Remember that huge influx of brokerage accounts opened in China that we said was the exact same thing we saw in China 2007 and US 1999? Well, they are discovering that it's not quite so easy to become an overnight millionaire.

  • “It’s scary,” Xu Xuehong, a 64-year-old retired worker in Shanghai who had about 300,000 yuan invested in shares, said in an interview at a branch of Shenyin & Wanguo Securities Co. “The decline is too rapid; I am not going to make new investments.”
  • “The rally is over,” Wu Ruiling, a 70-year-old retired teacher in Shanghai, said at the Shenyin & Wanguo branch. “All we heard is funds are exiting the market as the government tightens bank loans. If I sell, I will have big losses.”

Humans are the same worldwide - the market at its base in the short run is about greed and fear. Greed 3 weeks ago; already turning to fear. Which is why when people ask how can the US market ever go down, it just seems to motor ... don't get caught up in recency bias. All the confidant bulls will scatter if we begin to go China-like.

China dumped another 4.3% overnight - almost a carbon copy of Monday, and is now in a full bear market (useless term), defined by a 20% drop from peak. So that makes Russia and China with 20%+ corrections... I doubt B, and I in BRIC will be spared. There is a gap in the mid 2600s (believe it or not) on the Shanghai index... the closing price today was 2785. The other thing we often say is it does not matter until it matters - while we were saying China led us up in February and no one was paying attention to the first 10%+ drop the past 2 weeks... now all the sudden it matters. As we said yesterday we were looking for a cursory bounce off the S&P 980 level (which we got) and then a retest of 980 later this week or next... it is already here. On a clean break below we'll be rotating back more heavily into the dark side.

Deere (DE) had an interesting report today; they smashed earnings estimates but said next quarter would be tougher than this. Remember all these early cycle industrial companies have been flying on green shoots... (almost all massive cost cutting to beat the number) Without end demand ex-China it is hard to buy these stocks at 30, 40, 50x forward estimates in highly cyclical businesses. But that hasn't stopped the bull brigade. Maybe some cold water splashed on them today.

  • Deere & Co., the world's largest maker of farm equipment, said Wednesday its fiscal third-quarter profit dropped 27 percent as the global economic slowdown continued to depress sales of its products. But the results easily beat Wall Street expectations.
  • But the company said it expected to barely break even in current quarter, sending its shares lower in premarket trade.
  • The world's largest maker of tractors and harvesters, which is cutting production in anticipation of lower demand next year, reported a third-quarter profit of $420 million, or 99 cents a share, down from $575.2 million, or $1.32 a share, last year. Sales fell 24 percent to $5.89 billion.

Now Deere was not as pathetic as Caterpillar which used a myriad of accounting maneuvers to create a huge beat but it was not quite so perfect once you look under the hood either... but we appear to be one of the few who bother to read anything other than the headline.

  • Analyst Eli Lustgarten of Longbow Research called the results a clean beat, although 20 cents of the earnings came from non-operating items, including a lower tax rate.