The Chinese Crash: Where is the US Market Headed?

As the stock market plummets, begins to drag itself back up, and hovers on the brink of an even more dramatic fall, analysts are beginning to give the kind of advice one might expect to be confined within the pages or on the website of a survivalist: stockpile canned goods and water. The advice comes from multiple sources within the financial industry including Brett Arends, a MarketWatch columnist. McBride gave a specific three-point bit of advice while Arends let loose with some financially-related doom and gloom, saying it’s entirely plausible the U.S. Market could soon experience a crash like none other. Their words and the dire predictions of others are blending together in a cacophony of despair; all we seem to be missing are “the end is near” posters on every street corner.

That is not to say there’s no reason for concern. Although some of the statistics being tossed around almost explain themselves away, such as the fact that the recent 1,000 point drop was the ninth worst in the history of the stock market, and the listed dates for other drops make it clear they didn’t cause widespread devastation, others ring true. It is true China’s stock market is in serious trouble, but it isn’t exactly breaking news. Their stock market has been sliding downward for some time now, with all gains made in 2015 – gains acquired through seemingly ill-advised government involvement – now wiped out as the crash continues. The effects are being seen beyond their financial district, as well, with Chinese manufacturing activity at its lowest point in 77 months. Those “made in China” stamps are on a decline, and there’s no sign of recovery on the horizon.

How this affects the U.S. market is a topic spanning multiple offshoots, but a few specific issues are simple enough to address. One is the almighty dollar; our U.S. dollar has long been considered the strong one, and our strong currency has drawn investors as foreign currencies continue to lose their value. That’s resulted in a 3% gain for our dollar, which, on the surface, seems to be a good thing. And in some ways, it is good, but in others, it’s a false high. As the U.S. dollar gains value, U.S. exporters have no choice but to increase the asking price of their products overseas, which, in turn, causes trouble with their own profit even as it creates a decline in overall sales. If you’re wondering if this will be a problem for sales and profits here in the States, the answer is yes. It already is. An excellent example is the current S & P 500 profit growth, which was around 10% last year but has slowed dangerously to a snail’s pace of less than 1% this year. Investors will continue to flock to the almighty U.S. dollar – including investors from China itself – and as they do, profit will become increasingly harder to come by here in the U.S. Those struggles will appear in our stock market faster than many Americans realize.

More than a few minds are straying to the stock market crash of 1929 and the Great Depression that followed. In the 1920s, the U.S. stock market experienced a massive boom, peaking in August of 1929. The end of the surge was marked by stocks with incredibly over-inflated values, riding a high borne of wild speculation and, some would say, the willful avoidance of the realities of the economy, where production was dropping and unemployment was rising. There were many factors at play, but one thing is certain: it wasn’t a foreign stock market decline that caused the U.S. stock market crash of 1929. Even so, history does have a tendency to repeat itself, even financial history, so it does make good sense to be concerned.

Chinese MarketChina is the second-biggest financial power in the world, second only to the United States. Or they are right now, at least. At their current rate of decline, who knows what the end result will be. Their decline does have a detrimental effect on other foreign markets. For example, there’s less demand from China for products from other countries, and the resulting drop in profits for those countries is marked. The value of oil, gold, and other high-ticket items has been negatively impacted, impacts that affect other countries, such as Australia, before hitting U.S. shores. China’s biggest trading partner is actually Europe, and those losses are showing now, in August of 2015, more obviously than ever before. The European markets suffered a 5% loss with Germany experiencing a 20% drop since its peak back in April, meaning Germany’s 2015 gains are now entirely obliterated. Even India is experiencing a noticeable loss.

U.S. stock market analysts and strategists are all weighing in, many advising to refrain from dipping your toes in the market right now but refusing to voice long-term concerns of a potential crash. Even the tiniest whisper of a stock market crash can easily cause widespread panic, the kind of panic that resulted in a record 12,894,650 shares being traded all in one bleak day back in 1929.

There is something to be gleaned from examining the methods being used right now in China, though. Rumor is Beijing has been fudging the numbers in an attempt to make the stock market appear stronger than it really is, something many of their own local journalists have argued is not true – something they’ve begun to yell at a pitch that brings an old saying to mind: “the lady” – or, in this case, the media and government – “doth protest too much.” There are also some chilling similarities to the U.S. crash back in 1929, such as the way anyone and everyone in China was suddenly making money by trading in the months leading up to their current predicament, and the way the value of those stocks became drastically inflated. China went through a fast, heady climb, not unlike that of the U.S. more than 80 years ago, and now they’re going through a crash. Just how severely their crash will hit American shores remains to be seen.

For now there seems to be only some low-level panic taking place, perhaps because keeping an eye on the goings-on of the stock market isn’t something the majority of Americans do. Of course, the 1,000-point drop of August 24, 2015, is resulting in far greater attention being paid in the mainstream media, so even those who do not typically take note of the stock market are bound to notice this latest precipitous drop. And while it is certainly wise to pay attention, it seems rather too soon for full-blown panic. Not to say, of course, there isn’t wisdom in being prepared, and with that in mind, take note of the companion to this piece, covering how to get ready for whatever may or may not be coming. There may not be cause for real panic – yet – but there’s wisdom in preparation. In the meantime, keeping an eye on stock market trends couldn’t hurt. After all, forewarned is forearmed.

Disclaimer: The content in this article is the opinion of the writer and does not necessarily reflect the policies or opinions of US Patriot Tactical.

Katherine Ainsworth

Katherine Ainsworth

Katherine is a military and political journalist with a reputation for hard-hitting, no-holds-barred articles. Her career as a writer has immersed her in the military lifestyle and given her unique insights into the various branches of service. She is a firearms aficionado and has years of experience as a K9 SAR handler, and has volunteered with multiple support-our-troops charities for more than a decade. Katherine is passionate about military issues and feels supporting service members should be the top priority for all Americans. Her areas of expertise include the military, politics, history, firearms and canine issues.
Katherine Ainsworth
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