Best of the Week
Most Popular
1.Spain Ignores Scotland Lesson as Catalan Independence Referendum Could Spark Civil War - Nadeem_Walayat
2.Used Car Buying From UK Dealer Top Tips, CarMotion.co.uk Real Customer Experience - N_Walayat
3.Spanish New Civil War Begins as Madrid Regime Storm Troopers Quell Catalan Independence Rebellion - Nadeem_Walayat
4.Virgin Media Broadband Down, Catastrophic UK Wide Failure! - Nadeem_Walayat
5.Are the US Markets setting up for an Early October Surprise? - Chris_Vermeulen
6.The Pension Storm Is Coming To Europe—It May Be The End Of Europe As We Know It -John_Mauldin
7.Stock Market Crash 2018; Will it Prove to be Another Buying Opportunity - Sol_Palha
8.The Profoundly Personal Impact Of The National Debt On Our Retirements - Dan_Amerman
9.Stock Market as Good as it Gets; Like 2000 With a Twist -Gary_Tanashian
10.1987 Stock Market Crash 30th Anniversary Greatest Investing Lesson Learned - Nadeem_Walayat
Last 7 days
Debt-Driven Consumer Economy Breaking Down - 23rd Oct 17
Next Wall Street Stock Market Crash Looms? Lessons On Anniversary Of 1987 Crash - 23rd Oct 17
This Super Metal Is Set To Soar By 300% - 23rd Oct 17
More New Record Highs As S&P 500 Gets Closer To 2,600 Mark - 23rd Oct 17
Another Minor Stock Market Top? - 23rd Oct 17
Bitcoin Hits $6,000, $100 Billion Market Cap As Helicopter Ben and Jamie Demon Warn The End Is Near! - 22nd Oct 17
Time for Caution in Gold Miners - 22nd Oct 17
“Great Rotation” Ahead; Will it Be Inflationary or Deflationary? - 21st Oct 17
The Trigger for Volatility, Rates and the Next Crisis - 21st Oct 17
Perks to Consider an Agent for Auto Insurance - 21st Oct 17
Emerging Megatrends Hurting Consumers - 21st Oct 17
A Catalyst of the Stock Market Bubble Bust - 21st Oct 17
Silver Stocks Comatose - 21st Oct 17
Stock Investors Ignore What May Be The Biggest Policy Error In History - 20th Oct 17
Gold Up 74% Since Last Stock Market Peak 10 Years Ago - 20th Oct 17
Labour Sheffield City Council Employs Army of Spy's to Track Down Tree Campaigners / Felling's Watchers - 20th Oct 17
Stock Market Calm Before The Storm - 20th Oct 17
GOLD Price Creates Bullish Higher Low - 20th Oct 17
Here’s the US’s Biggest Vulnerability in NAFTA Negotiations - 20th Oct 17
The Greatest Investing Lesson Learned from the 1987 Stock Market Crash - 20th Oct 17
Stock Market Time to Go All-in. Short, That Is - 19th Oct 17
How Gold Bullion Protects From Conflict And War - 19th Oct 17
Stock Market Super Cycle Wave C May Have Started - 19th Oct 17
Negative Expectations, Will the Stock Market Correct? - 19th Oct 17
Knowing the Factors Affect your Car Insurance Premium - 19th Oct 17
Getting Your Feet Wet In Crypto Currencies - 19th Oct 17
10 Years Ago Today a Stocks Bear Market Started - 19th Oct 17
1987 Stock Market Crash 30th Anniversary Greatest Investing Lesson Learned - 19th Oct 17
Virgin Media Broadband Down, Catastrophic UK Wide Failure! - 19th Oct 17
The Passive Investing Bubble May Trigger A Massive Exodus from Stocks - 18th Oct 17
Gold Is In A Dangerous Spot - 18th Oct 17
History Says Global Debt Levels Will Lead to Another Crisis - 18th Oct 17
Deflation Basics Series: The Quantity Theory of Money - 18th Oct 17
Attractive European Countries for Foreign Investors - 18th Oct 17
Financial Transcription Services – What investors should know about them - 18th Oct 17
Brexit UK Vulnerable As Gold Bar Exports Distort UK Trade Figures - 18th Oct 17
Surge in UK Race Hate Crimes, Micro-Racism, Sheffield, Millhouses Park, Black on Asian - 18th Oct 17
Comfortably Numb: Surviving the Assault on Silver - 17th Oct 17
Are Amey Street Tree Felling's Devaluing Sheffield House Prices? - 17th Oct 17
12 Real-Life Techniques That Will Make You a Better Trader Now - 17th Oct 17
Warren Buffett Predicting Dow One Million - Being Bold Or Overly Cautious? - 17th Oct 17
Globalization is Poverty - 17th Oct 17
Boomers Are Not Saving Enough for Retirement, Neither Is the Government - 16th Oct 17
Stock Market Trading Dow Theory - 16th Oct 17
Stocks Slightly Higher as They Set New Record Highs - 16th Oct 17
Why is Big Data is so Important for Casino Player Acquisition and Retention - 16th Oct 17
How Investors Can Play The Bitcoin Boom - 16th Oct 17
Who Will Be the Next Fed Chief - And Why It Matters  - 16th Oct 17
Stock Market Only Minor Top Ahead - 16th Oct 17
Precious Metals Sector is on Major Buy Signal - 16th Oct 17
Really Bad Ideas - The Fed Should Have And Defend An Inflation Target - 16th Oct 17
The Bullish Chartology for Gold - 15th Oct 17
Wikileaks Mocking US Government Over Bitcoin Shows Why There Is No Stopping Bitcoin - 15th Oct 17
How to Wipe Out Puerto Rico's Debt Without Hurting Bondholders - 15th Oct 17
Gold And Silver – Think Prices Are Manipulated? Look In The Mirror! - 15th Oct 17

