Not Even the Tip of the Iceberg

Last Wednesday we saw the beginning of a downward domino-effect across global markets.

The Dow Jones plunged more than 800 points, its worst fall since February. This then caused many other markets around the world to drop similarly, including our own ASX.

What caused this global chain-reaction? And what was the crucial catalyst in the US that caused the downturn in the first place? Keep reading and I’ll try to answer these questions for you.

Across Wednesday and Thursday last week, the Dow Jones Industrial Average dropped almost 1400 points. This steep drop may have happened for a number of reasons.

Many economists are blaming high bond yields as the trigger. Money Morning’s own Harje Ronngard argued last week that they were the cause of US stock values dropping, and in turn the falls around the globe.

From last Thursday’s Money Morning:

Well, what do you think caused our recent market drop? The largest 500 Aussie companies are trading lower because of what’s happening to US bonds.

There’s a lot of worry out there that could drive investors into bonds.

Investors are going to demand a whole lot more from stocks. Otherwise why take on the risk of stock investing, if they can get the same returns elsewhere?

Harje suggests that the uncertainty of global markets teamed with the current trade war fiasco is what’s driving investors out of stocks and into bonds. When bond yields climb they offer investors an alternative to stocks which carry less risk.

It seems obvious that an investor would want to invest in the asset class that offers the least amount of risk. But the sharp fall in the Dow Jones last week wasn’t the worst globally.

The real victim in all of this is China

On Monday, Bloomberg reported that China’s Shanghai Composite Index fell 50% below its 2015 peak:

The Shanghai Composite Index tumbled another 1.5 percent to a four-year low, cementing its position as 2018’s worst global benchmark.

And on last Tuesday, CNBC reported this:

The Chinese government is finally coming to terms with a lower rate of growth as the trade war with the U.S. escalates.’

It’s no secret that China’s economy has been booming in recent years. But could Trump’s determination to remove any economic control from the Middle Kingdom be what’s finally slowed them down?

The tariffs placed on Chinese exports are finally taking the toll that Trump wanted. He may regret getting what he wished for.

Financial expert Vern Gowdie explores why a credit collapse could occur in 2018, and how you can protect your assets. Click here for free action plan.

But perhaps the strangest aspect of this story is just how surprised so many economists were. Especially when some forward-thinking analysts have been warning of this for years.

Controversial economist and Editor of Harry Dent Daily and the Boom & Bust Letter, Harry Dent, says that China finally slowing down is a danger sign that the global economy may be in real trouble.

He has been warning readers for months and even years that the markets were headed for a fall. His reasons ranged from irreversible demographic trends, to the inevitability of a downturn after years of uninterrupted growth, and a new trade war between the world’s two largest economies. 

From last Thursday’s Harry Dent Daily:

It was inevitable.

And yet the market is struggling to digest it, and the mainstream financial media is grasping for stories to explain it.

I can promise you this: The economy won’t grow and markets won’t go up forever. Something always gives.

Despite the obvious effect of the new tariffs on Chinese exports, Dent argues that markets around the world were already due for a major correction or slowdown. While of course Trump’s tariffs have sped up the process for his economic enemy across the water, this downturn was inevitable, for much more complex reasons.

The causes the mainstream point to are just the latest trigger, in a larger story that Harry Dent argues they can’t see.

Dent has been sharing his predictions for many years about a coming collapse in markets worldwide. As more countries continue to face economic uncertainty, Dent’s predictions make more and more sense.

If you just take a moment to see what’s occurring on home soil in Australia — our corrupt banking sector, stagnant wages, strained property market, political unrest — you can see that things are not going as they could be.

If you fear for the future of our economic climate and your own wealth, then don’t miss your chance to read Dent’s newest book on the coming crash and how Australians can protect themselves, Zero Hour.

This week in Markets & Money

Would you like a 30% salary increase this year? Unfortunately this isn’t a feasible possibility for Australians, but this could soon become the reality in Argentina. In Monday’s Markets & Money, Selva brings readers’ attention to inflation and hyperinflation. Selva reflects on being a first-hand witness to the devastating effects of hyperinflation in Argentina. To learn more about the effects of inflation and the current global economic climate, click here.

In Tuesday’s Markets & Money, Selva discusses the unlikely winner in recent market slumps…pot stocks. With the national recreational legalisation of cannabis approaching in Canada, pot stocks may be the market to look into while many other markets collapse. To find out which stocks Selva refers to specially, click here.

October is bad for markets. At least that’s according to the so-called October effect theory. Apparently, investors get nervous this time of the year so markets are more prone to declines.

In Wednesday’s Markets & Money, Selva shows us that this October is not letting the theory down. To learn more about what’s making the markets jittery this October, click here.

Is the internet failing? Clickbait, fake news, intrusive and exploitative social media, frequent data breaches at the largest digital companies, and people’s identities being bought and sold on the dark web for as little as $3 each. In Thursday’s Markets & Money, Selva looks at one company with a project to create a decentralised, privacy-focused web platform, but it will take the efforts of many to remake the internet into what we once hoped it would be. To find out which company Selva refers to, click here.

In Friday’s Markets & Money, Selva discusses the illusion of wealth and status, referring to the Western habit of debt-fuelled purchasing. If you fall trap to this method of spending then your whole lifestyle could come crashing down when your debts climb too high. To learn more, click here.

Best wishes,

Julija Zivanovic,
Editor, Markets & Money

Markets & Money is unlike any other finance newsletter. Our mission is to look at the world of investments and finance in a sceptical and contrarian way. Our editorial team looks beyond the headlines and obvious explanations to bring you what we think is really moving the market. More importantly, we’re trying to show you where the next big opportunities and where the big risks are that you might not be aware of. In Markets & Money you’ll read about the state of the Australian housing market, the future of the commodity boom, China’s rise to an economic superpower, the fate of the US dollar, and of course a whole lot more.

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