Just When You Thought You Were Out…
Just When You Thought You Were Out, they pull you back in! Nothing scares investors more than China and its web of entanglements!
Over the past year, we’ve seen how different the Chinese government is from the U.S. at handling its economy, its finances, and its stock market.
We also saw how differently both empires managed the healthcare crisis. There is no comparison between the two, and that makes people scared of the seemingly limitless power of the CCP over its citizenry.
Should a U.S.-based company tumble by 6% in one day because China’s dominant property developer is going belly-up? NO, there’s no connection and little logic behind it, but we just saw one of the fiercest selling programs Wall Street has ever triggered on full display:
What’s the right way to think about a possible default of China’s second-largest property developer?
The answer is that while markets may sell everything, there’s absolutely zero connection between the fates of many of the companies that are publicly traded.
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The notion that a basket of stocks is worth less today than it was yesterday just because a property developer in China is going under makes no sense unless said companies have direct or indirect ties to that company or its offshoots.
We don’t want to act irrationally when faced with problems. Instead, we want to think things through.
As you can see, nearly $1 trillion has flowed into the stock market this year, a sum not matched by any stretch of the imagination!
In the past 25 years combined, this sum of money has not flowed into equities.
Think of it this way: an entire generation of people who have not bought stocks in their adult lives swarmed into the market in one fell swoop.
What do we learn from this?
- The millennials are now part of the system and buying homes and originating mortgages as if the 2008 crisis didn’t scar them like they say it did.
- Record amounts of cash are still on the sidelines.
- Student debt loans are being extinguished at a record pace, freeing up more capital.
- Home equity is at record highs.
We need to think about the next few months for markets, so I want to discuss precious metals:
A. Tapering could be off the table (we shall see).
B. Evergrande is a black swan event.
C. Bailouts will definitely be positive for silver.
The path towards higher metal prices is now more doable than just a day or two ago because the FED may utterly shock us in a couple of days, suddenly canceling its plans of tightening or tapering.
Don’t celebrate too early, but I can say with full confidence that if the FED gives us a runway, silver is a deal and a half!
It just hit its support at $22.50 and brushed and toyed with $22.00 flat, so sellers are certainly out, and if there’s a reason to buy, it could be big!
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