China…Again?!?
I’m not an alarmist. You’ll never see me run around with my hair on fire over whatever the mainstream media has chosen to be their crisis du jour. There’s been just one time during my 25-year career where “sell everything” was the right call – and that was at the start of the Great Financial Crisis, when banks started failing…
But even then, with the greatest economic calamity of our time, you’d have needed to be pretty darn nimble to get out at the right time, and then, get back in…
The collapse of investment bank Bear Stearns became official on March 16, 2008, when it was acquired by JP Morgan. The bank’s value had fallen from $20 billion to $232 million in a span of about 6 months when regulators finally pulled the plug and forced Bear Stearns to sell out to JP Morgan.
A year later, on March 13, 2009, the S&P 500 finally bottomed.
In 2012, I became chief editor of a major investment newsletter, and my first order of business was to get my readers into Bank of America (NYSE: BAC) around $9 bucks a share. They thought I had lost my mind. Cancellations spiked. Three full years after the Great Financial Crisis and investors still didn’t want to buy shares of America’s biggest and best companies.
No, once you’ve sold everything, getting back in is a lot harder than it sounds.
Let’s look back at March of this year, when Silicon Valley Bank collapsed. The parallels to March 2008 were compelling, to say the least. A lot of financial media–types were telling individual investors “That’s it! Sell everything!”
Of course, the Fed had learned its lessons from the Great Financial Crisis. They weren’t about to take piecemeal measures and let the crisis roll though the market and take down bank after bank. The Fed and the Treasury stepped in and backstopped the whole damn banking system.
What would you have done, if you had sold everything at the first sign of trouble from Silicon Valley Bank? Would you have been to recognize the Fed and Treasury actions for what they were and jumped right back in before stocks launched higher?
This isn’t an indictment. I’m not trying to belittle anyone’s investment skill or analysis. My point is simply that 9.9 times out of 10, “sell everything” is incredibly irresponsible advice.
And yet, my newsletter biz colleagues put this message out over and over again…
“Biden’s destroying the economy!” The Fed is destroying the economy!” “Blackrock is destroying the economy!”
It’s all complete bullshit.
A “Sell Everything” Moment Defined
Look back over 250 years of U.S. history, and you’ll see one consistent theme. Growth. There isn’t a geographic region on earth with a better mix of natural resources than the U.S. And you couldn’t draw up a political system more conducive to using those resources to raise the standard of living.
You wanna quibble about specific policies, that’s fine. But nothing that Trump or Biden or wherever else sits in the White House is going to change the basic formula for American prosperity. Even the Great FInancial Crisis – where the U.S. financial system stared into the abyss – only managed to knock the U.S. off its stride for 2 years. Because as Americans, we continue to go to work, buy stuff, go out and have fun, and do right by our families. That’s a formula for success that isn’t going to change.
So again, all those newsletter gurus saying “sell everything” because of crypto or politics or the Fed or the SEC, well, they’re just trying to sell you something. A bunch of marketing hot air…
I’m not trying to sell you anything here at Pro Trader Today. I don’t have a Pro Trader Today newsletter or trading service to hawk. My partner Dave Roberts and I are trying out a pretty unique business model for Pro Trader Today – give away top quality research and investment ideas to you for free, and let advertisers pay our bills.
Near as I can tell, every single online publication out there is wheedling you for some kind of subscription fee. Pro Trader Today is like your no-fee oasis in the paywall desert.
Point being, I’m not joining the wacky “sell-everything” crowd to get you to send me money. I’d rather just give it to you straight…
The threat to the U.S. stock market and economy is coming from China. And it’s coming faster than a lot of investors think…
Let’s Talk About China (Some More)
I know I may sound like a broken record. Yeah, I talk about other stuff. I’ll bust on the Fed, like any good investment writer should. I share my S&P 500 charts with commentary and outlook like a few good investment writers do. And I share my stock recommendations freely (with specific entry prices and follow up commentary!), which many investment writers would like to, but can’t do competently…
But I always come back to China.
Because the simple fact is – China’s the one thing I see in the world today that can blow a 10%-20% hole in U.S. GDP.
I’m honestly at a loss as to why China doesn’t get more attention from the financial media. I mean, sure, there’s plenty of coverage on the geopolitical front, about the rising tension between it and the U.S. and whether China’s about to invade Taiwan…
But other than some finance-geek publications like Bloomberg, I don’t see much about the rapidly deteriorating economic situation in China. It’s bad, and it should be getting more play. Because it is a very real threat – as close to a “sell everything” moment – or at least a “sell a lot of stuff” moment – as I’ve seen in 15 years.
And it starts with this table from Bloomberg, compiled with data from the IMF:
Countries around the world are cutting their direct investment in China pretty dramatically. Yes, the big reason probably boils down to geopolitics, but not necessarily in a punitive way. As in, when a company goes to build out some part of its supply chain, it’s an investment. As with any investment, risks are assessed. No doubt the risks of investing in China have risen, for a lot of reasons…
I’m already running pretty long today, so I’m going to make this article a two-parter. Tomorrow, we’ll talk more about these risks, because they run the gamut – demographics, liquidity, politics, competitive advantage, etc. Plus, we’ll delve what it all means and why there may be “sell a lof stuff” moment coming soon, or sooner than many think…
That’s it for today, take care and I’ll talk to you tomorrow…
Briton Ryle
Chief Investment Strategist
Pro Trader Today
brit.ryle@protradertoday.com
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