LIVE Gold Prices $  | E-Mail Subscriptions | Update GoldSeek | GoldSeek Radio 

Commentary : Gold Review : Markets : News Wire : Quotes : Silver : Stocks - Main Page 

 GoldSeek.com >> News >> Story  Disclaimer 
 
Latest Headlines

GoldSeek.com to Launch New Website
By: GoldSeek.com

Is Gold Price Action Warning Of Imminent Monetary Collapse Part 2?
By: Hubert Moolman

Gold and Silver Are Just Getting Started
By: Frank Holmes, US Funds

Silver Makes High Wave Candle at Target – Here’s What to Expect…
By: Clive Maund

Gold Blows Through Upside Resistance - The Chase Is On
By: Avi Gilburt

U.S. Mint To Reduce Gold & Silver Eagle Production Over The Next 12-18 Months
By: Steve St. Angelo, SRSrocco Report

Gold's sharp rise throws Financial Times into an erroneous sulk
By: Chris Powell, GATA

Precious Metals Update Video: Gold's unusual strength
By: Ira Epstein

Asian Metals Market Update: July-29-2020
By: Chintan Karnani, Insignia Consultants

Gold's rise is a 'mystery' because journalism always fails to pursue it
By: Chris Powell, GATA

 
Search

GoldSeek Web

 
China, Greece and the NYSE: Black Swans or Red Flags?


 -- Published: Thursday, 9 July 2015 | Print  | Disqus 

Source: Special to The Gold Report  

 

Scary. That is the word that kept coming up over and over as the news came in this week. Greece technically defaulted. The Shanghai Composite index dropped some 30%. And then a computer glitch caused the NYSE to be down for three hours. Are these headlines just blips on the equities markets? Do they have long-term implications for resource stocks? To answer these questions, we did what we do best at The Gold Report and asked the experts what is causing all the black swans and what they are doing to protect themselves.

 

John Mauldin, the man behind Mauldin Economics and author of "Bull's Eye Investing: Targeting Real Returns in a Smoke and Mirrors Market," gave some background on the China crisis. He credited the current problems in Chinese markets to a shift away from the previous top-down command economy to an organic market. "Inevitably, this transition is causing pain for people accustomed to the old ways," he said in his weekly Thoughts from the Frontline blog.

 

That pain came in the form of a 20% fall in the Shanghai Composite over two weeks. Even after the government cut interest rates and bank reserve requirements, halted trading on some stocks, required and participated in stock buybacks, the market fell another 3% on Monday and 6% after that. "Western traders sniffed panic and headed for the exits," Mauldin said.

 

And Mauldin doesn't believe the red ink is over yet. "Expect more volatility from China in the second half of this year and, really, for years to come," he warned.

 

When asked if he would invest in China at this point, he was not enthusiastic. "Probably not—at least until we see more signs of a bottom and Chinese buyers piling in again. China is a traders' market right now and will be for some time. The best you can do: Follow the momentum and get out quickly when it starts to fade. I think that longer term, China is going to be a fabulous market, but most people are just not going to be able to handle the volatility."

 

Harry Dent, author of Survive and Prosper newsletter and the book "The Great Boom Ahead," said a version of "I told you so" when we asked him about the bad news on Wednesday. "I have been the greatest forecaster of the greatest overbuilding and debt bubble in the history of emerging markets and that this bubble would burst, especially in the last year where everyday investors have piled into the Chinese stock market as the real estate bubble finally started to cool. This is the beginning of the end and I have been warning that major bubbles like China would see 30% to 40% declines in their first wave down and therefore it was better to get out a bit early than late," he warned.

 

Dent credited the slowing of China and world trade in general to the collapse of industrial and energy commodities. A further collapse of China's economy and broader real estate bubble will be even more devastating ahead for oil, gold, iron ore and copper.

 

These are not isolated problems, Dent said. "China's bubble burst is much greater than Greece. However, Greece will be a trigger for a chain of defaults from Puerto Rico to Portugal to Illinois—and the first big one in the U.S., the frackers with a $1 trillion industry with over $600 billion in risky or leveraged loans due to default when oil gets back down near $40 or lower. I see $32 per barrel ($32/bbl) in oil in the next year or so and $10–20/bbl by 2023."

 

Dent recommended investors get out of all bubble assets: stocks, real estate, commodities and higher yield bonds. Get into cash or reliable cash flow positive investments. Wait for this unprecedented global bubble to burst—then the world is your oyster if you have cash. Cash was king in the Great Depression; it will be again in the next several years."

 

Frank Holmes, CEO and chief investment officer at U.S. Global Investors Inc., also warned of more downside to come. "The Chinese stock market has had a great run," he said, pointing out that the Shenzhen index was up 122% for the year, trading at 14 times earnings, before the recent declines. "It still has another 30% to fall before it returns to the mean," he observed.

