China Crashes World Markets; Dow Falls 1079 Points in 5 Days

If You Were in the Market the Last Two Years, You Lost All Your Gains in One Week!

January 11, 2016

In 2015 the Dow Jones Industrial Average lost 398 points, after being up in 2013 & 2014. 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's gains and 230 points of 2013's gains. This means that most people who have been in the US stock markets 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

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

Copyright ©2016

Fulton Sheen was twice elected county treasurer in Allegan County Michigan, and served 3 terms as a Michigan State Representative. He owned and operated a financial advisory and investment firm, Sheen Financial, for over 20 years. Fulton is the director of Isaiah 58:12, a faith based disaster relief and preparedness group. In addition to assisting in disasters, he and his team have trained over 1,500 volunteers to work with first responders in Search & Rescue, First-aid & Triage and terrorist mitigation. Currently he heads the management of operations and customer service at River East Financial, a New Zealand Financial Institution. Fulton & his wife Cheryl also own operate F&C Enterprises which connects and assists people in the purchase of tangible assets such as precious metals, bulk food and other commodity based purchases. Fulton speaks nationally and internationally on economic and financial issues; including world markets the sovereign debt crisis, and alternative financial structures.