China is panicking.
In fact, China is showing 2008-like signs as they are on the brink of a severe recession.
Over the last 2 days, China has begun Pandemic-level stimulus, as seen during lockdowns in 2020.
Is China dragging the global economy into a recession? https://x.com/KobeissiLetter/status/1839291310680977500
The first signs of weakness came after China’s HY real estate index fell a massive 82% in just over 2 years. This came as Evergrande, one of China’s real estate giants, filed Chapter 15 bankruptcy. This put the index back down to 2008-levels, but barely anyone talked about it. https://x.com/KobeissiLetter/status/1839291313260474882
Currently, China is facing its longest period of DEFLATION since 1999. Not even 2008 came with 5 straight quarters of deflation, as we are seeing now. While everyone is fighting inflation, China is dealing with severe deflation. This is arguably even worse than inflation. https://x.com/KobeissiLetter/status/1839291315940635017
Deflation is the exact opposite of inflation, it's when prices fall. While this may seem welcomed, the economic impact is detrimental. If you know prices are falling tomorrow, why buy today? The result is an economy that is effectively frozen. https://x.com/KobeissiLetter/status/1839291318578852327
Unemployment in China is surging to new decade-highs. Manufacturing has been capped, construction is struggling from the real estate market collapse, and consumer demand is weak. It already feels like China is in a major recession and they likely ARE. https://x.com/KobeissiLetter/status/1839291321791689222
Now, China is in panic mode and 2020-like stimulus has began, including: 1. Cutting reserve requirements by 0.5% 2. Cut 7-day RRP rate by 0.2% 3. Lowering mortgage rates 4. Injecting $142 billion into banks 5. Implement "forceful" rate cuts This is only the beginning. https://x.com/KobeissiLetter/status/1839291324153127336
As a result, stocks are soaring with the S&P 500 near 5800. Here's an alert for our premium members last week. We called for the S&P 500 to 5800+, marking over +1,000 POINTS of profit for members since August 1. https://x.com/KobeissiLetter/status/1839291326615138781
China is also dumping their holdings of US Treasury securities, likely to raise capital. China’s holdings of US Treasuries are down to ~$780 billion, near a 15-year low. Over the last 3 years, China’s Treasury holdings have declined by 30%, or $300 billion. https://x.com/KobeissiLetter/status/1839291330079633771
The question becomes, did we not learn from the mistakes made in 2020? Widespread fiscal stimulus could result in ANOTHER wave of inflation. We very could well see a 1970s style return of inflation, as seen below. Central banks "moving too fast" would be catastrophic. https://x.com/KobeissiLetter/status/1839291333066039510
While recession fears rise, we knew stocks would hit all time highs well in advance.
Time will tell if a global resurgence of inflation is coming. We expect volatility and an exceptional trading environment.
....central bankers will try to avoid deflation, because they know that is most destructive, but by undertaking stimulus measures again, they run the risk to stoking inflation amidst deflationary forces at work, which could give rise eventually to a stagflationary scenario down the track.
