China M2 Supply

The M2 money supply in China from 2003 to now.  

As of February 2014, 113,180 Billion CNY = 18,250 Billion USD.

U.S. M2 money supply from 2003 to now.  

As of January 2014, 11,010 Billion USD.  

So you have a US economy, measured at 15,680 Billion USD GDP for 2012, compared to China's economy with 8,230 Billion USD GDP for 2012.  Yet, there is almost twice as much CNY M2 supply as there is USD M2 supply in the world.  And the dollar is the reserve currency!  And US is almost twice as big GDP-wise!

Chinese yuan is massively overvalued at the moment.  There is just too much yuan in circulation.  It is no coincidence that the yuan spiked lower in value, it was a fundamental move.  Before the drop, the CNY trading in Hong Kong was trading much lower in value than the CNY trading in the mainland.  

If the Chinese government wants to bail out the mountains of bad debt, and also lower interest rates, it will lead to a dramatically weaker yuan going forward.  If they let the credit bubble pop on its own, while reducing credit, the property and stock market will get pounded.  In either case, in dollar terms, Chinese assets will go down in value.  

We are at a neutral phase of the SPX market.  There are some bullish aspects and bearish ones at the moment.  The bullish factors are 1. continued ravenous buying on dips and quick rebounds, 2. No real exuberance despite being near the all-time highs, 3. Interest rates being contained at manageable levels.

The bearish factors: 1. China contagion risk, 2.  Overextended charts on various timeframes.  3. Lack of earnings growth and fundamental overvaluation.  4. Growing IPO supply and subsequent lockup expirations. 5. Slowing economy despite record-high stock prices.

I am in the bear camp, by being short China and emerging markets.  I plan on holding this position for the next few days.  Although I am not very bearish on SPX, I am very bearish on emerging markets, and in particular, China and Brazil.