You remember 2009, don’t you? That’s when the global economy was coming apart at the seams, banks were failing left and right, and the Dow Industrials was trading for around 8,000.
Market Roundup
Well, take a look at this mystery chart. You can see it’s absolutely collapsing — and within a whisker of plumbing the depths set during the Great Recession in 2009. You can also see that it has NEVER been this bad (outside of that recession) in the 24 years for which we have data.
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| The distressing numbers … |
I won’t keep you in suspense any longer. This shows the year-over-year change in Chinese imports in U.S. dollar terms. We have now seen 11 straight declines in a row, one of the worst negative streaks on record. That shows China is consuming much less of the world’s output than it has in several years — a sign of lackluster domestic demand.
That also fits with other data out of China, including information on retail sales, fixed asset investment, manufacturing activity, and so on, that suggest the second-largest economy in the world is continuing to decelerate … and not in a small way. It also suggests we’ll see more “QT” — Quantitative Tightening — out of China in coming months.
Why should you care? Well, there’s been a lot of claptrap coming from Wall Street about foreign economic weakness. The party line is that what happens in China (or Brazil, or Russia, or pretty much the rest of Asia, South America and Europe) doesn’t matter too much to us here at home. Our economy will just keep humming along despite those global problems. Personally, I think that’s the same kind of “the problems are well-contained” garbage we heard back in the housing and mortgage meltdown. We’re already seeing large multinationals like Caterpillar (CAT) and FedEx (FDX) warn that foreign weakness is hurting sales and profit. And we’re hearing from companies like them that layoffs are on the rise as a result.
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| China is importing and buying less of what the world is producing. |
That’s just one mechanism by which the global weakness will wash up on our shores. Look at the lousy September jobs report I wrote about several days ago; I expect that will be only an appetizer, and that even worse readings will be coming down the pike in the months ahead.
So sure, we had a strong rally in stocks last week. But it isn’t being confirmed by the economic data. It isn’t being confirmed by the earnings data. It isn’t being confirmed by the credit markets. And for all those reasons and more, I believe you still have to err on the side of caution/bearishness here.
Do you agree? Does it really matter here what happens in China? Can our economy keep humming along even with imports, manufacturing, retail sales, and more collapsing over there? Are you adjusting your investing strategy based on the latest foreign news, or the big rally in stocks last week? Let me hear about it either way over at the Money and Markets website.
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Earnings season is underway … and many of you weighed in my piece yesterday about whether the news will be good, bad or ugly. You also shared your opinions about what to expect in markets as a result.
Reader D. said: “The bears are on solid ground but don’t fully know it yet. No major index has regained its 2011-2015 trendline, and it’s increasingly unlikely they will.
“On the other hand, there’s still a lot of hype about the economy that lingers. That will change as the revisions for GDP and jobs keep coming in with significant downward changes. View the economy as being on recession watch.”
Reader Chuck B. said: “I just read something another analyst said: ‘Cash is like a no-risk call option that never expires.’ That’s a very interesting observation. In a deflationary economy, it might even gain a trifle in value — my own addendum.
“Also, when you sell a stock or bond, you are, in a sense ‘calling’ that cash option, and you either gain or lose. Think of cash like you do stocks, etc. It is a kind of investment.”
Reader H.C.B. added: “I agree with you that technology looks doubtful as a driver of higher stock prices this year, as does health care (After Hillary Clinton took a shot at pharmaceuticals overcharging last week).
“Apple (AAPL) looks like a slow mover, slowly increasing earnings at the margin, but no great momentum. It’s acting like a value stock, and has remained stuck around $110.00/share since the August 24 correction. Jon Markman was correct in predicting the initial Apple Watch would be a dud. If China sales of iPhones slow, Apple stock is going to have a hard time moving up much.”
On the other hand, a couple of you suggested U.S. stocks would continue to hold up relatively well vis-a-vis foreign markets. Reader Tom R. said:
“While the U.S. might have some serious problems, take a look at the rest of the world. Where would you rather put your money if you were a person of wealth from China, Syria, or even Europe? The U.S. is the prettiest girl in the brothel. Investing in America has been a safe haven for many years and will continue to be.”
