How What Happens in China Affects Your Trading and Investments

https://www.researchgate.net/figure/Lehman-Brothers-Stock-Price-and-Timeline_fig2_265742944

In other words, Lehman was in trouble long before the bankruptcy that led to the 2008 meltdown. And just like in the months leading up to the Lehman collapse, there’s no shortage of politicians and policy-makers assuring us that “there’s very little chance of contagion at this time.” Hmm.

What will it mean for markets as the Evergrande debacle – which also involves dozens of other deeply indebted real estate firms in China, and their lenders — unfolds in the months ahead?

Your trading and investments have never been at greater risk. In today’s entwined global economy, an earthquake in China can mean a tsunami at home. Don’t wait until the crisis hits to position your trading and investment portfolio. FFR’s Strategy Team can help you decide how your trading strategy fits into your broader financial plan. Call today for a no-risk evaluation. (800) 883-0524 or contact us here 

But Wait… There’s More
China’s real estate crisis isn’t the least of their problems, or ours.

Another story that has passed from the headlines is the global supply chain bottleneck that has clogged U.S. ports, and led to empty shelves around the country. As usual, the media focused only on the “sensational” aspect of this structural problem… Johnny can’t have an Xbox for Christmas, because there aren’t enough computer chips!

What no one has really thought about is the other end of the supply chain… where all the manufacturing takes place. And as if you didn’t know this already, most manufactured goods Americans consume are “Made in China.”
Chart courtesy of statista.com

While ships stack up waiting to unload stateside, something else is going on where the stuff gets made.

China’s Energy Shortage
Underlying potential problems on the supply side of U.S. supply chains in China’s serious energy crisis, Here’s how Forbes described it last month:

China’s multi-month energy crisis is deepening, with coal and natural gas prices now at record highs while temperatures are poised to plummet across the country. Emergency power rationing policies are still in effect, meaning that many households and factories alike could be left with intermittent power as winter sub-zero (Celsius) temperatures approach. Further supply chain shortages, inflation, and public discontent are on the horizon.

Internal supply chain shortages, power rationing with extreme cold expected, and the dampening effect of the real estate/debt crisis are combining to contribute to a very unstable situation in China. And this has profound implications for businesses and consumers in the U.S.

Certain “stopped clock” analysts who have been predicting a crisis in China for the past five years (or longer) may finally be proven right. Even though China’s command economy is firmly under the control of the CCP, events there could prove beyond the management capabilities of the central planners.

“The line of dominoes that is already toppling extends around the entire global economy and financial system. Plan accordingly.” – Charles Hugh Smith

Short-term trading based on a long-term investment outlook is a mistake many new traders make. Just because someone says China is going down doesn’t mean the best idea is to run out and buy gold! You need a trading plan that puts your speculative investing together with your long-term asset management strategy. Consult your financial planner for the big picture, then call FFR’s Strategy Team to work out your trading and investments. The number to call is (800) 883-0524.

Don’t Fall into this Psychological “China Syndrome”
Here at Market Slice, we believe in free markets. I’m sure you do, too. We believe in freedom. Democracy. The right to privacy. All the liberties we cherish as Americans. All of which are absent in China. This all makes for good political discussion, and may well inform our votes when it comes to selecting leaders. But it shouldn’t determine our trading positions.

When it comes to the markets, good traders are apolitical… even when we have strongly held beliefs (which is most of the time!) we have leave them at the door when we trade.

This doesn’t mean you have to trade against your principles. If a market, or a particular trade, rubs you the wrong way, just don’t go there.

If you don’t approve of the “vice” industry, don’t invest in tobacco stocks. If you support green energy, don’t buy oil companies. But don’t short these stocks just because you don’t like the industries. That’s a prescription for losses.

There are three reasons not to trade based on your opinions about geopolitical events:

• Political views are subjective, Right or wrong is in the eye of the beholder. The market doesn’t care about any of that… the markets care about profit and loss, short- and long-term prospects for a business, an industry, or even an entire country.
• Political views are emotional. You already know that trading when you are in your feelings is a bad idea. If you take a position because you want to see things go a certain way, you are asking for trouble. Then when it arrives, you are not in a balanced mood. This makes rational decision-making much harder.
• Political views are subject to confirmation bias. “Confirmation bias” is a term psychologists use to explain how we “see what we want to see.” Allowing our feelings to direct our decisions leads to only seeing the evidence that supports our initial opinion.