Wednesday, July 29, 2015

Chinese Stocks Tank Again - Is There Any Cure for the China Flu?

Monday, July 27, 2015
Money and Markets
You can also access this issue on our website.
Chinese Stocks Tank Again - Is There Any Cure for the China Flu?
Market Roundup
Dow -127.84 to 17,440.59
S&P -12.00 to 2,067.65
NASDAQ -48.85 to 5,039.78
10-YR Yield -0.043 to 2.228%
Gold +$7.70 to $1,093.20
Oil -$1.07 to $47.07
I just got back for a week-long cruise with the family. The weather was great, the entertainment was fun and everyone had a fantastic time.
The other good thing: No one caught the “cruise flu” that you sometimes hear about in the media. But I can’t say the same thing about the stock market. It has one heck of a case of “China flu.”
China’s benchmark Shanghai Composite Index tanked 8.5 overnight. That was the second-worst drop in that average’s history, with a down-to-up ratio of 75 stocks to 1.
Some $4 trillion in market cap has now gone up in smoke. Meanwhile, one gauge of market volatility hit its highest level since the Asian economic crisis of 1997 – almost two decades ago. The decline didn’t seem to stem from any huge, identifiable catalyst, but rather a fear that the Chinese government and central bank are either unable or unwilling to continue trying to artificially prop up stocks.
The investment future in China is cloudy these days.
When I last talked in detail about Chinese turmoil, I said large corrections are to be expected in emerging markets and that many of those markets had already been beaten down to dirt-cheap levels. But I also said you had to wait to see stabilization in China and “China proxy” investments before going hog wild with bottom fishing.
That’s still the case today, what with things like copper futures continuing to drop … mining stocks showing relative weakness … and commodity currencies still struggling. I’m eyeing all of those indicators and more before recommending any aggressive moves overseas.
As for here in our own backyard, there’s more deterioration going on behind the scenes. The list of winning stocks is getting shorter, while the list of losers is getting longer. Bounces in some sectors are being sold, and others that are deeply oversold haven’t been able to find traction. That may merit even more protective action than I’ve already been preaching – so stay tuned!
In the meantime, what are you doing in light of China’s struggles? Taking further protective steps in your portfolio or taking advantage of the bargains they’re creating? What will it take to cure the market’s China Flu? More policy action there, additional steps here, or nothing but the passage of time? Let me know over at the website.
Our Readers Speak
Getting back in the saddle and caught up on everything you missed on vacation always takes some work. But I was keeping an eye on the markets while I was gone, and noticed that many of the same problems that have been holding markets back haven’t gone away.
China. Bloody Wednesday worries. Weakness in materials stocks (even the ridiculously cheap energy sector). They’re all weighing on the S&P.
Reader Fred 151 said that’s a warning sign, opining right before I left that: “We should see a little more upside (say 18,600 or so on the Dow) … but I think the days left in this rally are numbered.”
Reader Holygeezer also weighed in on the “tech-nado” and the few tech stocks that are still holding up, saying: “So Amazon has amazing sales, but lowers their prices and probably loses money doing so? And then their stock price soars as a result? Whatever happened to the concept of actually making a profit as a sign of a successful business?
“Doesn’t anyone recall the tech crash of 2000? Here we go again.”
Meanwhile, in response to the latest column that my colleague Larry Edelson’s wrote in my stead, Reader Rusty said the health-care mergers lately are just making things worse for average Americans. His view:
“Consolidation never helps the consumer … only stockholders. Yes, consumers are also stockholders, so maybe it’s a wash for those of us who are investors. But the little guy gets to pay for the loss of competition when the big boys merge. Just look at the airlines.”
And Reader David C. said he’s getting more nervous about the markets, offering this perspective: “My personal opinion is the major crash is coming in September, as early as the weekend of 9/11 to the 16th. If not then, September 23-24 is the next window and the final one will be September 28-29.”
Thanks for sharing. I’m definitely seeing more and more worrisome signs in the markets. That’s enough to validate my decision over the past couple of months to take more profits off the table, and cut a loser or two in Safe Money. I’m looking at even more moves in light of the ongoing weakness.
In the meantime, keep any other questions you might have coming here in Money and Markets – and I’ll do my best to answer them. Here’s the link where you can do so.
Other Developments of the Day
BulletThe U.S. plans to step up cooperation with Turkey against ISIS in northern Syria. Specifically, American and Turkish warplanes will increase bombing runs in an effort to create a 60-mile “buffer zone” along the Turkish border. They’ll coordinate the efforts with Syrian rebels on the ground in hopes of increasing their effectiveness.
BulletIn M&A news, the generic drug maker Teva Pharmaceuticals (TEVA) of Israel said it would buy the generic business of rival Allergan PLC (AGN) for $40.5 billion in cash and stock. The deal caused shares of Mylan (MYL) to plunge because Teva had previously launched a hostile bid for that firm, a bid it’s now abandoning.
BulletPresident Obama is continuing his African nation tour, visiting Ethiopia in the wake of his stop yesterday in Kenya. He is discussing issues such as free speech, terrorism, and human rights in the region.
BulletAnd finally, in a sad story here in my own backyard, two 14-year-olds from Tequesta, Florida area remain missing at sea despite a massive water-and-air-based, search-and-rescue operation. They vanished during a fishing trip on Friday, and haven’t been seen since – even as their capsized boat was discovered almost 70 miles off the coast on Sunday.
Want to weigh in on the latest bout of M&A in the drug sector? Obama’s African trip? Anything else I did or didn’t cover here? Then let me know over at the website.
Until next time,
Mike Larson

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