I follow a broad range of unconventional, but highly useful leading economic indicators that gives me a decisive edge when predicting the future direction of global financial markets. One of them has started flashing a warning sign.

I fund an orphanage in remote Zhanjiang, in China?s southern Guangdong province near Hainan Island called The Zhanjiang Kids Organization that catches the kids who missed out on China?s economic miracle. Lacking America?s social safety net, child abandonment in the Middle Kingdom usually leads to a cruel death through malnutrition or disease at the few primitive public institutions that exist. With China?s one child policy now 30 years old, most families prefer their sole heir to be a boy, which means that girls account for the vast majority of orphan children.

Recently, there has been an upsurge of children dropped off at the orphanage and a sudden increase in the age of the kids. Twelve year old boys are being dumped because they cannot be fed. For a Chinese family to give up a boy this close to working age is truly an act of desperation. As a trader, this is all proof to me that the Chinese economy is slowing faster than people realize and that the global economy will take a deeper dip this summer. Indeed, the People?s Bank of China affirmed as much by once again easing bank reserve requirements again last night.

I usually avoid organized charities like the plague. The great majority are scams where 95% of the funds raised go to ?administrative costs? that usually end up in someone?s bank account. As we all know, the corruption in China is rampant.

The Zhanjiang Kids Organization is a rare exception. I know the organizers personally, who originally got involved by adopting a couple of girls there, and they are saints. They carefully oversee the spending of every single dollar, assuring that it gets spent for its intended purposes. Instead of doling out cash to local organizations which often gets lost, as other organizations do, they undertake physical delivery of desperately needed food, books, and medical supplies. They also organize trips for volunteer pediatricians, educators, and administrators from the US.

To learn more about The Zhanjiang Kids Organization, please visit their website by clicking here at http://www.zhanjiangkids.org/ . There, you can contribute directly through your PayPal account or credit card. If you have any further questions about this fine organization, please contact Susan Doshier directly at susandoshier@gmail.com .

Checks should be made out to the ?Zhanjiang Kids Organization? and sent to Zhanjiang Kids Organization, c/o Susan Doshier, 2 Abbey Woods Lane, Dallas TX 75248, USA. Print out a hard copy of your receipt. This organization is set up as a US 501 (3) (c), so all contributions are fully deductible on the 2012 Form 1040, schedule ?A?. There is no reason why Uncle Sam shouldn?t pick up one third of the tab.

Those who made a 40.16% return on their investment following my timely advice last year should consider chipping in a few bucks. Newer subscribers who haven?t made money yet can wait. When the big numbers arrive in coming months, you can contemplate a donation then. Do the asymmetric trade here. A $100 gift creates $10,000 worth of benefit. Act in your own self-interest. You may be working for one of these orphans someday. If you don?t, your kids will.

JP Morgan (JPM) just gave us the preview of the next financial crisis. A surprise, hidden $2 billion trading loss in esoteric foreign derivatives at on offshore branch by America?s premier bank is exactly what the markets did not want to hear right now. The London whale has beached itself. Although no one has mentioned this, these are exactly the same sort of securities that drove MF Global into bankruptcy only seven months ago. As baseball great, Yogi Berra, said, ?It?s d?j? vu all over again.?

I doubt that (JPM) will go under on this one, but others may. This is how our financial system works these days. There is never just one cockroach. With the profitability of traditional business lines now pared back to pennies, banks are desperate to reach for marginal income wherever possible to keep from turning into utilities. Bring on the downgrades! Indeed, the loss could well result in a de-rating not just for (JPM), but the entire US banking sector.

As a result, they have all turned into giant, opaque hedge funds. Some genius thinks up a trade that works out great in computer back testing. The Federal Reserve indirectly provides all the capital they need through its zero interest rate policy. It makes good money for a while. Then the word gets out, and everyone starts imitating them.

But the copycat institutions lack the sophistication, the risk control, and the experience to get it right. When too much capital pours into a single trade it ceases to work. Some little market setback gets magnified 100 fold by leverage and the wanabee trader blows up. If (JPM) lost $2 billion, you can bet someone else has lost $20 billion on a smaller capital base and the runs begin. However, we may not hear about this for another nine months, once the annual audits get underway and fail.

The scary thing is that the senior management of JP Morgan may not even know what their true position is. They are relying on sheepish presentations by some mid-level traders using model driven pricing that has utterly failed them.

The problem is that once the market sniffs out a big position gone wrong, it will press it until the holder can take no more pain. That?s how a $2 billion problem becomes a $4 billion, then a $6 billion one. I remember in 1998 when Long Term Capital management was trying to get out of a gigantic short volatility position on the S&P 500 in that they sold all the way down to 9%. Buy the time the last position was unwound, volatility was trading at 40%, and it took a year to get there. Needless to say, the LTCM shareholders were entirely wiped out.

Sure, the industry shills and apologists say this is a one off, an aberration, and will never happen again. But remember how Ben Bernanke said the sub-prime crisis was contained? These things have a tendency of bubbling under the surface for a while before they explode and send investors into a panic. Have we just seen the opening salvo of the crash of 2012?

OK, maybe I?m in a bad mood today, maybe the market has beaten me up too much lately, or perhaps I am getting cynical in my old age. But I have seen this script unfold dozens of times in my 40 year career. Remember the nifty 50 of the early seventies, the first gold and silver bubbles, portfolio insurance, the 1987 crash, the Japanese stock market bubble, the Granite Capital fiasco, the dotcom bubble, the China bubble, Bear Stearns, and Lehman Brothers? I rest my case.

This couldn?t have come at a better time for the bears. Suddenly the glass on equity valuations has gone from half full to half empty. Take a look at the charts below and you can see they are sitting on a knife edge. We are right at terra incognito on the maps between the modest 5.8% correction that we have seen so far and breaking towards the more serious 10% or 15% the market so richly deserves. Suddenly the glass on equity valuations has gone from half full to half empty, making them far more fragile than people realize. JP Morgan and the absolute rout that we have already seen in commodities are the writing on the wall.

JP Morgan may have given the bears the firepower they need to break the current support lines. If successful, down 500 to Dow (INDU) 12,200 is in the cards, as are $75 for the Russell 200 ETF (IWM) and 1,280 for the S&P 500 (SPX).

Is JP Morgan the Tip of the Iceberg?

Readers of the Diary of a Mad Hedge Fund Trader down under are welcome to join the online ?Secure the Future? conference which I will be participating in through the miracle of the Internet. My friend, Greg Owen, created this organization to educate investors in the opportunities available in international markets by bringing in industry veterans like myself. I will be making presentations on the current state of and prospects for the global financial markets, to be followed by an extended question and answer session. No doubt I will spend a lot of time expounding on my outlook for Australian stocks, bonds, commodities, precious metals, and real estate. My schedule is below.

Sydney on Saturday, May 12 at 2:00 PM
Brisbane on Tuesday, May 15 at 2:00 PM
Perth on Thursday, May 17 at 2:00 PM

To register for the event, please click here at www.securethefuture.com.au/greg . In order to register, you will need to input your credit card information. However, you can attend as my guest, so there will be no charge made to your credit card. I look forward to hearing from you in the Q & A.