|
|
 Porter's One-Time-Only Offer Closing
Tomorrow, we're closing Porter's risk-free offer to learn his Alpha secret — a way to make as much as 300% more than others, on the exact same stocks. If you haven't yet seen it, this is your last chance, before the price almost doubles. Click here. |
|
Eric Fry, ducking from the bombs bursting in air, reports...
The Fourth of July weekend produced no shortage of financial fireworks...
Starting with the Chinese government's new campaign to prop up its plummeting stock markets... and ending with the defiant Greek vote to bury its soaring debt load.
Even though the crashing Chinese stock markets have nothing to do with the unfolding Greek drama, both events are combining to roil the world's financial markets. Chinese and Greek stocks were both down about 20% during the last couple of weeks. Fanning out from there, most European stock markets have dropped about 9%, while U.S. stocks are down about 3%.
The modest sell-offs in Europe and the U.S. would not bear mentioning if not for the fact that any minus sign has become front-page news. U.S. stocks have been climbing so "predictably" for so long that when they fall even a little, it's shocking.
Generally speaking, most global stock markets have been as placid and serene as a small pond. But now that China and Greece are both hurling boulders into the pond from opposite shores, the water is splashing everywhere.
Perhaps the ripples of volatility will subside as quickly as they appeared... but we doubt it. As we anticipated in the May 23, 2015, edition of The Non-Dollar Report, "Greed Isn't Always Good," this new phase of heightened volatility seems likely to hang around for a while.
At times like these, investors usually choose to reduce their stock holdings for fear that stocks will continue falling... or increase their holdings, believing the sell-off to be a short-term dip.
But there's a third option: Avoid the volatility altogether by stepping outside the stock market with a portion of your investment capital.
Avoid the volatility by investing in a vehicle that provides large potential upside... but without the risk of losing any of your invested capital. That's exactly the sort of opportunity being offered by our friends at EverBank. [For the sake of full disclosure, we have a longstanding relationship with EverBank in which we receive compensation to market their products.]
EverBank is offering a new five-year Certificate of Deposit (CD) it calls the "MarketSafe® Power MetalsSM CD."
"We've combined the power of gold, silver and copper in our latest MarketSafe CD," EverBank explains. "You'll have the potential to earn an upside payment capped at 45% if the metals gain, and if they decrease, you're totally covered with 100% protection of your deposited principal. Keep in mind, returns are based on CD performance - no annual percentage yield or periodic rate of interest is paid on the CD."
To check out all the details and important disclosures about this new five-year MarketSafe® Power MetalsSM CD, click here:
THE ELEMENTS OF POWER
Now, let's move on to today's featured essay by Sean Brodrick, The Oxford Club's resident natural resources expert. When last we heard from Sean two weeks ago, he predicted the oil price would soon be tumbling toward $50 a barrel.
Since Sean issued that prediction, the oil price has plummeted from $62 to nearly $52, which means that Sean's prediction was pretty darn prescient. [You can check out that entire Non-Dollar Report column here: "A Race to The Bottom in the Oil Price War."]
Now today, Sean turns his clairvoyant powers to the Chinese stock market... and once again, he foresees a big move to the downside. Read on...
The Newest Profit Opportunity: A Chinese Meltdown
While most investors have become obsessed with events in Greece, China's benchmark Shanghai Composite Index has gone through more mood swings than a Lifetime Original movie... and the worst may be yet to come. So get out your handkerchiefs!
The good news is, there are ways for savvy investors to profit.
After hitting a peak in mid-June, the Shanghai Composite and Shenzhen Composite indexes have both tumbled nearly 30%. This trouble comes after a rip-roaring year. China's stock market had risen 140% in just one year's time.
But the last three weeks have seen wild swings up and down... mostly down. It's been like we're watching the world's biggest penny stock drink too much Red Bull. And it's been doubly stomach-churning for China's 200 million investors. Compare that to roughly 121 million investors in the U.S.
For added perspective, there are now more investors in China than there are members of the Communist Party. The China Securities Depository and Clearing Co. says there are more than 90 million individual investors in that country. Compare that to 87.8 million members of the Communist Party.
But I think that number is understated. If you total the number of people with access to a brokerage account in Hong Kong and the mainland, it's closing in on 200 million people.
Now, let's add in the fact that most Chinese are new investors. BNP Paribas estimated that about 170,000 new stock trading accounts were being opened each business day in China at one point this year, more than 10 times the average for 2014. In fact, 3.3 million Chinese opened brokerage accounts in just one week in April.
And the Chinese love to trade. A whopping 81% of retail investors in China trade at least once a month, according to a State Street survey published earlier this year. That's the highest of any nation. Just 53% of Americans and 32% of French investors trade monthly or more often.