Finally, Reader J.H.M. said: “Buy good stocks that pay dividends, maintain ample cash so downturns can be ridden out without needing to sell to survive, avoid margin borrowing that requires the sale of stock to cover, and remember Will Roger’s advice: ‘Buy low, sell high, and if it don’t go up, don’t buy it.'”
Thanks for the observations. I still remain very concerned about the earnings and economic outlook this fall, and I don’t believe central banks have too many more fingers they can plug in the dike. So that’s why I remain positioned very cautiously — a position I adopted BEFORE the markets started cracking in August.
Don’t hold back if you haven’t shared your opinions yet though. Here’s the link where you can get in on the action.
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Anheuser-Busch InBev NV (BUD) sweetened its offer for SABMiller Plc (SBMRY) to $104.2 billion … and that was good enough for the beer firm to accept the deal. But now the long, arduous process of trying to get regulatory and antitrust approval around the world begins. It could take a year or more to go through the steps, and no conclusion is assured.
Not that there was much doubt. But a 15-month-long investigation by Dutch authorities has concluded that Russian-equipped rebels did in fact shoot down Malaysia Airlines Flight 17. The July 2014 crash in eastern Ukraine claimed 298 lives.
The Republican party has held a handful of debates already. Now it’s the Democrats’ turn. Hillary Clinton, Bernie Sanders and a handful of other candidates will take the stage in Las Vegas. Five more Democratic debates will follow in coming months.
So will you be watching the debate? Will you crack a beer in honor of this latest mega-merger? Or are you more worried that China’s economy continues to go flat? Share your thoughts over at the website when you have time.
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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intellectuals overthink everything. can only see trees and not the forest. it’s all really simple. not complicated at all.
Explain it then.
I could hardly give a hoot about AB AnBev and SAB Miller. They both make mediocre brews, at best. I prefer local brews from DuClaw or Heavy Seas, but Wisconsin’s Leinenkugle is pretty good too.
As for China’s economy, they have a weird combination of communist type central planning, and private enterprise, and it is hard to see how that will work out in the long run. Of course we are not far different, having put much infrastructure under government control. China has largely copied us there. The only thing is their government is building their infrastructure rapidly. Ours is letting it deteriorate.
Yep, I’ll be watching the Democratic debates. I watched the Republicans too. Then I fact check, look at history, read and listen to analysis from many sources. I hope others do too.
Mike,
My hunch is that the China situation will eventually register with those denying China’s economic downturn, and more importantly the importance of the China downturn on the world economies. The reaction will be overdone, which seems to be the case lately with so many things. This might be the result of the inability to understand all the variables in the very complex algorithm called the world economy. There is much confusion on how all of the variables that comprise the world economy interact with one another, and ultimately how they impact different country economies. In a nutshell, the over reaction will be painful, but over quickly, and will be followed by a very intense rush to safety. Not that the US is as safe as it should be, but we will be perceived as safe harbor compared to so many other economies. As a result (and it’s already underway), smart money, and eventually even dumb money will flood into the various US investment vehicles. With any luck, this will get going full force next spring.
japan has been stuck in a quagmire for the last couple decades. it was, and may again be, the world’s second largest economy. did japan’s decades long problems damage america’s economy? the answer is a flat out no. likewise for china.
We are now 6-1/2 years into this “bull market.” Like a friend told me, “you can coast for 7 years, and then the work begins.” Most signs point to a downtrend-you decide.
Of course China and Europe make a diference when their economies are in trouble for us.
But we can carry ourself and help to bring back both some health to both East and West.
