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I just got back for a week-long cruise with the family. The weather was great, the entertainment was fun and everyone had a fantastic time.
The other good thing: No one caught the “cruise flu” that you sometimes hear about in the media. But I can’t say the same thing about the stock market. It has one heck of a case of “China flu.”
China’s benchmark Shanghai Composite Index tanked 8.5 overnight. That was the second-worst drop in that average’s history, with a down-to-up ratio of 75 stocks to 1.
Some $4 trillion in market cap has now gone up in smoke. Meanwhile, one gauge of market volatility hit its highest level since the Asian economic crisis of 1997 – almost two decades ago. The decline didn’t seem to stem from any huge, identifiable catalyst, but rather a fear that the Chinese government and central bank are either unable or unwilling to continue trying to artificially prop up stocks.
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| The investment future in China is cloudy these days. |
When I last talked in detail about Chinese turmoil, I said large corrections are to be expected in emerging markets and that many of those markets had already been beaten down to dirt-cheap levels. But I also said you had to wait to see stabilization in China and “China proxy” investments before going hog wild with bottom fishing.
That’s still the case today, what with things like copper futures continuing to drop … mining stocks showing relative weakness … and commodity currencies still struggling. I’m eyeing all of those indicators and more before recommending any aggressive moves overseas.
As for here in our own backyard, there’s more deterioration going on behind the scenes. The list of winning stocks is getting shorter, while the list of losers is getting longer. Bounces in some sectors are being sold, and others that are deeply oversold haven’t been able to find traction. That may merit even more protective action than I’ve already been preaching – so stay tuned!
In the meantime, what are you doing in light of China’s struggles? Taking further protective steps in your portfolio or taking advantage of the bargains they’re creating? What will it take to cure the market’s China Flu? More policy action there, additional steps here, or nothing but the passage of time? Let me know over at the website.
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Getting back in the saddle and caught up on everything you missed on vacation always takes some work. But I was keeping an eye on the markets while I was gone, and noticed that many of the same problems that have been holding markets back haven’t gone away.
China. Bloody Wednesday worries. Weakness in materials stocks (even the ridiculously cheap energy sector). They’re all weighing on the S&P.
Reader Fred 151 said that’s a warning sign, opining right before I left that: “We should see a little more upside (say 18,600 or so on the Dow) … but I think the days left in this rally are numbered.”
Reader Holygeezer also weighed in on the “tech-nado” and the few tech stocks that are still holding up, saying: “So Amazon has amazing sales, but lowers their prices and probably loses money doing so? And then their stock price soars as a result? Whatever happened to the concept of actually making a profit as a sign of a successful business?
“Doesn’t anyone recall the tech crash of 2000? Here we go again.”
Meanwhile, in response to the latest column that my colleague Larry Edelson’s wrote in my stead, Reader Rusty said the health care mergers lately are just making things worse for average Americans. His view:
“Consolidation never helps the consumer … only stockholders. Yes, consumers are also stockholders, so maybe it’s a wash for those of us who are investors. But the little guy gets to pay for the loss of competition when the big boys merge. Just look at the airlines.”
And Reader David C. said he’s getting more nervous about the markets, offering this perspective: “My personal opinion is the major crash is coming in September, as early as the weekend of 9/11 to the 16th. If not then, September 23-24 is the next window and the final one will be September 28-29.”
Thanks for sharing. I’m definitely seeing more and more worrisome signs in the markets. That’s enough to validate my decision over the past couple of months to take more profits off the table, and cut a loser or two in Safe Money. I’m looking at even more moves in light of the ongoing weakness.
In the meantime, keep any other questions you might have coming here in Money and Markets – and I’ll do my best to answer them. Here’s the link where you can do so.
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The U.S. plans to step up cooperation with Turkey against ISIS in northern Syria. Specifically, American and Turkish warplanes will increase bombing runs in an effort to create a 60-mile “buffer zone” along the Turkish border. They’ll coordinate the efforts with Syrian rebels on the ground in hopes of increasing their effectiveness.
In M&A news, the generic drug maker Teva Pharmaceuticals (TEVA) of Israel said it would buy the generic business of rival Allergan PLC (AGN) for $40.5 billion in cash and stock. The deal caused shares of Mylan (MYL) to plunge because Teva had previously launched a hostile bid for that firm, a bid it’s now abandoning.
President Obama is continuing his African nation tour, visiting Ethiopia in the wake of his stop yesterday in Kenya. He is discussing issues such as free speech, terrorism, and human rights in the region.
