China's gift to the West - a double dip recession

In a period of week and half China tightening it's one month bills at 1.84 % and the shortly followed by a tightening of the 3month bills at 1.36%, all combined with a pressure for banks to increase their capital requirements. Automatically Asian stocks dropped on the 14th Jan 2010 (MSCI Asia−Pacific index) 1.5 percent to 124.64 on expectation that China is going to try and tighten liquidity and slow inflows of capital into China. Of course the most blatant concern is inflation. The paranoia of deflation is easily trumped by inflation especially when the Chinese have to pay more for pork (meats), wheat products and milk. A potential for civil unrest will occur more dramatically if inflation in China goes unabated. That's the fear.

With the US going into a very anemic recovery a double dip recession is likely with President Barack Obama trying to please the electorate by putting the brakes on banks receiving a free ride via the American Taxpayer. US banks of course are still problematic with off the balance sheet losses from residential and commercial, so a possibility within the next six months of a credit market freezing over again is a real possibility; only to have the banking sector plead (after mid term elections Nov 2010 - US) for the liquidity pumps to be turned back on. But with banks slow on issuing credit to the consumer and continued mortgage losses, US economy growth will be benign for a long time to come. Meanwhile as discussed (China tightening credit re: inflation) China's overcapacity may insulate China putting on the brakes for their economy. This in turn will send Europe and the commodity producing countries back into recession.

A double dip recession and a stock market correction may be on the cards in the first half of (6th mths) 2010

refer to Dow, note the increasingly tight trading range. With light volumes and a narrowing bid/ask spread range - a breakout on the downside is imminent. Watch supports for any capitulating selling.