I’m opposed the Federal Reserve Bank getting involved, they helped to put us in this sad situation.
in the movie alexander the great the idea was to go out and conquer the continent. Alexander was warned by his mother, he distrusted to return Greece, to strengthen his center. and to and rebuild his army. he did not follow her advice and became involved in worldly pleasures. as a result lost his vision and his end goal. we are in a similar place. we must ask what we want is worth this sacrifice. our economy has reached this impasse quite some time ago. however we insist on resuscitating a broken economy, with unsound monetary manipulation.. we have disbanded sound money principals. we are now chasing a feather called GLOBALIZATION. Everybody wants a quick solution but they disregard the fundamentals basic to monetary growth,. for example. globalization was implemented wrongly. with out rules for strong reinvestment.it became short lived. many people became wealthy but not enough people benefited. the main problem the FED should be abolished , foreign influence in monetary implementation will continue to weaken our economy. Get back on the gold standard if its not to late. Start focusing on getting back to our center. strengthening our fundamentals of sound monetary growth. choke off wasteful spending. may take oversight in Washington. Stop building political friendships with disloyal countries. Start building real relations thru mutually profitable for both countries involved. there are many things we can do, too we need to do too lengthy to write hear.[rebuild jobs and tax base is also essential. im convinced that the fool on the hill was put in power because he has no knowledge of finances so the people who tell him what to do- control him and set policy CRONYISUM that serves their economic interests instead of what strengthens our republic. Instead of handing people wealfare/ checks, training should be given and a job. in order to get more assistance. we are a patient , bleeding out we need comprehensive evaluation and treatment. half steps and a band aid will no longer suffice.
What relationship does the amount of gold stored a Fort Knox have to do with the monetary needs of the country. If there were only one billion dollars worth of gold there then the country would have to get along with a billion dollars in currency. Figure that out.
once upon a time we may had gold backing . Nixon took us off the gold standard in 1971. banks controlled by the fed. the amount of gold restricts overspending . theoretically you can only produce as much cash as gold you had on hand. but we started printing more than gold we had. when you go to a fiat money system you can produce lots more cash the ability to track cash came with computers. their was no immediate repercussion . so as debit grew it was decided to discontinue gold backing. so you would continue mining gold to fit demand. wall street wasn’t going to wait for that to happen they had to prevent Kennedy from signing laws. JFK wanted international banks out of usurping our money system with fiat money they would inflate and collapse by manipulation for insiders who created cycle’s for huge gains.
eventually control
Doesn’t it occur to anyone that China’s imports are less simply because they are exporting less…?
Americans are buying less and less every week because their actual incomes are buying less and less because Americans see the huge debt bubble hanging over the U.S. and they know the rest of the world is in trouble…!
Europeans, Australians, Brazilians, and other countries are also importing less and less every week… China’s imports/exports are going to suffer.
China is one of the worlds largest exporters and they are in a downward spiral and first their imports will be a very good indicator/gage of what is happening worldwide.
Soon, asbestos, lead paint, rising oceans, assault weapons, and climate change will be minor distractions when the “big bubble” of the world pops…
What happened to bloody Democracy.Berlin says all immigrant welcome to Germany,now with 2 brain cells what do you think might happen,now the bloody Jerries(Im mad) are telling everybody in this danm club called the EU. to take 30,000- 40,000 each,to help them out. It begs belief.We dont have houses for all our own natives,never mind them.Its going to cost billions and HEY where is the money coming from.Just had to get it out,Thanks
Ian, I’m curious. Who does the English gentleman think ought to be
President ? Jim
The country is in need of a party change and a change in all seats governing us.
I strongly agree with a radical change in congress, senate and representatives.
then chang them every 6 years
Well, we’ve got Republicrats and Demicans. It’s pretty much six of one and a half dozen of the other. Where can we get that party change? They are all politicians, after all.
i agree, chuck. like trading tweedledee for tweedledum.
We term limit The President but not Congressman? It’s the career politicians of every stripe that are killing us. Jim
We term limit the President but can’t limit Congressmen? Jim
Whoops!
considering the fact that the US runs a monthly trade DFICIT of about 45 BILLION /month, I really do not care about the state of foreign economies. We would be 45BILLION/month better off if we just did business with ourselves
Where is the market among ourselves. Even in the city slums, most people in this country have TVs, Stereo, microwaves, computers, cell phones, etc. In China, there is still market potential. Hundreds of millions of people still lack most such stuff, so there is still a market, and that is what their government is encouraging to replace the export markets. We are importing less, but exporting less also, thus our balance of trade is still biased heavily toward imports.
