Silicon Investor (SI) -- The First Internet Community

STOCKTALK

We've detected that you're using an ad content blocking browser plug-in or feature. Ads provide a critical source of revenue to the continued operation of Silicon Investor. We ask that you disable ad blocking while on Silicon Investor in the best interests of our community. If you are not using an ad blocker but are still receiving this message, make sure your browser's tracking protection is set to the 'standard' level.

Strategies & Market Trends : 2026 TeoTwawKi ... 2032 Darkest Interregnum -- Ignore unavailable to you. Want to Upgrade?

To: TobagoJack who wrote (115422)	1/8/2016 10:15:55 PM
From: Lazarus	Respond to of 218741

KUDOS TJ!

To: TobagoJack who wrote (115422)	1/9/2016 2:03:30 AM
From: elmatador	2 Recommendations Recommended By dubad GPS Info Respond to of 218741

LATAM deals with a major crisis once a decade. Get out and and fall into a new one and the pattern repeats. China is having its first one post Deng era. It is a a learning process it have to go through. The crisis itself is due to te move from China 1.0 to China 2.0 To move from old to China Light is not easy since the animal is too big. A frail global economy caught in China’s tumble John Authers There is a lack of confidence over Beijing’s data and western corporations’ health Chinese markets are shaking the world. As in the past, this says more about frayed nerves in the rest of the world than it does about China, where stock markets were twice forced to close early. This week also saw the biggest new year fall for US stocks on record; its clearest forerunner was in February 2007, when a 9 per cent fall in Shanghai stocks was followed in New York in the afternoon by a fall of 250 points for the Dow Jones Industrial Average in a matter of seconds. That incident, dubbed the Shanghai Surprise, proved to have no significance for China. Its economy kept growing, and the bubble in its equity market grew far bigger before bursting late that year. The incident is now largely forgotten. Yet it triggered the end of a long period of “Great Moderation” when market volatility stayed low. With worries about subprime credit intensifying, volatility increased — but it took a Chinese shock to jolt western markets out of their irrational equanimity. Why should moves in China’s currency and stock markets have such an effect? Yes, the country’s economy is huge. But do this week’s events really change anything? Take the stock market. It is largely a walled garden. Nowhere near enough foreign money is at stake for losses there to have any great contagion effects elsewhere. Driven by speculators, it has zero correlation with the Chinese economy. And its scary downward moves had more to do with technical factors — such as clumsily applied “circuit breakers” to halt trading — than anything else. Steadily, regulators will work out how to manage the market better. Share ownership is spreading, and the authorities had hoped that a buoyant stock market would make it easier to deal with China’s debt overhang. Still, a market crash would have far less impact than it would in the US or Europe. And even after the past week, China’s stocks are still roughly where they were a year ago, and above their low for 2015. Now, take the currency. Plainly the terms of trade for an economic power like China are important. But the moves are tiny, compared with fluctuations in less managed currencies, and have been driven largely by the strength of the dollar. China is trying to wean itself off its reliance on exports; artificially cheapening its currency is exactly the wrong thing to do to accomplish this. “Currency wars”, or competitive devaluations, have the effect of exporting deflation, which already bedevils the developed world. But even this can be overstated. Chinese imports account for about 2.5 per cent of US gross domestic product (and less for France and Germany). Even a 20 per cent devaluation — far greater than anything seen so far — would only knock about half a percentage point off US inflation. So how did Chinese events translate into the worst US stock market losses to start the year? The explanation is a lack of confidence among western investors. Part of this is mistrust of China, born of opacity and lack of information. The second-biggest topic of conversation in Wall Street and the City this week has been the open letter written by Martin Taylor, founder of an emerging markets hedge fund called Nevsky Capital, explaining why he was closing the fund. His complaint, with which many agree, was that he could not trust the information he most needed to make good investment decisions, particularly from China. “An ever growing share of the most important data they produce is simply not credible,” Mr Taylor said. The resilience of the global economy is once again being tested Distrust of official Chinese data is so great that there is a thriving industry in assembling alternative estimates from the available hard data, such as electricity consumption. For example, London’s Fathom Consulting this week estimated GDP growth at 2.4 per cent. The official number is 7.1 per cent. In such an environment, hard data such as foreign exchange rates and share prices takes on more importance. They were widely taken to signal that Chinese authorities might believe they are facing a true economic “hard landing”. Investors are not positioned for this. The effect of a Chinese slump would be profound. Mix distrust of the data with fear of an extreme event, and a stock market sell-off results. China’s actions also played into the greatest prevailing fear in the west: deflation. Central banks are desperately trying to escape this so anything that threatens to intensify the problem is very serious. Japan’s stagnation over the past two decades is taken as the model of what happens when prices fall, encouraging consumers to save rather than spend or invest. Deflation also eats into companies’ ability to raises prices, and hence profits. That is the last thing equity investors want to see after a year in which corporate earnings on both sides of the Atlantic declined. As with the first Shanghai Surprise, the stark reaction to this week’s Chinese events reveals deep lack of confidence in the health of the western corporate sector. Even if the situation now stabilises — as it did for several months back in 2007 — the message of concern, in both west and east, is clear.