And finally, in a sad story here in my own backyard, two 14-year-olds from Tequesta, Florida area remain missing at sea despite a massive water-and-air-based, search-and-rescue operation. They vanished during a fishing trip on Friday, and haven’t been seen since – even as their capsized boat was discovered almost 70 miles off the coast on Sunday.
Want to weigh in on the latest bout of M&A in the drug sector? Obama’s African trip? Anything else I did or didn’t cover here? Then let me know over at the website.
Until next time,
Mike Larson
Mike Larson graduated from Boston University with a B.S. degree in Journalism and a B.A. degree in English in 1998, and went to work for Bankrate.com. There, he learned the mortgage and interest rates markets inside and out. Mike then joined Weiss Research in 2001. He is the editor of Safe Money Report. He is often quoted by the Washington Post, Reuters, Dow Jones Newswires, Orlando Sentinel, Palm Beach Post and Sun-Sentinel, and he has appeared on CNN, Bloomberg Television and CNBC.
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Why would a parent ,make available to an underage child,the chance to have a bad experience at sea, a boat with keys to start the engine. Most boaters would not go out under these conditions to begin with. Yes , I am saying the parents are to blame. This is not only sad but it is also disturbing to hear.
Unfortunately, I took Larry Edelson’s advice and bought a China Railroad stock…..2 days before the first collapse! Wish he would have mentioned that the time was not right…….
I sold and lost $3,000!!
First the strong recommendation to buy Gold stocks ! Lost over 2.0 M
Second, the Chinese Railroad!
What is next?
Credibility is fading! So far it has been a road to disaster.
What in hell is your team doing?
HI DR. was that 2million,wheres my gun
Mike, Im sure you’ve read Larry Edelsons economic forecast for much of the remaining decade concerning USA, Asia and Europe. He plainly sees a domino effect for financial collapse starting with possibly Japan, then ending of course with the United States. With that said, he believes the influx of money into the U.S will cause the Dow to reach 30,000-32,000 in just a 2-3 year time frame before collapsing. More than your 18,6++ shorter term. I believe 20,000 is possible before a major correction. Comments or thoughts? Thanks.
Karen & Dr. Stephen Weise …When the Fed raises rates STARTING the “Triple Eve of what people call Halloween” invest to make your money back and some (Futures& Options). The Day the Federal Reserves raises rates 28th of October. Mike’s “Bloody Wednesday ” coming true.. Get Ready Get Ready . October most valuable month of this “Whirlwind Year 2015” Also if you know how to invest in bad happenings.Look for the earth moving under the feet of Japan and Indonesia before the end of this year 2015. Devastation to those country’s when the earth moves . Northern Japan stay away. Look to New York being the major factor on the elections next year. It will be a He who will be the next president and not a she.
Do you mean Carly won’t make it, Barry
Well now was not allowed to repeat on this site about what the Federal Reserve will do in October to bad because it seems everyone predicts but seems to error. But so far no error here. I thought to be a good reader you bring good advise. A Question to Mike or whoever how world you play the the Interest rates when I am correct it will the 28th of October If I invested 1 million dollars knowing this. How would you play it. I hope you address this soon. By the way their is no Cure for the China Flu this year. Japan and Indonesia the earth moves under your feet before the end of the year.
There they go again,particulary BO telling another country Kenya that gays are OK and what they are doing is wrong,Jesus,I just wish they would stop telling others how to run there countries,after all BO is doing a great job in the US.How would he like the Germans to tell him how to organize his US industry
So what happened in China? The markets began what should have been a normal correction to digest the big run-up they’ve had. The bureaucrats stepped in and took pretty drastic measures, which caused a pause in the correction. Then some investors may have realized, if the gov’t can do that to the big investors, what is to keep them from doing it to me? Maybe that has something to do with Monday’s market drop. Americans might want to understand something like that could happen to them, also. Our bureaucrats increasingly act as if they own our asses, too. Like the British taxmasters in the early 1770’s.
Part II. President Obama seems to be having a good time during his African visit. I’d be happy if he just decided to stay there. ‘Wouldn’t even mind if he sent Air Force 1 to pick up Michelle and the kids to join him.
Unlike other world indices, China’s index does NOT follow the US indexes chart patterns so it may be irrelevant what it does this time as well.
Hi Mike,
I read your excellent piece on “China Flu” and am concerned that their market is artificially controlled by the Govt and so does not reflect a true picture of the state of the Chinese economy. When China sneezes the whole world could catch the flu.
My question for you is how you see Alibaba amidst all this. Yes, BABA trades only on the NYSE and not in China but most of the company’s business is still China based. Where is the BABA sp going next?
Regards
John
would it then be better to sell Unit Trusts and Bonds and keep cash in countries like Hong Kong and Singapore?