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Market Rally Fade: Thoughts on China, Durable Goods

The dog ate my rally. Well what did you expect? A four-day rally? How often have we had that in the last two months? Twice.

A couple points about this morning's fade (The Dow went from up 120 to down 30 in 45 minutes):

1) some trash-talkingon China: yesterday CLSA was out with a very negative report on Chinese banks (titled "Throwing in the Towel"), citing worries on home sales (down 30-70 percent in China in September): "Where property is nearly all underlying collateral for banks, this is of concern."

More interestingly, Credit Suisse is out with a report today on the explosion in informal lending in China. Many small borrowers have been locked out of the "regular" bank loan market due to higher rates and tighter credit. They are turning to the informal lending system, where interest rates can run to 60-70 percent. This has implications for the property market (the collateral).

For an interesting take on this, check out this story from NTD Television being passed around about a spectacle maker in the Chinese city of Wenzhou who apparently went bust due to massive debts. NTD is based out of New York City and covers China.

2) copper and metal stocks remain weak. Copper, which collapsed a little over a week ago, still cannot get off the floor, down 5 percent today. Copper of course a proxy on global growth.

Finally, some have argued that durable goods were a relative bright spot: while not great at down 0.1 percent, August durable goods was not as bad as many feared. That may mean the chances of a recession are lower, since it's hard to have a recession without a big move down (durable goods dropped more than 20 percent during the 2001 and 2008 recessions). It's true, but August was a long way off.

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