How to play China’s “Lehman” moment
Sep 20, 2021Good morning!
US headlines are screaming that the massive selloff this morning is over fears of a slowdown. That’s not right; it’s a deleveraging prompted by China’s Lehman moment and clear evidence of just how interlinked global markets are.
Watch my take earlier this morning with the fabulous Stuart Varney.
Here’s my playbook:
1 – Evergrande = China’s Lehman Moment
I’ve warned you about this several times, most recently on the 17th.
China’s Evergrande is on the brink of default and with $300 billion at risk it’s clearly that nation’s Lehman moment. The selloff actually started in Hong Kong yesterday (in our overnight markets) and the ripples are hitting our markets this morning. Silence from Chinese officials is stunning (and hardly confidence-inspiring), by the way.
2 – For once, I agree with Janet Yellen
Here we go again.
Congress has returned to Washington and is “rushing” to pass bills that avoid a government shutdown. Here’s a thought … how about these people just do their dang jobs (and not be allowed to take a recess if they haven’t).
Anything less risks economic catastrophe says Janet Yellen and, for once, I agree with her entirely!
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3 – BTC: Decorrelated my asteroids
Digital currency fans want to believe that bitcoin and other cryptocurrencies are not correlated with physical currencies but that’s not true. In fact, the more digital the world becomes, the higher the correlation gets. Wall Street is not entering digital currencies because it believes in ‘em; they simply know there’s a buck to be made.
Stablecoins are the real future.
JPM has been working on it since 2017 and is my choice.
4 – Bond prices up, yields down
Not a mystery. Global investors are running for safety. The 10 year is down to 1.329% as I type. The world may “hate” the US but they love our bonds when the you know what hits the fan like it has today.
5 – My favourite volatility trade just “hit”
It’s time. I just gave a breakout session last week at the MoneyShow in Las Vegas on how to trade volatility and win. The VIX has jumped over 25 as I type.
If you were there, you know what to do!
And if you weren’t, start with UVXY and watch for the volatility “collapse” if broader markets “catch a bid.” Possibilities including buying UVXY puts 1 strike OTM. Exit win, lose, or draw by Friday. Or, consider a triple leveraged S&P 500 bull fund like SPXL for a quick 24–48 hour hold. Then, exit.
Speculative!
Bottom Line
Two thoughts:
- Anything you wanted to buy last week, just got put on sale.
- The one truism you need to think about is that every time people thought the end of the financial universe was upon us, it wasn’t.
You know what to do.
Make it a great day!
Keith
