THere are a few places you should watch when waiting for bubbles to burst. (Disclosure: I own some shares, have a pension fund that is aggressively managed, and have some cash. I’m not an advisor. Go find your own).

One is copper and the other is China.

China is not looking great.

Hong Kong’s Hang Seng China Enterprises Index slumped 3.3 percent at 1:13 p.m., heading for the lowest close since Oct. 6, 2011. Trading of shares and index futures in the mainland was halted by automatic circuit breakers from about 9:59 a.m. after the CSI 300 Index slid more than 7 percent. The People’s Bank of China cut its reference rate on Thursday for an eighth straight day, fueling concern that tepid economic growth is prompting authorities to guide the currency lower.
“The yuan’s depreciation has exceeded investors’ expectations,” said Wang Zheng, Shanghai-based chief investment officer at Jingxi Investment Management Co. “Investors are getting spooked by the declines, which will spur capital outflows.”
The yuan weakened 0.6 percent to 6.5928 per dollar at 12:20 p.m. in Shanghai. The currency rallied from early declines in offshore trading, strengthening 0.4 percent in Hong Kong amid speculation the central bank propped up the exchange rate after setting a weaker fixing that sent the currency tumbling.
Widening Discount
Mainland-listed companies are now about 38 percent more expensive than their Hong Kong-traded peers. A gauge measuring the price gap between the two markets widened 2.5 percent, the most since Oct. 7.
“The gap will probably widen, with a higher discount for H shares, because you have to take into account the currency depreciation,” said Paul Chan, the Hong Kong-based chief investment officer for Asia excluding Japan at Invesco Ltd., which oversees $791 billion globally. “Earnings-per-share in Hong Kong dollar terms are lower, and I pay Hong Kong dollars for those shares.”

It is not just the Chinese: their stock market is rorted and the information is managed, but economically we are not in great shape. Copper was doing just as badly a year ago… and it has continued to drop.

Copper tumbled the most in almost six years, leading a collapse in commodity prices that’s keeping a lid on global inflation.
Lower energy costs and demand weakness amid worse-than-expected economic data in China are driving prices down, according to Goldman Sachs Group Inc. Consumption in the world’s biggest user will grow at the slowest pace since at least 2009, Deutsche Bank AG estimates.
Commodities have sunk to the lowest level in more than 12 years, led by a rout in energy prices, after a decade-long bull market spurred producers to boost output and a stronger dollar diminished the allure to investors. Oil’s 50 percent decline in the last year is cutting costs for mining companies and bolstering speculation the glut will expand. Copper is the worst performing non-energy raw material this year on the Bloomberg Commodity Index, which fell to the lowest since August 2002.
“People have seen oil prices decline so much and now they’re targeting other commodities,” Ivan Szpakowski, an analyst at Citigroup Inc. in Hong Kong, said in an interview with Bloomberg TV today. Copper is falling faster than most other commodities because “it’s the one that is played by the macro investors and by people who are looking at the broader picture rather than commodity fundamentals.”
Copper for delivery in three months dropped 5.3 percent to settle at $5,548 a metric ton ($2.52 a pound) at 5:51 p.m. on the London Metal Exchange, after dropping as much as 8.6 percent, the biggest intraday loss since October 2008.

These things flow on and affect me locally. I live in the South Island: a fair amount of the population is involved in the dairy (milk) industry. And prices are collapsing… because of what is happening in china and despite poor weather conditions.

Global Dairy prices unexpectedly eased in the overnight GlobalDairyTrade auction, a platform established by New Zealand’s Fonterra Co-operative Group, the world’s biggest dairy exporter.

Fonterra’s GDT Price Index dipped 1.6 percent, with an average selling price of $2,458 per tonne, in the auction held on Tuesday. Whole milk powder prices fell 4.4 percent to $2,210. The NZX Dairy Futures market had anticipated a lift in prices.

“The weak GDT results are disappointing given the significant gains anticipated by the market. However, global demand for dairy commodities continues to be weak relative to global milk supply,” AgriHQ analyst Nick Handley said.

A total of 25,671 tonnes was sold at the latest auction, an increase of 3.1 percent from the previous sale, according to GlobalDairyTrade.

The auctions are held twice a month, with the next one scheduled for Jan. 19.

After rising steadily since 2008 to scale record highs in 2013, global dairy prices have dropped sharply because of slowing economic growth in China and global oversupply of milk products. China is one of New Zealand’s top export markets and the world’s largest importer of whole milk powder.

The weak dairy prices have put significant pressure on New Zealand farmers. The central bank now estimates around 80 percent of dairy farmers will have negative cash flow in the current season, posing a risk to the economy.

Economists said the latest auction result adds to the risk that Fonterra will have to lower its milk payout forecast for the current season even further.

Westpac Bank Senior Economist Anne Boniface said the current El Nino weather pattern could curb New Zealand’s production, which might lift prices.

However, “with European milk production still growing strongly, and the Chinese economy continuing to look relatively soft, a more sustained improvement in prices looks likely to be a while away yet,” she said.

There appears to be a disconnect betweeen what the elite see, and the bubble in some investment markets, (such as Auckland property) and the underlying economic situation. I’ve seen this before. In 1987 and again in 1995. Neither times ended well.