After another start to a dreadful week in the NYSXE we can now see the market truly clinging to life as it reaches out for air, yelling “Save me low interest rates!” If only the market knew that those low interest rates are the dreadful cause as we watch it bounce further and further towards a recession. Historically speaking, the Great Depression was in full force by 1933, then 4 years later in 1937 the news was reporting on how a recovery was occurring and the pipedreams were about as successful as a toilet drain. The markets truly ate that load of crude up, people even suggested that the depression was over and after 1937 it was just a recession, the depression was not over. Does this chain of events sound familiar? No? Not yet? Well lets just wait until the end of the year.
We have seen the market drop from 17500 to near 15500 in around a week. Within that week, the market raised from 15500 to 16526, then closing at 16062. Then we have people, our lovely keynesians, saying the market has been stabilized. Yet anyone with an understanding of economic theory could predict the Dead Cat Bounce. How many times have the austrians been suggesting that QE4 will be arriving soon? This is due to the fact that it is impossible to revive from this recovery.
We can not expect to see any recovery in the markets, and they will continue to curtail downwards. However; the worse is yet to come. People have not been noticing that the Chinese central bank has been stocking gold, and the seemingly reason for this is to make a future power play against a weak dollar. This is what the Chinese government is betting on, and it seems very possible. However, how far will China go? Will they be able to overthrow the dollar with a massive gold backed currency? At this stage, probably not, and what’s even worse now is the fact that China is succumbing to an even more dangerous area in the global economy.
In June of this year the chinese stock market crashed from a little over 5000 to 3500. It has maintained within a 500 range of 3500 for the past 3 months. This is because the Chinese government forced sale suspension on shares! It is illegal to sell major stocks in the chinese stock market for 6 months! We are witnessing a very contractionary stage of economic “growth”, and now when faced with QE, if the chinese lift their cap, the market will be hit very hard. Why? Because the entire economy of China is in one giant bubble based on an overvalued government propped up export sector. What does this mean? It means get ready for a global recession, because when the Chinese market collapses we will see more bubbles pop up in places like the United States and Europe, and the fact that those bubbles are not based on any actual economic growth, it will act as a ripple effect causing market hits throughout the world.