Ever heard about the Smoot-Hawley Tariff Act of 1930? It raised tariffs on imported goods to try to accomplish just what you’re recommending, significantly reducing imports. It’s viewed as one of the proximate causes of The Great Depression.
What merger? What debate? Congrats Cubs! Go Mets! Jim
The debt levels in the global economy are not sustainable. The cheap money is a curse not a blessing. When interest rates rise the sins will be exposed.
Everything I have ever been taught about economics says you are right. But, it hasn’t happened. What if we are just a bunch of old timers that don’t understand the new world financial order? If $18 trillion hasn’t killed us, why would $36 trillion kill us? If $500 trillion in derivatives hasn’t destroyed us, why would a million trillion? If you don’t have to pay any interest and can refinance with more interest free borrowed money, then what difference does it make. As I understand it the Feds are paying the same amount of interest they did in 1999. We keep hearing that when interest rates rise its game over. If that’s true then why would they ever let interest rates go up. Zero rates my be here to stay. Negative interest rates may even be the new normal. Just wondering. Jim
Don’t waste your time watching the Democratic debate. This election is an all or nothing proposition for Republicans. If you want to save our country concentrate on the Republicans.
Yes, if you want to save our country for the Wall Street One Percenters, then concentrate on the Republicans. Should you want to save our country for our children and our grandchildren, vote Democratic.
Yeah Nelly, except for the ones you butcher in the womb.
And guarantee that those children will be debt slaves from the minute they are born, attend a crummy union school, and work part time for second rate healthcare. It is the Democrat Party that is the party of the wealthy. This “all for the working man”cover hasn’t been true for many years. Pure political propaganda. Jim
Yep, you got it Jim, specially that ” “all for the working man†cover hasn’t been true for many years.
Do they say “working man” or poor (welfare slaves)? If it is this “poor†group they are exactly right (welfare slaves). They just leave out the wealthy cronies. These “poor†people have no skills other than to take advantage of the system and would starve to death if they were cut off. God help us all if that ever happens.
just how are the democrats saving our country for the next several generations …. what by burying this country in a mountain of debt that no-one can pay for ………….. by legalizing drugs you do know that democrats do want to legalize all drugs you know why because they want to TAX IT just another soure of revenue for their spending binge …………….. hey nella maybe its by making the country weak with the idiot in chief we have in charge now maybe its by forcing the ICE agents to not arrest illegals we don’t even have a border in most areas in the south west its just walk over and come get some freebies
Wow. The country is in sad shape if we have to pick a President from that bunch of clowns the Republicans are offering. NONE of them are presidential timber. What has the Republican Party accomplished in the last 7 years in the Congress? What have they even proposed in terms of new ideas? They’re still pushing Voodoo economics that is largely responsible for the shape we’re in today. Cutting taxes on the 2% does NOT result in more jobs for the rest of us. It simply allows the ultra-rich to buy more elections as well as more high end cars, houses, boats, airplanes, etc. I can’t believe that middle class Americans are still swallowing this claptrap which has resulted in THEIR wages being flat for the last 30 years while the rich get richer.
I agree with you Ray, I will not be watching the Democratic debate. Not Interested.
Sure the world is joined at the hip [pocket book], we all share each others financial germs, but we are not as bright as some, as dumb as others. Our fortunes rise or fall no matter how we read the chicken livers. I have left the rat race, swore a vow of poverty, and yes I am much happier. No, it’s not for every one, not for most, but the few who get it, love it.
Hey wheres that Great Prognosticator Larry ? In hiding ? shacked up probably .
All them cant miss predictions starting Oct 7 – not one has come to pass. But all them poor saps you inspired to pony up thousands to buy your service are all now scratching their weevils . Larry come out from that rock and start spamming some new spiel. Hell I was getting 2 – 3 emails everyday , sometimes hourly .
Blue chips , products that we can not do without – that’s where on needs to be
Larry -ROFLMAO@U
Fear is a wonderful marketing tool. My E-mails have been filled with so much doom and gloom for so many years I don’t pay attention anymore. Does anyone remember David Tice? The great Harry Dent has been scaring the daylights out of everybody for years yet also wrote a book called “Dow 35,000”. Go figure. Jim
fire & brimstone sells bibles, just like gloom & doom sells financial advice.
