With the dollar surging and gold and crude oil weaker, today King World News is featuring a piece from one of the greats in the business warning investors to ignore today's bounce because contagion is set to spread throughout Asia as stock market mayhem in China to trigger further wealth destruction.
By Jeffrey Saut, Chief Investment Strategist at Raymond James
July 9 (King World News) – "Let's not call it a correction in China, let's call it what it really is, a crash. Just because it didn't happen in just one day like other so called crashes doesn't make it any less so." — Peter Boockvar, Chief Market Analyst, The Lindsay Group
Contagion To Spread Throughout Asia – Expect More Wealth Destruction
The eagle-eyed Peter Boockvar goes on to note:
"What is most significant though is that it came in the face of almost every attempt possible by Chinese authorities to prevent it from happening. The central bank put? Not here and if it's not there, it doesn't have to be anywhere. I mentioned many times in June the extraordinary extent that the Shanghai index was above its 200-day moving average as it marched higher. At the peak in mid-June it was 60% above. Today at a closing price of 3507 it is just above its 200-day moving average of 3423. At the close there were almost 750 more companies trading limit down, taking the total to 2,000 that have stopped trading as margin calls are rampant.
The H share index in Hong Kong that is now trading at 8x forward earnings and 8.5x trailing closed at 8.5% below this key moving average. The discussion of contagion should be had as the Chinese economy will likely slow further as a result of this market mayhem and the rest of the Asian region has been slowing for the past year, but also remember that China's economy has been slowing for years now. Also, with respect to the industrial commodities that have suffered on the China slowdown, they are already four years into their own bear market."
The Largest Investment Bubble Of All-Time
Our friends at Credit Suisse chime in by writing:
"In our view, China is in the midst of a triple bubble, with the third biggest credit bubble of all time, the largest investment bubble (proxied by the investment share of GDP) and the second biggest real estate bubble. This is occurring against a backdrop of near record producer price deflation, near record low growth in bank deposits (the main source of internal liquidity), FX outflows (the main source of external liquidity) and falling house prices (with property accounting for the majority of household wealth).
The main negative impact is probably via confidence (the government has been unable to support the stock market, and there is thus some question marks over the government's ability to control the economy), on capital raising (the banks can only raise capital if their P/B is above 1x) and on whether recent interventions represent a regressive step for reform (e.g. stopping IPOs). We wonder if this represents a wider setback to the Third Plenum."
Plainly, the Chinese "crash" is having more of an impact on world markets than the Greek Gotcha despite the media's machinations. Yet, I continue to think our markets are in a bottoming phase that is typified by the kind of whipsaw action we have seen this week. My hunch is that we now rally back to the 2080 – 2100 level, but once again fail to get through on the second attempt. I also think the Chinese market is vastly oversold. And this morning both of these markets are in rally mode. ***ALSO JUST RELEASED: Gerald Celente – Was The Suspicious NYSE Trading Halt An Attempt To Stop A Crash In U.S. Markets? CLICK HERE.
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