On Dec 31, 2014, the Dow closed at 17,823. On Dec 31, 2015 the Dow closed at 17,425, wiping out all gains for 2015 and finishing 398 points down. On January 4, 2016 the Dow opened at 17,425 and five days later, closed at 16,346, down 1079 points, wiping out all of 2014 gains and 230 points of 2013 gains which finished at 16,576 Dec 31, 2013. This means that most people who have been in the US stock market for the last two years have virtually earned nothing.
After four days of trading there was an indiscriminate drop in world markets. UK Chancellor George Osborn said, “There is a dangerous cocktail of global threats facing the British economy and there is an element of complacency starting to take hold.” He cited Brazil, China, the Commodity slide and escalating tensions in the Middle East, as contributing factors.
The articles and interviews below provide many perspectives as to what happened and why, but it doesn’t change the results. It’s the worst first week of trading in market history, the last time it was this bad was 1928, a year before the great stock market crash of 1929. Some say the Chinese caused this, because of too much market manipulation and debt. Some say Saudi Arabia breaking diplomatic ties with Iran caused it, however instead of oil going up because of tensions it went down. Some say central banks have created too much stimulus for too long creating market bubbles and artificial market environments, while others say more stimulus is needed. Some like George Soros say it’s 2008 all over again, but whatever your perspective, 2015 was not a good year for the markets and 2016 has quadrupled that loss in five days. With all this unrest you would have thought the USD would have gone up, but it lost around 1% against both the euro and the yen.
What do I think; I think the Chinese government over regulated and manipulated their markets. Monday was the first day they allowed their citizens to sell their stocks since July, and they did exactly that all week long, and what did the PBOC (their central bank) do… they massively intervened again. I think the central banks of the world have intervened in the markets way too much, for way too long and that there is very little which is real in today’s artificial “virtual reality” global market place. I think that too many nations, have too much debt, but just like the big banks, think they’re too big to fail. Call me simplistic, but you can’t keep spending more than you take in forever, even if you can print money, there’s always a limit.
There’s a lot more I could say, but the more important question is, what do you think and what action should you take based on your conclusion?
Are Central Banks Causing Market Volatility (1-7-16) Bloomberg Video
The End of the Monetary Illusion Magnifies Shocks for Markets (1-8-16)
Dow, S&P Off to the Worst Starts Ever for Any Year (1-7-16) WSJ Video
U.S. Stocks Tumble, Cap Worst Five-Day Start to Year on Record (1-8-16)
George Soros Sees Crisis in Global Markets That Echoes 2008 (1-7-16)
The Stoxx Europe 600 Index Slides 2.2% (1-7-16) Bloomberg Video
Strategists Are Growing Increasingly Negative About U.S. Markets and Growth Agree to Disagree (1-7-16)
Global Markets Languish on Turmoil in China (1-7-16) Bloomberg Video
Back to the Future, Big Banks Get Out of Risk Business (1-7-16) Bloomberg Video
Could Japan’s Central Bank Run Out of Bonds to Buy (12-30-15) WSJ