Today has been declared as Black Monday by Chinese, American, British, Canadian and any other investors on the global stage.
China wiped out all of this year’s gains as stocks plummeted 8.5 percent Monday. Fears of a major slowdown in the world’s No. 2 economy rattled both domestic and foreign markets (SEE: Stock Market Meltdown – a brief look at Monday’s market openings). China has officially touched negative territory after making 60 percent gains through its June peak.
The global selloff started when the People’s Bank of China (PBOC) devalued its yuan by two percent earlier this month. It also began when there were other weak economic warning signs. This prompted the PBOC and the federal government to slash interest rates, increase lending and provide stimulus to nearly every facet of the economy. It has already been reported that the central bank will flood the banking system with liquidity to give lending a boost.
Close to 2,000 Chinese stocks dropped by the maximum 10 percent – this is permitted by regulators on the Shanghai and Shenzhen markets. This represents more than two-thirds of all stocks in China. Brokerages were some of the hardest hit stocks around. China’s small-cap stocks also took a beating as the Shenzhen benchmark closed 7.7 percent. The Shanghai Composite ended Black Monday down 8.5 percent at 3,209.91.
This prompted U.S. investors to buy government bonds and precious metals while selling off stocks, emerging market currencies and high-yielding bonds.
“If the stock rout continues, that will create a systemic selloff as investors will need to raise cash to cover margin calls amid equity falls,” said Ben Sy, Asia head of fixed income at J.P. Morgan Private Bank in Hong Kong, in an interview with Nasdaq. “Fixed income is the only area for them to raise cash.”
If the China stock market wasn’t bad enough, oil is still dipping as it’s trading below $40 a barrel and could fall under $38.
Let the market correction begin.
As investors and financial pundits place the blame on China, one author is passing the buck to the U.S. government. Denis Kleinfeld produced an eloquent op-ed arguing that Washington is the culprit for this market rout.
You know, those people in Washington, D.C., spending like they can endlessly print money, claiming that government can create jobs, build the middle class, strengthen the economy, and protect us from our never to be named enemies. The politicians feathering their own nests but like Napoleon the pig from George Orwell’s book “Animal Farm.”
They excuse their excessive appetite for greed and cronyism by telling us two things: First, they are making the personal sacrifice to stuff themselves (like pigs). Second, we need to be starved (of capital) for our own good.
What a fraud.
The government knows absolutely nothing about how the economy works except how to screw it up.
The poster child for economic incompetence must be the Federal Reserve.
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