Remember the opening ceremonies of the Olympics when the Tai Chi drummers performed in perfect unison? China chose that display as a metaphor for the powerhouse that economy has become: "We can control masses of people to perform precisely and powerfully." Investors should take note; that reality will strongly affect the markets.

China's economy has grown at a blistering pace over the last few years ravenously eating a larger share of the world's commodities. The early part of the year saw startling rises in copper, oil, iron, and dry bulk shipping rates. A few months before the Olympics, China shut down in order to cut pollution for the Olympics. It was as if one conductor silenced a billion drummers all at once. Multiple provinces around Beijing closed industrial production, cars were stopped and orders for commodities dropped precipitiously. It is no accident that commodities across the board have plummeted right before opening ceremonies. Copper dropped 70 cents a pound, oil down $30 dollars a barrel, the BDI dropping 3000 points.

So here is the deal.

Apple (AAPL) starts selling an album called "Songs for Tibet" on its iTunes Music Store (iTMS), and it does it right in the middle of the Beijing Olympics. Coincidence, or passive-aggressive middle finger to China? Apple isn't saying anything about it, so we are left to reach our own conclusions.

There's nobody like an investment banker to deliver yesterday's news tomorrow, and charge you dearly for it. Goldman Sachs has turned bullish on the dollar, while Merrill Lynch is calling crude oil down to $80.

If bandwagon jumping was an Olympic sport, these guys would have more gold medals than Michael Phelps. After pumping up the commodity and Euro bubbles all year, a whiff of a bear market and they shamelessly perform a high speed U-turn.

American Oriental Bioengineering, Inc. (AOB)

Q2 2008 Earnings Call Transcript

Only in China would a car salesman refuse to sell you a big fancy foreign car.

China is increasing the tax on large luxury cars, bringing the charge up 13%-33%, depending on engine capacity.

Shares of Focus Media (FMCN), the leading flat panel display advertiser in China, rallied 9% Monday following an earnings beat and rosy projections for next quarter.

Earnings came in at 44 cents per share on revenue of $211.7 million vs. a consensus estimate of 40 cents per share on sales of $191.8 million.

Outside of the hedge fund community, where the votes seem to have already been cast over the last five weeks leading to broad-based declines in commodity prices, the China "decoupling" debate continues in some circles, the latest bit of data coming from this story in the current issue of The Economist with the telling graphic below.

With 92% of their 2007 revenues coming from operating World of Warcraft in China, The9 (NCTY) must renew their WoW license or lose much of their earnings power. Their license is set to expire in June, 2009.

With Asia experiencing rapid economic expansion, demand in the industrial sector is expected to remain high. Although rapid development in some countries suggests the need for selectivity, on the basis of all considerations, China still remains a viable story.

General Electric’s (GE) chairman Jeff Immelt seems to think so. According to AP  Immelt expects its company business in China to double by fiscal 2010 to $10 billion a year. He also expects 15% to 20% annual sales growth for GE’s clean-energy technology which will get generated from China’s efforts in improving energy efficiency and clean up its environment.

I'm increasingly looking at small cap opportunities in this trendless market, dominated by herd behavior  - much of it computer generated. The hope is we find some companies that are outside the radar and hence not so reliant on hundreds of hedge funds moving in or out of stock en masse for us to profit. Now, the negative with under covered small caps is they can sit... and sit... and sit... for a long time without any movement. And then suddenly surge out of the blue on a catalyst - much like Fuel Systems Solutions (FSYS) has done [Aug 7: Fuel Systems Solutions - Monster Quarter but Impairment Charge will Confuse]. But this many times requires, months/quarters of no "benefit" (price appreciation) from holding the stock. And in a "what have you done for me" world with investors who always want appreciation, that's a tough road to hoe.

With that said, ShengdaTech (SDTH) might be the right company at the right time with the right catalyst to wake up the market to yet another undervalued opportunity that is sitting in purgatory. First, let's look at the most important thing in this market - the chart.

Monday’s unexpected withdrawal by hurdler Liu Xiang from participation in the Olympics – because of a leg injury – has been a real emotional blow to many of my friends and students in China. Condolences to all. It is a disappointment to see such a great athlete unable to defend his title in his own country.  Sad as his withdrawal has been for many of us here, there is still a lot to be excited about as the Olympics wind down. Tomorrow I will see Brazil play Argentina in the soccer quarterfinals, thanks to the generosity of my former Tsinghua student Richard Zhang, now a rising star at McKinsey, and on Wednesday one of my favorite Beijing musicians, Shouwang, is taking me to see track and field events at the Bird’s Nest (finally I get to see the magnificent stadium from the inside!).

Chinese bankers held loans totaling 5.2 trillion yuan (about 580 billion U.S. dollars) to real estate developers and housing buyers by the end of June, up 22.5 percent year-on-year, the People's Bank of China (PBOC) said Friday.

Unfortunately, it will be another day or so before Macro Man can fully re-engage with markets (or at least the market blogosphere), as he is laid up with some sort of bronchial ailment that he picked up lamentably early in his holiday.

Still, you can't say that he didn't warn you that there would be fireworks in his absence....like Colt .45, the Macro Man Summer Holiday Indicator "works every time."

