The China Shop in the Bull

This story of the market falling 450 points is going viral on Reddit, which is unusual because finance-related stories typically don’t make it on the front page.

The fact the market fell a lot on the first day of the new year is meaningless. If one mines data long enough they will find all sorts of occurrences that are equally rare but otherwise meaningless.

As for myself, I’m not terribly concerned. The selling will be temporary and market will probably end 6-10% higher for the year. Although there are some potential problems with China, S&P 500 profits & earnings are still too strong, and I don’t see much in the way of economic headwinds. Interest rates are probably not going to go up much from here, not that it really matters. Housing will remain stable. GDP will keep chugging along – pretty much a continuation of the slow growth we’ve seen since 2009.

Europe is in an even worse situation than China or America. One reason why I’m not too concerned about China is because pundits have been predicting China’s economic implosion since at least 2005 and have been consistently wrong, so I have no reason to expect they will suddenly be right. ‘The data is fake’ they say. For China’s data to be totally fake would imply that all the S&P 500 companies that derive business from China (Caterpillar, John Deere, Apple, Disney, Nike, etc) are also fabricating their earnings, which would be a scandal so big as to make Enron puny by comparison and require that all these companies lie at once and no one notice. There’s no way such a great deception could be sustained so long.

Some argue that by ‘fake’ they mean a deviation of couple percent in actual GDP from reported GDP, which I don’t think is that big of a deal. GDP calculation is an imprecise science anyway. The difference between 7% GDP growth and 5.5% isn’t that substantial and is within the margin of error.

All of this talk of a hard landing may be overblown.

Related: China and The Liberal War on Success

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