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China and Greece Signal a New Round of Deflation

Phoenix Capital Research's picture




 

Stocks rallied today because the Fed meets today and tomorrow and traders are conditioned to play for a rally into Fed meetings. Also, stocks had fallen for four days straight prior to this and so we were oversold in the near-term.

The larger picture concerns the bursting of China’s stock bubble as well as the ongoing 3rd Greek bailout drama.

Regarding China, anyone who actually bothered performing real analysis could have seen that the economic data coming out of that country was totally bogus. Indeed, back in 2007, current First Vice Premiere of China, Li Keqiang, admitted to the US ambassador to China that ALL Chinese data, outside of electricity consumption, railroad cargo, and bank lending is for “reference only.”

With that in mind, China’s rail volumes had been collapsing at a pace not seen since the Asia Financial Crisis!

 

Despite this, 99% of analysts believed China’s GDP was growing at 7%+. Those people piled into Chinese stocks and commodities… and they’ve since been eviscerated as the Chinese stock bubble burst and commodity prices plunged to 13-year lows.

 

China has been the largest driver of global economic growth since 2009. With that country flirting with outright deflation, it's only a matter of time before global GDP tanks.

As for Greece… the negotiations regarding a third bailout have officially begun. However, things have grown more complicated as former Greek Finance Minister Yanis Varoufakis revealed that Greece had a “Plan B” in place that would allow it to switch from the Euro to the Drachma “at the flip of a switch.”

Germany was already fed up with Greece’s debt problems before this. Now that it’s clear Greece is ready to pull the nuclear option and leave the Euro, Germany’s economic council has backed a plan to kick out “uncooperative” Eurozone members.

When both sides in a negotiation begin to believe that not agreeing is the best solution, it’s only a matter of time before things break down in a serious fashion. This is why for many investment banks, a Grexit remains the “base case” scenario for this situation.

At the end of the day, both China and Greece are signaling that a new round of deflation has begun in the markets. Stocks are bouncing today, but a tectonic shift has begun.

It is now clear that Central Banks have lost control of some markets… and this loss of control will be spreading in the coming months, culminating in a market Crash that will make 2008 look like a picnic.

If you've yet to take action to prepare for this, we offer a FREE investment report called the Financial Crisis "Round Two" Survival Guide that outlines simple, easy to follow strategies you can use to not only protect your portfolio from it, but actually produce profits.

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Best Regards

Phoenix Capital Research

 

 

 

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Tue, 07/28/2015 - 18:27 | 6364737 tarabel
tarabel's picture

 

 

Ha Ha.

The Chinks thought they were so smart excluding the white devils from participation in their stock markets.

Yet another (insert name of intellectual game here) grand master wiped out by the stupid checker-playing Yankee. Fuck you, GI.

Tue, 07/28/2015 - 17:22 | 6364427 erk
erk's picture

GDP especially nominal GDP is a bogus metric as it measures the transfer of money not the production of goods and services, so you borrow a billion dollars do nothing with it and it adds to the GDP. No goods or services produced. Asset inflation can look like GDP yet not new assets produced. The whole GDP thing is a scam for political use only. Real economists will find other ways to measure growth like the rail transport and electricity usage.

Tue, 07/28/2015 - 16:48 | 6364288 cwsuisse
cwsuisse's picture

Interesting but the information on Greece is misleading: There is (yet) no intention whatsoever to leave the EURO zone. 

Tue, 07/28/2015 - 16:32 | 6364244 ghostzapper
ghostzapper's picture

It's as if the author of this was reading my mind:

 

http://www.investing.com/analysis/hold-for-er:gold-bear-market--phase-ii...

 

Though I still project 956/957 but am open to lower.

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