When the US AND China Sneeze

Discussion in 'Bullion Investing' started by Ainslie Bullion, Aug 23, 2015.

  1. On Friday we touched on the effect of Quantitative Easing (money printing) on US shares. Last week Vern Gowdie of The Daily Reckoning wrote a great article on the effect of all this central bank stimulus around the world as they desperately try to prop up financial markets. In essence what he is saying is that markets, natural markets, always win. The unprecedented central bank/government stimulus and intervention we have seen, particularly since the GFC is just potentially temporarily skewed ‘nature’ and is setting us up for a far bigger fall.

    Consider the graph below that illustrates over the last century or so the market phenomenon of secular bull and bear markets. Bull markets take Price/Earnings ratios of shares up to unrealistic heights. Bear markets bring them back down to good value levels, and so repeats. They are secular as they are long term and include ups and downs along the way. But notice this current one. Look what the various programs of QE and zero interest rates did post GFC. But what we are potentially seeing this last week is this starting to unwind. The US is part of the global system (espec China) and their practices may be coming home to roost. The problem is the fall is from still heady P/E heights.

    [​IMG]

    And for those who think ‘it’s different here in Australia’ the adage “The US sneezes and we catch a cold” is based on pretty clear evidence depicted in the table below.

    [​IMG]

    We relatively cruised through the GFC courtesy of China and a solid domestic balance sheet. This time around China’s slowdown may well be the catalyst, won’t have the same appetite for our resources and we are (like everyone else) well and truly in the red with our country’s debt.

    This is far beyond a Wall Street crash, this is a global crash. The graph below depict the global basket of sharemarkets and they have well and truly smashed through the 200 day moving average (red line).

    [​IMG]
     
    GSDykes and swamp yankee like this.
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  3. GSDykes

    GSDykes Well-Known Member

    Thanks for the updates. Please keep it up!!
     
  4. doug5353

    doug5353 Well-Known Member

    I worry about couples in their 50s, theoretically at the peak of their earning power, whose 401k's are getting smashed, and whose children will probably inherit ZIP.

    The relative prosperity of today's workforce (until 6 to 8 years ago, that is) came from inheritance for the most part, with the size of the inheritance attributable to fewer children per couple, plus the huge increase in home values resulting from (Congressionally-mandated) easy mortgage terms over the past 30 years.

    Right now, the middle class is being squeezed unmercifully.
     
  5. mikem2000

    mikem2000 Lost Cause

    Me an my wife our in our 50's and it will be just fine. I have been at this game for a long time, and this is nothing new. It is all part of it. So far this is but a blip, and if we bottom anywhere near -20% I am going to throw a party. If you are thinking it is "different this time" it is not......

    Mike
     
  6. saltysam-1

    saltysam-1 Junior Member

    Not that long ago many invested their money in CD's as a sound and safe haven for their money. With interest rates at practically zero they switched to stocks looking for growth in their savings. Then prices began to rise from inflation, and in general, faster than the blue chip stocks could keep up. To compensate they went to more riskier stocks not thinking about where these companies had their future plans. Many of those plans were overseas and tied to other economies. Even though our economy isn't suffering like the rest of the world, the rest of the world affects the market. Many of those investors who didn't realize these ramifications are now bailing out trying to minimize their losses. Everyone wants free money but there is risk taking involved with this scenario. Now they are seeing the affect.
     
  7. mikem2000

    mikem2000 Lost Cause

    Very true, but it is all part of the process, these "weaker hands" must leave to move forward, Eventually (we just don't know when) stronger hands will scoop up the bargains and things will stabilize.
     
  8. PeacePeople

    PeacePeople Wall St and stocks, where it's at

    Interesting. I'm 50 and I don't worry about people in my age range. I haven't inherited a dime and I'm betting over 50% of the people my age haven't either. I believe if people handled their own business and don't worry about other peoples business we'd be much better off. Why do for others what they're unwilling to do for themselves?
     
    longnine009 likes this.
  9. Brett_in_Sacto

    Brett_in_Sacto Well-Known Member

    Most of these people are playing "follow the leader" with no idea of how to invest. They figure if everyone else is doing it, they should to. And they forgot to question whether they are being asked to jump off a bridge - and whether that's a good idea. But instead they blindly follow the herd.

    People need to educate themselves on investing, otherwise this continues. The best thing the masses can do is put it away in long term stable investments - because they don't know how to manage risk.

    The second best, and only just above par are the "target date" funds where you put the date you expect to retire and then let it ride in hopes that the manager is actively moving wins into more stable funds as the date gets closer.

    I think today I'll be moving the last 401k chunk out of stable value and back into stocks. I moved 60% into stable value in June and have slowly buying back into stocks with each successive drop. I've avoided a significant amount of losses, and although there may be more - I think we're going to be ok.

    Today's crash was so large in part due to "safety triggers" in computerized trading algorithms. They made the sell off even worse.

    Buy the fear, sell the safety. Contrarian rules!
     
  10. mikem2000

    mikem2000 Lost Cause

    I agree Peace, I will not inherit anything and in fact need to help out my parents. Not unusual at all. For most of my friends my age, they either inherited nothing, or small amounts (under 100K). Most of the weath built by the "Boomers" was self made.

    I also agree about people taking care of their own buisness, something about teaching a man to fish comes to mind. Folks will be better off in the long run. I know I plan on spending my last dollar on my last day and if I did my job right, everyone will be just fine:)


    Mike
     
    Last edited: Aug 24, 2015
    Brett_in_Sacto likes this.
  11. Brett_in_Sacto

    Brett_in_Sacto Well-Known Member

    To leave this world penniless is perfect planning, and to leave the tax man wanting is a blessing to society.
     
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