Monday, August 24, 2015

Another Panic Attack or the Start of a Bear Market? (excerpt)

There have been lots of panic attacks since the start of the bull market in early 2009. The first four of them occurred from the second through the fourth years of the current bull market, and they were full-fledged corrections. They were all triggered by worries that a recession was imminent, with anxiety focused on three major and varying concerns: a double-dip in the US, a disintegration of the Eurozone, and a hard landing in China--all having the potential to cause a global recession either individually or in combination. When those fears dissipated, relief rallies ensued.

This year started with lots of concerns about a Grexit that would destabilize the Eurozone. That issue seems to have been resolved benignly for now. Earlier this year, there were concerns about a soft patch in US economic growth that is no longer an issue either. The latest selloff was mostly triggered by the relatively small devaluation of China’s currency two weeks ago. That immediately heightened fears that China’s economy is in much worse shape than had been widely recognized.

That new perception was confirmed Friday morning by the release of China’s Caixin/Markit Flash M-PMI for August showing a drop to 47.1, the lowest since March 2009. I’ve observed many times before that bear markets are caused by recessions when corporate profits decline along with the economy. Are we there now as a result of a hard landing in China? I expect that the global economy will continue to grow albeit at a subdued pace with the US economy growing solidly enough to offset weakness elsewhere around the world.

Today's Morning Briefing: Bad Break. (1) Another panic attack followed by another relief rally? (2) Or, is this the start of a bear market? (3) Technical picture is very ugly. (4) One of the bull market’s three major concerns rises to the fore. (5) China’s syndrome. (6) Is there a credit crunch out there? (7) Have central banks really run out of ammo? (8) Tough transition or hard landing for China? (9) The IMF’s spin on China. (10) Global recession? (11) No sign of earnings recession so far. (12) Home sweet home. (13) Bye-bye buybacks? (14) “The Man From U.N.C.L.E.” (+) (More for subscribers.)

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