All Larry has said is that the cycles he studies appear to come together 10/7/2016. Make what you will of that fact. He seems to believe they indicate a strong collapse in certain market trends beginning about that time – not instantaneous – followed by rises to new highs, again followed by falling trends. Like all prophets, take what he says at your own risk. If you aren’t prepared for the risk, get out of the markets. On the other hand, he has reasons for his beliefs, and they may be worth a good look. This is true for Mike, also. You choose.
Pardon me, 10/7/2015.
Hi Michael,
It most CERTAINLY and ABSOLUTELY matters what happens in China, and Brazil, and India, and Europe etc..etc..Oh, so it’s a WORLD economy when things are economically great, but as soon as there is a problem, like the Chinese Stock and Real Estate Crash, then, oh no, it’s isolated, it’s their problem etc..etc..This is TOTAL nonsense and this is EXACTLY what we heard at the beginning of the “tiny” sub-prime crisis when Bush told us all we need is a tax rebate check and the economy will be “just fine” I can clearly remember seeing him say this…Bottom line, this Chinese Real Estate and Stock Market Crash, combined with the European Sovereign Debt Crisis, combined with the Commodities Crash, combined with massive Debt and spreading deflation, is going to make the 2008 sub-prime crisis look like a walk in the park.
What happens when China devalues again, and again? What happens when China starts pulling its reserves out of US debt?
Its slowdown will make China ever more eager to lend us the $ we gave them to pay for our imports. It will continue to happen even as China knows the US will never pay back those loans. This is because over the last 70 years we became accustomed to be the greatest spendthrifts and the fastest consumers and crunchers (literally) of goods in the world, and thus the greatest sink of the goods produced in China (and other countries). Effectively, our incomes are substantially subsidized by China and other foreign loans, while we help China to lift from poverty their poor. Their loans to us are actually a payment for our consuming services. Without our ever growing hunger for whatever silliness is produced (think of iPhones…) China and other countries would still be mired in abject poverty for lack of demand. We are not necessarily benefactors, and the moment will come in a few decades when China and others will reach sufficient internal wealth to consume their own GDP: What will then happen to us, spoiled as we are by China loans to our government that needs to borrow about $0.5 for every dollar it spends? It is difficult to say what will happen 10-20 years from now, but it is likely that the present QT system will survive for a while longer to keep our government from collapsing. Unless the US starts mass producing something that the world will need and buy: but what? We need to invest in smart people and to export new and useful tools, ideas and patents, for no one can do it better…
I’m not sure which Dutch Safety Board report you read Mike, but their press release yesterday did not conclude “that Russian-equipped rebels did in fact shoot down Malaysia Airlines Flight 17” as you claim. I would really enjoy seeing a citation for this. If we read the same report, then you must recall the DSB stated clearly that they could not identify which party was responsible for firing the BUK missile and, interestingly, that identifying the persons responsible was not even in the scope of their investigation. Please do all of your readers a favor and exclude such fabrications from your daily updates. It seems that rather than read misguided extrapolations and opinions, it would be best if they read the reports themselves and come to their own conclusions. Otherwise, your reports are interesting; but please be reminded to question everything you read people!
I believe it was CBS news that linked the shoot down to a Russian missile launcher that had entered that rebel held area a few days before the shoo tdown. I believe they showed some video of that same launcher on last night’s Evening news
Did it ever dawn on the Weiss Organization that Americans are buying less and less Communist Chinese products and more and more products Made In The U.S.A.?
Your twisted logic about the “sky is falling” when a Democrats i President and virtually nothing negative when Cheney/bush were running America over a financial cliff appears to demonstrate a huge political bias, aye?…..
You appear indifferent to the FACT that America has made it;s greatest financial and economic gains in the past 100 years under the leadership of Democrats and virtually nil under the leadership of Republicans..
