The latest Wall Street embarrassment...

 There were several high-profile price declines last week. The mainstream financial press covered most of them in-depth… But it overlooked several extremely important ones. We'll cover them today. But first, the "high-profile" stuff...

We'll start with JPMorgan Chase... which many financial insiders consider to be the best-managed large bank in America. CEO Jamie Dimon is one of the most respected bankers in the world... a true "Master of the Universe."

Dimon has also been a loud critic of excessive government regulation of banks. He would prefer it if the government would let the "too big to fail" banks do most of their own policing. After all, guys like Dimon are geniuses, right?

Not exactly...

 Giant banks like JPMorgan Chase aren't like your regular community banks. In addition to making money by providing conventional banking services like savings accounts and consumer loans, many giant banks also attempt to make money by trading the financial markets. They'll enter the market and place all kinds of bets on stocks, commodities, bonds, and currencies.

Many of these trades are so complex that even guys like Dimon don't understand the risks involved...

That's why last week, JPMorgan Chase reported that a series of bad trades lost the company $2 billion. The news shaved 9% off the company's share price.

The loss isn't "life threatening" for JPMorgan Chase. The company made $19 billion last year. But it's hugely embarrassing for Dimon and his fellow bankers. It's a public relations disaster.

Trading losses like this add fuel to the political fire for placing more restrictions on big banks. The fire might burn so hot that the hundreds of millions of dollars Wall Street spends on political campaigns and D.C. lobbying might not be able to put it out. But let's not underestimate the capacity of Washington D.C. to get on the take and stay on the take.

 The next big decline was due to the latest chapter in the European farce. We'd go into the details here, but the details don't matter…

The European monetary union in its current form is doomed. Greece is a basket case. Nearly everything the politicians tell the public is a lie. Nearly everything the public expects ("free" health care, lavish pensions) is a delusion.

Considering all this, the euro is declining. It just reached its lowest low against the dollar in four months. This recent decline has breached the 1.29 level… and the euro is near its January low. It looks like the next leg of its bear market is starting...

 OK... we've covered the "high-profile" declines. Now, on to some extremely important declines you probably didn't hear about. They're all related to China...

As many of our regular readers know, China is at the center of a huge debate. Some very smart people – like master short-seller Jim Chanos and top hedge-fund manager Hugh Hendry – say the country is a powder keg of government-directed malinvestment.

They point to the hundreds of billions of dollars China has spent on unused infrastructure projects and real estate developments. They also point to China's trillion-dollar-plus "shadow banking" sector. This is a network of lenders that don't appear in government statistics. (You can learn a few basics in this article.) This "shadow banking" sector goes unreported in government numbers... But bears say it helps mask a giant amount of bad loans in China. They say it's "the Next Subprime."

On the other hand, you have the China optimists, like popular investor Jim Rogers. He and other China bulls say these fears are overhyped and overblown.

As I often write in DailyWealth, you can track this debate with resource shares like Brazil's Vale – one of the world's largest producers of iron ore. It's the market's largest "pure play" on iron ore. Much of its production goes to China for steelmaking. If China falters, so do iron ore prices... and so does Vale stock. This makes Vale an excellent "barometer" for what's happening in China.

Like most resource shares, Vale skyrocketed off its late-2008/early-2009 credit-crisis lows. It then spent 18 months in a choppy, sideways trading range. Shares breached this range to the downside when the bottom fell out of the market last fall.

As you can see in the chart below, Vale fell to a low of $20 per share in December. Shares rallied into the mid-$20s early this year. But in the past few months, Vale has plummeted. The decline is the result of weak Chinese economic numbers... and concerns that the Chinese economy is finally entering a period of slow or zero growth.

Just last week, the stock registered a lower closing price than the low in December. This extremely China-sensitive stock is plummeting.

 After seeing this chart, I ran through other resource-related shares that depend on a strong China. These include resource giants BHP Billiton, Rio Tinto, and Freeport-McMoRan.

These giants haven't plummeted to a new 52-week low, like Vale has. But they are all trading weakly. They've all reached short-term lows. For example, here's BHP Billiton:

 We'll leave you today with one more bearish China chart. It displays the past year's trading in the iShares FTSE China 25 Index (FXI).

This fund consists of the "who's who" in Chinese public companies. Major weightings include telecom giant China Mobile (which has more customers than the population of the U.S.), mega banks China Construction Bank and Bank of China, and giant energy firms PetroChina and CNOOC.

These shares are in a bear market. FXI is well below its 2010 high. As you can see in the following chart… FXI shares attempted to rally from their recent bottom. But the fund stalled in March and April. Shares just broke to an important short-term low. Whether you look at it with iron ore... BHP Billiton... or Chinese blue chips, the charts are clear: China is stumbling.

 Over the last few months, we've been conducting an experiment. We're developing a trading service that will be accessible to all of our subscribers... not just traders who can afford to spend $2,500 or even $4,000 on a single year's subscription. (You can read more about it here and here.)

We're calling it DailyWealth Trader... And we're almost ready to share it with you. To introduce this service, we've created a video that describes a key component of our DailyWealth Trader approach to the market. This educational video is the safest and easiest way we've ever found to make money in the market. Even though this approach is relatively simple, Wall Street has convinced investors that they're not sophisticated enough to understand it. We believe everyone with a willingness to learn about this strategy can use it to immediately start making at least 20% annually.

We're putting the finishing touches on this video, which offers a tremendous education on this approach. It will be ready early next week. If you'd like to be among the first people with access to this video, let us know here.

 New 52-week highs (as of 5/11/2012): Coca-Cola (KO).

 In the mailbag today: No vitriol. No accusations. No recommendations to perform anatomically impossible acts. It appears the Mother's Day weekend temporarily distracted our critics.

To stoke mailbag discussion, we'd like to ask a serious favor of our readers.

As one of America's largest financial publishers… we know we have well-connected readers all over the world. We have a giant "intelligence network" of people who send us "boots on the ground" insight. Given what we've just presented on China... if you have unique firsthand insight into fraud and malinvestment in China, please send us a letter that describes your concerns, experiences, and observations.

But please... keep racist comments and nationalistic "they took our jobs!" complaints to yourself. We're not interested in name-calling. We're interested in genuine insight from people with business dealings in China. Please write "China fraud" in the subject line. You can reach us at feedback@stansberryresearch.com. We thank you in advance.

Regards,

Brian Hunt

Delray Beach, Florida

May 14, 2012

The latest Wall Street embarrassment... Europe burns... The big decline you didn't hear on the news... A bearish China signal, courtesy of iron ore...