As people continue to digest breaking news out of Greece and around the world, the Godfather of newsletter writers, 90-year-old Richard Russell, warned that China may be a black swan that will shatter confidence around the world.
Richard Russell: "The prevailing worry is about whether Greece will or will not exit the euro. From the stock market’s standpoint this is a nonevent. The only ramification would be if Greece left the Eurozone and this set off a parade of followers such as Portugal, Spain and even Italy.
Personally, I am much more worried about the building bear market in China and the planet’s second largest economy sinking into a recession … there is no telling the ramifications. One immediate result would be less movement of goods, and this may be showing in the Transports.
China – The Black Swan That May Shatter Confidence Around The World
Again, I repeat that China is what worries me. The “polite” part of China’s bear market has already occurred. What I am really afraid of is a crash as the Chinese bear market turns nasty.
China is preparing a huge infusion of liquidity in an effort to halt the decline. Bear markets are fed by fear and once the fear becomes wide spread, a bear market can become a soul searing affair. Bear markets are deflationary and this one could spell the end of fiat money.
Chinese stocks are in a bear market (is it a Black Swan?). They’re down over 20%. The government is obviously worried about the falling Chinese market, and is preparing for a huge injection of liquidity. I’m much afraid that the primary trend of the Chinese stock market is bearish. I’m also afraid that the bear market in China is on route to fully express itself. When the planet’s second largest economy and stock market is in trouble, I have to take it seriously.
China has been on a furious building boom, which has pushed its GDP up. China has built trillions of dollars worth of buildings. But the buildings are empty; nobody came to the party. How did China pay for all this? China owns $1.22 trillion of US bonds. It paid for it by selling a portion of its US bonds.
China’s selling of US bonds has pressured the bond market down for the past five months. As bonds decline, interest rates rise. This is the last thing the Fed wants. Rising interest rates are deflationary. What will the Fed’s reaction to deflation and rising rates be? They will fight deflation with inflation, by creating billions more fiat dollars.
China Has The Power To Make Or Break The World Economy
My interest has switched from Greece to China. With its phenomenal size, China has the power to make or break the world economy. China’s sickness has already affected commodities. My guess is that medium to large investors have hedged with conservative buying of gold.
Distribution days are adding up. There are seven distribution days in the S&P and five on the Nasdaq. My advice: follow the lead of the institutions and prepare for tougher times, both in the markets and in your standard of living. The great Barton Biggs did a lot of work regarding the safest position in a bear market. His attitude is that the best place to be is on your own section of farmland, as far from big centers of population as possible." I would urge all KWN readers around the world to subscribe to Richard Russell's 90 years of wisdom and remarkable writings at Dow Theory Letters by CLICKING HERE TO SUBSCRIBE.
***ALSO JUST RELEASED: Paul Craig Roberts – A Shocking Behind The Scenes Look At What Is Unfolding In Greece CLICK HERE.
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