I’m talking about politics. Specifically, the potential for the Trump administration to start a trade war with China. Before we get into that though, let’s have a look in our own backyard. This latest ‘no sex with staffers rule’, to pretty much stop ministers from being immoral jerks, is the Nanny State’s crowning glory. It says something about the quality of individuals we have vying to run the country that it has come to this.
It’s still not clear if China will start selling US bonds. In fact, it could be that China can’t help but buy more US bonds. As an exporting nation China earns hundreds of billions in foreign currency, particularly US dollars. Over time, they’ve piled up trillions in USD. What can they do with all these dollars?
This week saw the launch of the Royal Commission into the banking industry. Anything that affects the banks is likely to affect the entire Australian share market. The Commonwealth Bank is Australia’s largest company by market capitalisation. Combined, the banks make up a third of our share market. A loss of confidence could be catastrophic.
You’ve probably read all about Chinese tourists fuelling Australia’s tourism boom. But did you know, as more come to enjoy their Aussie holiday, Chinese tourists will change the way you buy everything? While we in the West love our credit cards, Chinese seems to have skipped them altogether.
Australia, as an investment destination, suffers from an increase in risk perceptions. Foreign capital is less willing to invest here, or buy debt issued by the banks to fund the mortgages of Aussie battlers. As a result, the Aussie dollar falls. However, the ‘magic’ of a falling dollar is that it increases the purchasing power of foreign currency.
Amongst all the panic and hand-wringing over what the volatility of the past week means, we haven’t heard much about China. Which is kind of crucial, especially for Australia. Put simply (and accurately) if China holds up, Australia will be fine. So, is China holding up?
Specialty Fashion Group Ltd [ASX:SFH] see’s further retails success, with a recent share value increase of 28.89%
From a purely technical (charting) perspective, US stocks are due for a bounce. Like the price of bitcoin early last week, the S&P500 is now ‘oversold’. The important thing to watch here is how far the bounce takes stocks. If, for example, you see the market rally back to around 2,700 points and then run out of steam, I think you’ll see stocks subsequently fall to new lows.
I have no idea how long the next bull or bear market will last. But I’m confident that future bull runs will last far longer than bear markets. This is really what it’s all about — learning from the past to make better decisions in the present.
It was a truly nightmare week on the markets. If you trust the US Fed to be able to smoothly unwind its emergency low-interest rate policy without crashing a market bloated on low rate-driven investment, then you probably aren’t worried. If you don’t have that much faith in the Fed, you might see them as having painted themselves into a corner.