Chinese takeout, Part 2

Welcome to no growth economy.

Market watchers said there was no bubble. Well tell that to equity investors in the Shanghai Composite, who have seen a 60%  to the downside since mid June, erasing all this year’s gains.

That’s what a bubble looks like when it explodes. The doors are small and the crowd racing to get out is huge, despite the government making selling illegal.

What staved this off earlier in the year was when The People’s Bank of China lowered the reserve requirement ratio for all banks by 100 basis points to 18.5 percent, so it could buy stocks and keep the bubble going. There is no move afoot to lower it any further, although that may change.

As I write this at 8am Monday morning Dow futures have moved from -421 to -604 as the traders hit their desks and the IT guys turn on the algo, high frequency trading terminals. (I say that half in jest.)

My biggest concern with a 200 Dow point move down in the futures is when do we have a hedge fund blow up here, that takes our markets down another leg? That may come in the early part of this week, as I see gold is selling off today as well. First time in over a week

In liquidation you sell what you can, not what you want.


The Asian sell off and its contagion component here in the US make for a good narrative, but as I’ve said prior, there is no sustainable economic growth in the US.

Retail sales are sloppy with margins getting squeezed on deep discounting, wage growth flat and now 401(k)s are negative for the year.

The US economy was already sick, when this Asian contagion hit, which means Europe gets pneumonia, when we cough up equities.

 

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