Wild Ride Alert. It’s China This Time

July 7, 2015  10:30 pm

We had a wild ride down and then up in U.S. stocks today and it looks like we may have a wild one again tomorrow (Wednesday).

The Shanghai Composite has been off as much as 8% tonight–directionally no surprise, but the size of the move is a bit startling. Last weekend we were doing some reading on the huge amount of debt that Chinese individuals were taking on to invest as they perceived that the government was going to put a floor under stock prices–obviously instead of a floor we now have a panic by ‘mom and pop’ investors rushing to get out the doors–to save their financial lives. A rush to safety is on as U.S. treasury yields continue to fall.

As with Monday there is nothing one can really reasonably do with panics like this except ride them out.  With the number of powderkegs in the world today it is just a matter of time before we have a larger ‘panic’.  A day like today where it seemed that we were destined for large stock market losses, before a bounce launched prices almost 100 Dow points higher gives investors the ‘buy the dip’ mentality. One day one of these drops will turn into something bigger and we will lose 5-10% on equities in a day or two–then we will have some real ‘bargains’.

Hang on for a wild ride over the next week to month.  These items won’t pass overnight, but they will pass.