HEY MICKEY S. your the one with a twisted view your logic is absurd all you do is pump out the lies and mistruths the real truth is jimmy carter was a total fool a recession started under his watch, double digit inflation and he was a democrat…. the market was going nowhere then Reagan took over got things under control AND …. BAM …. the market took off it did real well under Reagan and bushs watch then lets go forward to the next democrat bill Clinton a recession started under his watch………… also remember a recession starts 18 months before they show up on the charts as 2 quarters or more of negative growth so that means a recession started early in Clintons second term so eagle 495 please explain in detail your comments lets go to the next democrat Obama and I feel since july we are in the early stages of a recession but its still here
Mike Larsen is right about being cautious now. After 7 years of a bull market fueled by the feds and central bankers easy money policies the inflated financial bubble they have created may have come to an end. Because of the Saudis oil war and China’s economic downturn deflation is gaining momentum. Walmart’s stock drop today of 8+ % is signaling a slowdown here. No doubt the wall street bulls would like to reinflate the bull market which has given them a unending stream of unseemly profits while mainstream struggles to stay even or lose ground. Will they succeed? It’s possible but increasing less likely. We may have finally reached the tipping point as the unwinding of easy money takes place and the feds at zero interest rates have run out of bullets to goose the markets.
Mike: What has not been mentioned that China had to tighten its currency to maintain the peg with the dollar. The Yuan to dollar pair held at 6.2 to the dollar well through most of 2014 and 2015. The problem was that in order foe China to maintain the peg it had to sell dollars and buy yuan in the markets. This is a form of monetary tightening because when a central bank buys back its own currency, it reduces its money supply. China had to tighten because the Fed was threatening to raise interest rates. As you well know, when a country raises interest rates, the currency gets stronger, because the purchasing power increases. This is a two edge sword because when our dollar becomes stronger our exports become more expensive in other countries. This is one of many reasons why our economy and the world economies are slowing down. The pressure on China to break the peg became too great and they broke the dollar peg on 08/11/2015. The solution as I have previously written is a return to the gold standard. Regards, Robert Calabro.
Thank you-wish I could afford to invest.
As unlikely as it may appear, Trump has more support among democrats and independents than anybody running from either party. He has created a wakeup call to this nation.
The country seems to self-correct from time to time. Obamacare has effectively raised the rates for middle class, how could it not when it covers much more-maternity, bad health, etc., I’ve talked to others and checked my history, insurance rates now are not affordable, just the opposite,for average payers. Obama has a strategy of bringing in Islam, with immigrants, with foreign policy,(Iran,Iraq, Libya, Syria, in each the effect was radicalizing these),with denying the Judeo-Christian foundations of our land, numerous times. It is against Army law to pass a Bible. He consults behind closed doors with radical Muslim Brotherhood. His policies have to be considered influenced here. The US has a history of being Santa Claus internationally, to me Trump has a vital purpose in waking us up to the fact that we cannot continue to give away our military protection to lands that can pay for them, and that we continually are on the losing end of foreign trade ,commerce and military agreements.That is what is driving his supporters. He would be the best antidote to what we have witnessed the past decades.
Probably no one remembers back in 2000 when China had huge debt problems with local governments. In fact the debts were scheduled to bankrupt the entire country. Then mysteriously the whole issue disappeared. American businessmen just couldn’t wait to get into China and the news never followed up on this local debt issue. Now after 15 years the local governments are way too far in debt and a collapsing property market isn’t bailing them out. Now that American companies are so fully invested in China it seems the debt is back again as the Chinese national government wants to loosen bond sales to spread that local government debt around.
Interesting how excessive debt simply can’t be overcome by greater debt.
We have a government of deceivers-smoke and mirrors of these invented crises, while they steal from the poor to give to the rich. plus getting involved in sectarian wars of fanatics. All is upside down.
this is why we are in this mess. the crisis they create and the solution all works to their end. that’s why war is always financed by international banks its a mechanism for putting debit on nations. borrowing money to fight war. then having to pay back over generations borrowed from international banks. while debts continue to grow. your fed is a international bank. it is there by design. if your money is controlled by internationals can you say your country is free? if not why all the secrecy?