Market Oracle FREE Newsletter

3 Videos + 8 Charts = Opportunities You Need to See - Free

China Trigger for Key American Stock Market Indices Collapse?

Stock-Markets / Financial Crash Aug 01, 2013 - 12:18 PM GMT

By: Profit_Confidential

Stock-Markets

Michael Lombardi writes: Why do only a few in the media and no politicians I can find seem to care about the warning bells being issued by the Chinese economy?

First, early this year, we heard the Chinese economy is going to grow at an embarrassingly slow pace in 2013 compared to its historical average. Forget a 10% economic growth rate and think seven percent or lower!


Now, we hear about more troubles…

Think the Detroit bankruptcy was bad news?

Local governments in the Chinese economy have piled up a huge sum of debt, and the central government is warning cities to manage their escalating debt.

China’s National Audit Office (NAO) announced this week it will be conducting a nationwide audit to assess the situation on local government debt. The reason for this? In 2010, the NAO found local governments in the Chinese economy owed 10.7 trillion yuan. Fast-forward to June of this year, and it turns out the number is about 12 trillion yuan. (Source: Xinhunet, July 28, 2013.)

Why does it matter to North American investors?

The Chinese economy is the second largest in the world; the U.S. is the largest. Economic issues in China will surely send “waves” towards us.

Still worried about the economy? Become a charter member of DAILY PROFITS

and you could...TRIPLE YOUR MONEY IN A MONTH! Learn how here!

Dear reader, after the financial crisis, the developed countries in the global economy never really showed robust growth. This caused companies in the key stock indices to focus on emerging markets—they showed demand, and the Chinese economy was one of their main destinations.

As the economic slowdown deepens in China, and with possible credit issues in the country, it’s very likely that American companies in key stock indices that are operating in China will see their corporate earnings negatively affected.

I consider problems in the Chinese economy a major risk to the rising North American key stock indices.

Michael’s Personal Notes:

As talk of the Federal Reserve pulling back on its quantitative easing program continues, the housing market is starting to show signs of stress, confirming my belief that the so-called housing market recovery was held up by the easy U.S. monetary policy.

The announcement several weeks back from the Federal Reserve that it may taper its $85.0-billion-a-month money printing project caused mortgage rates to jump—and the higher rates are starting to affect home buyers. The Pending Home Sales Index, which measures contracts to purchase homes by home buyers, declined 0.4% in June. (Source: National Association of Realtors, July 29, 2013.) If we had a true housing recovery, that number would be in the double digits.