My home state of California has been in the solar industry's spotlight in recent years. Our Governor, Arnold Schwarzenegger, adopted a well-publicized plan to embrace renewable energy in the sunshine state. Based on this plan the State's 20% electricity has to come from renewable sources by 2013.

So far Cali gets 11.8% of its electricity from renewable resource according to the state energy department. So we still have to build additional 8% based on either solar or wind. So far solar seems to be the best approach because of the abundance of sunlight. The PG&E (PCG) deal with SunPower (SPWR) and Optisolar is a good example. For investors, the question is who else will benefit from this. We believe First Solar (FSLR) and SPWR will continue to grow along with it, Evergreen Solar (ESLR) may have problems ramping up additional capacity to supply California's growing demand since the company probably has to supply all its capacity to the two contracts it has already signed.

“We are in the midst of a sea change in U.S. hegemonic influence in political, financial and economic spheres. American financial, economic and political power has peaked,” writes Sherry Cooper, chief economist with the BMO Financial Group (as quoted in Jeff Sanford’s column). Really? Is it all that bad?

The following is excerpted from IRG's weekly stock report:

• • •

Last week was a big week for earning announcements from China life science enterprises: a total of eight companies announced their results. Earnings reports far overshadowed almost any other kind of news from the China life sciences sector. For the most part, the eight companies posted incredible increases in revenues, though many times each enterprise’s net income was not as spectacular. Perhaps this is the adolescent phase of China biopharma development: spectacular growth spurts, but often accompanied around the edges by adjustment difficulties as young enterprises grow into adulthood, almost as we watch.

WuXi PharmaTech Inc. (NYSE: WX), the Shanghai CRO that can lay legitimate claim to the highest profile of any China life science company, reported a very solid 80% increase in revenues and 134% jump in net income (see story). The results also beat expectations, but there was little surprise in them. The growth was there, as was the small but necessary increase over the forecasts. In short, it was almost too predictable. Much of the big increase was due to its new AppTec division, which was not part of the company a year ago. Here are the numbers: revenues up 134% at $70.8 million and net income higher by 81% at $15.5 million or 21 cents per ADS (non-GAAP). WuXi dangled the prospect of a major contract in front of analysts, but the company will not divulge details until it has a contract in hand. Similarly, the Covance contract is still being worked out, so the company was similarly reluctant to speak about it. WuXi also refused to break out specific numbers on AppTec. Chairman Ge Li said the integration is going well and that the two sides of the company will be able provide each other with added business. But WuXi admitted that revenues from AppTec were down from last year. The entire picture caused one brokerage house, Jefferies & Co., to lower WuXi to Hold status.

Even though he still  has “serious reservations” about the stock, Deutsche Bank analyst Christopher Chun is raising his target price on Sino-Forest Corp. (SNOFF.PK) to C$12 from C$17 and upping his rating to “hold” from “sell.” The reason? Recent stumpage acquisition agreements in Guanxi and Fujian provinces give the company a higher assest valuatoin, and the stock  has declined to a level that makes it more “fairly valued.”

Mr. Chun said the new deal in Guanxi adds about  C$1 a share to the company’s valuation, while the Fujian deal adds about C$2. However, the analyst is still worried about log price trends in China, given that log prices are alreaday far highe in China than they are in the U.S. As well, there’s also the potential for costs to increase as volumes ramp higher in Hunan and Yunna, and for losses to  accur as the copmany invests more in wood products and manufacturing.

WuXi PharmaTech Inc. (WX), the Shanghai-based CRO, announced its Q2 financial results, showing that the company increased its revenues 134% to $70.8 million and enjoyed an 81% rise in non-GAAP net income.  Non-GAAP income was $15.5 million or 21 cents per ADS. The results were higher than analysts’ estimates, which called for WuXi to report $68 million of revenue and earnings of 14 cents per ADS.

Manufacturing revenues were especially strong, rising 400% from the year-earlier period to $25.6 million. For WuXi, manufacturing revenues are notoriously variable, depending partly upon a customer’s readiness to accept delivery of product. The laboratory services division brought in $45.2 million.

China Sky One Medical, Inc. (CSY) has developed a nasal spray that treats rheumatic disease. The formulation, which includes naphazoline hydrochloride, chlorpheniramine maleate and benzalkonium bromide, is already readily available in China, but is manufactured by only five other companies. China Sky One has received approval to begin its own production of the spray.

China Sky One, which said it would begin production in Q4, expects the new product to add $500,000 in revenue in the quarter.

Tongjitang Chinese Medicines Company (TCM) had the unfortunate responsibility of informing investors that, once again, its revenues for the quarter were lower than the year-earlier period. Trying to put a good face on the news, Tongjitang led its announcement by saying that Q2 revenues were up 13% from Q1, a hopeful sign. Still, the unavoidable fact remains that its Q2 sales, which came in at $17.4 million, were down 15% from 2007’s second quarter.

On a GAAP basis, Tongjitang recorded net income of $1.1 million and net income per ADS of 3 cents. Adding in option-related compensation charges of $1.3 million, Tongjitang’s net income was $2.5 million. The latter number represents a 67% decline from the year-earlier net income of $7.5 million.