So we have an extremely volatile market jammed with new investors who like to trade a lot. Can you see how these are the ingredients for a potential meltdown?
Now let's throw in the fact that Chinese brokerage firms have extended as much as 4 trillion yuan ($645 billion) of margin finance to investors.
Another 1.7 trillion yuan ($270 billion) may have flowed into stock market investment from wealth management products, online lending sites and other sources, according to Bloomberg.
All this margin debt and "hot money" has produced a bubbling stew of instability. And the resulting risks - both inside China and outside China - are particularly large because of the sheer size of the Chinese stock markets.
The Shanghai, Shenzhen and Hong Kong stock markets have a combined market cap of roughly $11 trillion. That makes China No. 2 in the world behind the $24 trillion market cap of the U.S. stock markets, but well ahead of No. 3 Japan's $5 trillion market cap.
Now let's stir the pot some more.
- The amount of margin debt has doubled since the start of the year.
- A Chinese state auditor found that more than a dozen state-owned companies falsified their records to seem healthier. And some of these are big companies, including State Grid Corp., COSCO Group and China Southern Power Grid Co.
- The official in charge of IPOs and share offerings in the Chinese stock markets, Li Zhiling, was carted off to jail for corruption last month.
Yeah, I'd say that the stew is ready to bubble over.
These are scary times. But let's look at the good side of the downside...
Speculative investors can place their bets
To be sure, this ETF is speculative and it definitely would not be suitable for the faint of heart. Although its price quickly doubled during the market sell-off of 2008, its price has plummeted 64% during the last two years.
But if China is really about to see the silk hit the fan, ProShares UltraShort could be a good way to make a lot of money in a hurry.
Short the Next Bounce?
But investors who are tempted to bet that Chinese stocks will resume falling should be aware that the Chinese government is doing its best to soothe frayed nerves in the market. Here's a list of just some of the things the government and its allies are doing to prop up the market.
- A sudden moratorium has been imposed on new share issuance, with dozens of firms scrapping their IPO plans.
- Top brokerages in China pledged that they will invest at least $19 billion into stocks. The government is backing this "market stabilization fund."
- Sixty-nine Chinese mutual funds have said they would also buy stocks, though they did not say how much money they will put to work.
China's two major stock exchanges plan to lower securities transaction fees by 30% starting in August in a bid to lure more investors into the market.
And here's one more "market stabilization" maneuver: About 200 Chinese stocks halted trading after the close on Monday. This makes a total of 745 Chinese stocks that have suspended trading altogether. That's 26% of listed firms on mainland exchanges with $1.4 trillion in market cap.
I guess that's one way to stop the market from going down. Forbid your stocks from being traded.
Now, maybe this Chinese version of a "plunge protection team" will get the job done. In fact, Hong Rong, a finance expert at Shanghai DZH Limited, wrote on July 5 in a widely forwarded post that government officials "are determined to save the market and take effective measures. And they have basically already blocked the possibility of a continued slump next week."
And the Asset Management Association of China, a state-run body, joined the chorus of soothing official commentary heard in recent days, saying that falling prices presented a valuable buying opportunity for "rational investors."
China's Communist Party also chimed in, "Rainbows always appear after rainy days."
Well, sure... but you can also drown in a flood while waiting for a rainbow. Furthermore, bullish government pronouncements and market-rigging operations rarely produce a true buying opportunity. To the contrary, they usually produce short-term bounces that make for good selling opportunities.
For a few days, the Chinese government may be able to create a bounce in their stock markets, but it will likely not be able to create an enduring bull market.
So if you'd like to speculate that the sell-off in China has more to go, ProShares UltraShort might be your best bet.
All the best,
Sean Brodrick
For The Non-Dollar Report
Social Security's "Final Deathblow"?
A coming $91 trillion market shock - lasting just three minutes - could gut our Social Security system once and for all. If you're at or near retirement age, you need to know what's coming. And there's still time to prepare. Here's the shocking truth, from America's most conservative income investor... including his recommendations for surviving the possible crisis.
|
|
|
|
|
|
|
RECENT ARTICLES
|
|
Our financial system could take a surprising and catastrophic twist that almost nobody imagines, let alone anticipates. How will our monetary system hold up in a deep or prolonged credit crisis? Read On... |
|
|
|
|
You may not think that the unfolding Greek crisis is relevant to you. But it is. This modern Greek tragedy contains many important lessons for all savers and investors around the world. Read On... |
|
|
|
|
If yesterday's rocky trading session was a taste of things to come, investors should consider a pair trade that could come in very handy during the weeks and months ahead. Read On... |
|
|
|
|
|
No comments:
Post a Comment