As markets replay the same identical reaction to the same identical Greek news that we saw back on July 21, 2011 (and we all know where that went), something else entirely and more troubling is going on behind the scenes. Because as the world was transfixed on regurgitated news out of Greece, which will without a shadow of a doubt end up with a far worse 2020 debt/GDP scenario than the IMF's downside case per the sustainability report (first posted in its entirety here on Zero Hedge last night, and which assumes just a 1% decline in Greek 2013 GDP), China just escalated currency wars into outright trade wars. Because as China Daily reports, "Chinese exports are set to get a tax boost." Translated: even as China pushes the CNY higher in infinitesimal and irrelevant increments to appease US Congress, it has just taken out the trade stimulus bazooka. Why? "Export tax rebates will be increased this year in response to an export decline triggered by the European debt crisis. The move, which Commerce Ministry officials said will be implemented when the time is appropriate, will be the first increase since 2009." Still think Europe is fixed? China's answer: nope.
More:
"We are studying the launch of relevant measures" to stabilize export growth, said Zhong Shan, deputy minister of commerce, at the 2012 China Imports and Exports Work Conference held in Nanchang in East China's Jiangxi province on Monday.
"Uncertainty and instability in the global economic scene are growing - there are also some domestic factors," Zhong said.
According to the General Administration of Customs, exports declined 0.5 percent over the year to January, the first fall in more than two years. Officials from the ministry have stated that exports face challenging times.
China will, "at the appropriate time, increase tax rebates on specific categories of goods, including labor-intensive products", Zhong said.
The last time China proceeded with this measure: when the world was imploding back in 2009.
From 2008 to 2009 when the financial crisis hit, China raised export tax rebates seven times on a wide range of goods.
Tax rebate rates in general were increased to 13.5 percent in 2009 from 9.8 percent before the crisis.
"The situation is getting more severe with a double-digit decline in export growth expected in the first quarter," said Da Jiaxiang, deputy director of the department of commerce in East China's Jiangsu province, one of the nation's top textile exporters.
"We are expecting preferential policies on tax rebates."
And more:
In South China's Guangdong province, a key export region, companies said they were experiencing a difficult time.
As an exporter of Christmas presents, Guangzhou Kingway Gifts felt the consequences of the sluggish global economy as it suffered a 30 percent fall in sales last year.
"Higher export tax rebate rates would help us get through the difficult patch and prevent the hardest-hit from going bankrupt," said Shen Hui, the company's general manager.
Currency policies will also be stabilized, Zhong said, to help companies cope with currency fluctuations.
Our advice to those who have already taken out the Dow 13K hats: enjoy it while it lasts. Because between China promoting its exports and trade balance (which explicitly means others' trade balances are set to be impaired), and gasoline at all time highs for this time of the year, very soon the non-Greece headline driven reality is about to come home to roost.
Finally, and we have shown this before, the only reason why markets have been on a diagonal tear in the past 6 months, is the following simple chart.
Unfortunately, as WTI has demonstrated clearly, the excess liquidity has once again spilled out of stocks and has entered broad commodities. If there is any other faster way to kill a risk rally than soaring energy prices, we have yet to find it.