop tightening. There's still tremendous inflation in China, both wage inflation and energy inflation.

Given the inability of Brent crude, the price China pays, to break down below $100, despite the world's slowdown, I can't be optimistic that inflation can be tamed by China or by anyone right now.

I don't care about all of the other minerals that are going down.

I care about oil.

I think that we have to be very concerned that China will become top of mind as a weak point in the fourth quarter.

That's simply a huge negative, and we can't dance around it. We have to stop treating China as a constant that will help us and start thinking of China as a declining economy that can hurt us. That has to happen now if people are going to be able to invest or trade in this market. Take heed of Chinese weakness. It's not going away. It's accelerating.

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