But there is more…

The Mortgage Bankers Association (MBA) expects Freddie Mac mortgage rates to average 4.4% in the third quarter of this year and 4.7% in the fourth quarter. (Source: Mortgage Bankers Association, July 25, 2013.) This essentially means the housing market will become less affordable for those who are looking to enter it.

And the prices of homebuilder stocks have been collapsing since mid-May. Below is the chart of the Dow Jones U.S. Home Construction Index. Just look at the dive in the index since mid-May and how far down it is for the year. This suggests the housing market isn’t as strong as it seems.


Chart courtesy of www.StockCharts.com

The reality of the matter is that the typical home buyer who actually buys a house to live in is under scrutiny. The pages of Profit Confidential have been filled with the troubles these home buyers face…and recent third-party surveys are reaching the same conclusion.

In fact, a survey by the Associated Press found four out of five Americans are struggling with poverty and unemployment, and have had some form of reliance on welfare. (Source: Associated Press, July 28, 2013.) That means 80% of Americans are financially struggling.

Until the average American Joe starts to see his pocket grow, the housing market can’t go much further. There is only so much buying of empty houses that financial institutions can undertake. Millions of Americans live today in homes with negative equity.

I remain skeptical about the so-called housing market recovery. I won’t be surprised to see a further downtick in the number of home buyers entering the housing market as interest rates rise and the Federal Reserve moves towards normalizing the monetary policy.

Where the Market Stands; Where It’s Headed:

As the month of July comes to a close, both the Dow Jones Industrial Average and the S&P 500 are sitting at the same level they did in the third week of May. Hence, stock prices have gone nowhere over the past 11 to 12 weeks.

On a fundamental basis, stocks are overvalued.

The Dow Jones trades at 16.4-times earnings. Corporate profit growth is no longer what it used to be. The double-digit growth in quarterly profits that we saw almost every quarter starting in 2009 ended in the third quarter of 2012. We have now witnessed three quarters in a row where earnings growth has collapsed and revenue growth is marginal.

A phenomenon few are talking about: for the first time in years, the yield on a 10-year U.S. Treasury (2.6% as of this morning) is higher than the dividend yield on the Dow Jones Industrial Average (currently 2.3%). Why buy stocks when you can buy government-guaranteed T-bills that pay you more?

World economic growth is slowing. The chances of a “surprise” U.S. recession are high. All the money printing in the world cannot force consumers to spend more unless that newly printed money makes its way directly into the pockets of consumers—which isn’t happening.

I continue to believe that the stock market rally we’ve experienced since 2009 is a direct result of the biggest money printing program in U.S. history. But unlike others, I don’t think the Fed can pull back on its $85.0-billion-a-month printing program that easily. In the end, it will be rapid inflation, created by all this money printing, that pushes the value of the U.S. dollar down, pushes interest rates higher, and pushes the stock market much lower.

Source -http://www.profitconfidential.com/stock-market/china-the-trigger-to-collapse-key-american-stock-indices/

Michael Lombardi, MBA for Profit Confidential

http://www.profitconfidential.com

We publish Profit Confidential daily for our Lombardi Financial customers because we believe many of those reporting today’s financial news simply don’t know what they are telling you! Reporters are trained to tell you the news—not what it can mean for you! What you read in the popular news services, be it the daily newspapers, on the internet or TV, is the news from a “reporter’s opinion.” And there’s the big difference.

With Profit Confidential you are receiving the news with the opinions, commentaries and interpretations of seasoned financial analysts and economists. We analyze the actions of the stock market, precious metals, interest rates, real estate and other investments so we can tell you what we believe today’s financial news will mean for you tomorrow!

© 2013 Copyright Profit Confidential - All Rights Reserved
Disclaimer: The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. Information and analysis above are derived from sources and utilising methods believed to be reliable, but we cannot accept responsibility for any losses you may incur as a result of this analysis. Individuals should consult with their personal financial advisors.


© 2005-2017 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Post Comment

Only logged in users are allowed to post comments. Register/ Log in

Catching a Falling Financial Knife