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Business/Finance See other Business/Finance Articles Title: Korea Blast, Chinese Devaluation, Crude Crush Markets Money and Markets: Investing Insights Korea Blast, Chinese Devaluation, Crude Crush the Markets Mike Larson | Wednesday, January 6, 2016 at 4:20 pm When it rains, it pours. And today, Wall Street got socked with a veritable deluge. First, the rogue nation North Korea claimed it tested its first-ever hydrogen bomb. That would be the first time the secretive, isolated dictatorship tested a hydrogen weapon, which is potentially much more powerful and threatening than the atomic bombs the country has tested in the past. It’s impossible to verify leader Kim Jong Un’s claims, of course. The test may have involved a hybrid weapon with only a small amount of hydrogen-based material. But seismographs did register a 5.1 magnitude quake centered in North Korea last night, which would square with what happened during the last atomic test in 2013. Second, China’s yuan currency suffered yet another sharp devaluation overnight. The official currency fix put the yuan at its lowest level in five years, down another 0.2% to 6.5314 against the dollar. But in the offshore currency market that is dominated by international investors and other market players, the yuan dropped more than twice as much. North Korea claims to have tested a hydrogen bomb. Do we have anything to fear? China’s surprise devaluation in August was a key catalyst for the U.S. market’s mini-crash. That’s because it signaled the Chinese economy is in even worse shape than expected. It also ignited fears that we will see more liquidation of Chinese reserves. That would put downward pressure on foreign asset markets, especially since it comes at the same time that major Petrodollar nations are dumping stocks and bonds like mad to plug their yawning budget gaps. Third, the benchmark price of oil overseas — Brent crude — dropped below $35 a barrel overnight. That was a fresh 11-year low. We didn’t quite hit a new multi-year low here in the U.S. But we were less than a dollar away from it at today’s low. So let’s not split hairs. The pressure is still firmly on in the commodity market, with all its attendant consequences for the credit markets. Then just one day after we discussed “Peak Auto” concerns in the U.S., the largest car dealer in the country delivered more worrisome news. AutoNation (AN) said sales rose 9% year-over-year in December … but only with the help of “significant retail discounts” that crushed profit. Per-vehicle profit was down as much as $300 in the fourth quarter amid a rise in discounting and glut in inventory. “It has been an ugly start to 2016.” Long story short, it has been an ugly start to 2016. The key question is whether the rest of the year will be just as challenging — or even more so. I’m actually less concerned about “Black Swan” type events such as North Korea’s saber rattling. That country has been doing this for years to blackmail the rest of the world into providing aid and otherwise refrain from threatening it. The real, underlying, financial challenges in China, in currencies and in commodities are much more serious over the long term. So is the major credit cycle turn that’s been underway since last spring. That’s why I continue to counsel a cautious investing strategy for your core funds — with elevated cash levels, downside hedges, and a distinct focus on higher-yielding stocks in non-economically sensitive sectors. In my Interest Rate Speculator service, many of the vulnerable financial and other stocks I’ve been targeting on the short side have been breaking down, resulting in a nice run of profits over the past several months. Link to Interest Rate Speculator: www.gliq.com/cgi-bin/clic...allprofits+++a446+5827170 Post Comment Private Reply Ignore Thread
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