 

While it is easy to get distracted by Greece or China or the next trouble spot, he pointed to the Purchasing Managers Index (PMI), the indicator of operating orders in the manufacturing economy, as the main indicator to watch and right now it is not looking good for China, he said. The HSBC China Manufacturing PMI for China in June was 49.4, a sign that the sector is deteriorating. "90% of the time a negative PMI leads to falling commodity prices," Holmes said. Reduced manufacturing leads to less metal and energy demand.

 

Holmes is adjusting by keeping 15–20% of his funds in cash so when August comes, he can buy companies with strong balance sheets. "Right now airlines are doing well because of lower energy costs and healthcare is benefitting from Obamacare and an aging demographic."

 

Marin Katusa, author of "The Colder War," says recent changes highlight the problems in China, "which is critical to resources." Back in May, Katusa warned that the next Asian flu pandemic would be caused by the bursting of the Chinese stock market bubble. He credited the rise at least in part to the Shanghai-Hong Kong Stock Connect program, which spiked trading volumes on both indexes. "The beginnings of the Shanghai-Hong Kong Stock connect program caused a shopping spree by mainland Chinese investors inflating the market. In one year the Shenzhen Stock Exchange A shares' price to earnings ratio doubled to a 50 times valuation; over 2x higher than the NYSE composite index," he wrote. "The value between dual-listed Chinese stocks on the Shanghai and Hong Kong exchanges has become distorted. This is partially attributable to more international investors in Hong Kong markets, as well as to less restrictions on balancing the market with short sellers who put downward pressure on stock prices."

 

Chris BerryDisruptive Discoveries Journal writer, described the $3.2 trillion decline in value in the Chinese equity markets as a self-inflicted blow. He took to the Twitterverse Wednesday to talk about the implications for miners. "It appears that metals will be weaker for longer and we may not be truly at the bottom as I once thought we were. Nevertheless we will eventually find a bottom as all economic processes dictate. Each metal has its own supply and demand dynamic, but as markets have become more integrated in recent years, correlations have become more positive. Put simply, as one commodity goes, so goes the rest of them, though correlations aren't always perfect. This has served to make calling a bottom a pointless exercise."

 

 

DISCLOSURE: 
1) JT Long conducted this interview for Streetwise Reports LLC, publisher of The Gold Report, The Energy Report and The Life Sciences Report, and provides services to Streetwise Reports as an employee. She owns, or her family owns, shares of the following companies mentioned in this interview: None. 
2) The interview does not constitute investment advice. Each reader is encouraged to consult with his or her individual financial professional and any action a reader takes as a result of information presented here is his or her own responsibility. By opening this page, each reader accepts and agrees to Streetwise Reports' terms of use and full legal
disclaimer.
3) From time to time, Streetwise Reports LLC and its directors, officers, employees or members of their families, as well as persons interviewed for articles and interviews on the site, may have a long or short position in securities mentioned. Directors, officers, employees or members of their families are prohibited from making purchases and/or sales of those securities in the open market or otherwise during the up-to-four-week interval from the time of the interview until after it publishes.

 

Streetwise - The Gold Report is Copyright © 2014 by Streetwise Reports LLC. All rights are reserved. Streetwise Reports LLC hereby grants an unrestricted license to use or disseminate this copyrighted material (i) only in whole (and always including this disclaimer), but (ii) never in part.

 

Streetwise Reports LLC does not guarantee the accuracy or thoroughness of the information reported.

 

Streetwise Reports LLC receives a fee from companies that are listed on the home page in the In This Issue section. Their sponsor pages may be considered advertising for the purposes of 18 U.S.C. 1734.

 

Participating companies provide the logos used in The Gold Report. These logos are trademarks and are the property of the individual companies.

 


| Digg This Article
 -- Published: Thursday, 9 July 2015 | E-Mail  | Print  | Source: GoldSeek.com

comments powered by Disqus



 



Increase Text SizeDecrease Text SizeE-mail Link of Current PagePrinter Friendly PageReturn to GoldSeek.com

 news.goldseek.com >> Story

E-mail Page  | Print  | Disclaimer 


© 1995 - 2019



GoldSeek.com Supports Kiva.org

© GoldSeek.com, Gold Seek LLC

The content on this site is protected by U.S. and international copyright laws and is the property of GoldSeek.com and/or the providers of the content under license. By "content" we mean any information, mode of expression, or other materials and services found on GoldSeek.com. This includes editorials, news, our writings, graphics, and any and all other features found on the site. Please contact us for any further information.

Live GoldSeek Visitor Map | Disclaimer


Map

The views contained here may not represent the views of GoldSeek.com, Gold Seek LLC, its affiliates or advertisers. GoldSeek.com, Gold Seek LLC makes no representation, warranty or guarantee as to the accuracy or completeness of the information (including news, editorials, prices, statistics, analyses and the like) provided through its service. Any copying, reproduction and/or redistribution of any of the documents, data, content or materials contained on or within this website, without the express written consent of GoldSeek.com, Gold Seek LLC, is strictly prohibited. In no event shall GoldSeek.com, Gold Seek LLC or its affiliates be liable to any person for any decision made or action taken in reliance upon the information provided herein.