China’s new fiscal stimulus package is receiving rave reviews across the board this morning. Bond prices lower, stocks higher, oil higher, gold higher and the dollar getting whacked—it’s déjà vu all over again for the risk appetite crowd.

Should we rejoice and jump back in to everything once bubble-icious? Or does China’s action represent a sign of real fear and desperation as it watches its export demand crumble around its export-centric world view?

Why should China’s stimulus package prove any more effective than those conjured up by the smart boys in Washington?

One difference of course is the fact that China has the money and doesn’t have to go begging. But China also has a more serious potential for social unrest as jobs vanish for the hundreds of millions of migrant workers roaming the manufacturing belts. It seems this stimulus is aimed squarely at that growing problem and will do less than expected in terms of driving a new leg up in global demand for commodities.

On Saturday, the day before China’s announcement, a couple of investment banks released a dire forecast regarding China’s growth prospects for the remainder of the year and into 2009. And last week, Los Angeles reporter Don Lee wrote a very informative piece, “Some owners deserting factories,” about the problem China is facing as unemployment and the incredible hardship for migrant worker losing their jobs in the cities. Factories are closing overnight. Workers are left in the cold.

Chinese government statistics show that 67,000 factories of various sizes were shuttered in China in the first half of the year, said Cao Jianhai, an industrial economics researcher at the Chinese Academy of Social Sciences. By year’s end, he said more than 100,000 plants will have close…[A]s many as 15% of the 70,000 factories run by Hong Kong businesspeople in the mainland will close this year. He [Stanley Lu, deputy chairman of the Federation of Hong Kong industries] says many more are likely to shut after Chinese New Year in February, when millions of migrant laborers will return home for several days. Once workers go home, they can close down the factory quietly.

We have believed for a while that bad news in China would lead to another major leg-down in the emerging market world. After all, it is the prospect/belief/prayer that China can muddle-through this global morass relatively unscathed that has held out hope for emerging market perma-bulls.

China’s satellite country, know to us as Australia, is having a big day today on the news. The Australian dollar is the biggest winner among the majors, up over 3% against the US dollar. Today’s good news comes on the heels of a dire warning by the World Bank about Australia’s exposure to a slowdown in China and emerging markets across Asia that represent the bulk of demand for Australian exports.

That’s the background stuff. We don’t think China’s stimulus will be any more effective than Washington’s have been. We will be surprised if risk aversion turns on a dime -- very surprised. But this ebb in risk aversion could have some legs...no doubt!

After it all, there’s a good chance traders will be buying into the rumors of all good things to come before our government saviors meeting at the G-20 meeting in Washington this weekend. That’s a whole five days away. And five days can represent big moves in this market; a market that has been volatile but rangy of late among the currencies.

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Oil is up over $3 today. It hasn’t been playing along with Aussie of late. A minor divergence in here…who leads and who follows we do not know.

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Nice moves this morning in both the euro and pound, but they are still stuck in a range:

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And the risk asset class is ranging, but edging higher...S&P 500 futures...

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Gold, the good news liquidity-driven asset class, has popped higher this morning too...

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And the buck, gold’s mirror image, is heading lower on the news...

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