Monday Market Meltdown – Greece is so Bad we’re Ignoring China! I LOVE A GOOD DISTRACTION!

by Phil
I love a good distraction! One of the great things about being good at forecasting the Futures is that we were not only 100% prepared for Greece to melt down (our Short-Term Portfolio was already up 152% as of Friday’s close) but we’re already done talking about it and looking ahead to the much bigger Financial crisis in CHINA!!!
If you are a typical short-term, short-sighted, impatient investor (they kind we make money off every day), now is a good time to click away and look for someone to explain to you what’s going on in Greece.  I liked Felix Salmon’s “I Haven’t Been Paying Attention. What’s Going On In Greece?” enough to send it to the 1,000 people who asked me that this weekend.  Greek markets are closed today (and will be all week along with the banks) but the Greek ETF (GREK) is trading and will open down 15-20% by my estimation.
image: http://www.finviz.com/fut_chart.ashx?t=ES&p=m5&s=m&rev=635711594173392158
As I said, I’m bored with Greece, we discussed it all weekend (and all year, and all month) in Member Chat, so you can catch up HERE, and we already played our strong bounce lines in the Futures and took our profits at:

• Dow (/YM) 17,670
• S&P (/ES) 2,075
• Nasdaq (/NQ) 4,430
• Russell (/TF) 1,264.20

Those are the strong bounce lines per our fabulous 5% Rule™ and we were able to predict them last night at 6pm, when the market opened and I tweeted out our long ideas as well as the exits and even used Seeking Alpha’s Stock Talks to make sure all my readers got a chance to play.  Now it’s time to look at CHINA!!!, where the bi-weekly emergency measures to prop up their markets have already FAILED this morning.  As I said on Friday in “Let’s Ignore China (again) and Terrorism Today!“:

At $47.75, FXI should open lower this morning and we do expect China to step in with more stimulus but the Aug $45.50 puts at $1 are still a fun way to play if you don’t like complex spreads and, if China does stimulate and FXI pops higher, THEN we can adjust it and roll it to higher Sept puts because NOTHING they do can really stop this market from making a serious correction, at least to that $44 line ($1.50+ on the options, up 50%) and possibly the $40 line ($5.50, up 450%) – it’s just a matter of when (or should I say Wen?!?  Get it, Wen.. that’s the Premier’s name – Wen!  Ouch, tough room…).

image: http://www.zerohedge.com/sites/default/files/images/user3303/imageroot/2015/06-overflow/20150628_china2.jpg
I was hoping that FXI would open higher this morning and we’d have a chance to double down at a lower price after China announced over the weekend after China cut both the lending rate by 0.25% AND lowered the reserve requirements for banks by 0.25%, effectively doubling their usual bi-weekly $85Bn cash injection in an attempt to stop the 20% slide in their indexes.  It worked – for about 30 minutes, as the Chinese markets opened up 4% but, over the course of the session, they plunged back to new lows, ending down about 3% for the day, 7% down from the open in another disastrous session.

“The government appears eager to maintain a bull market to expand the capital market and reduce reliance on bank lending,” wrote Standard Chartered economists in reaction to the cuts.  “Although the use of monetary policy for that purpose is questionable.”

image: http://i1239.photobucket.com/albums/ff507/montys55/reaganomics-republicans-trikle-down-economics-political-poster-1294154060.jpg
Hmm, I wonder if we can think of any other countries where the Central Banks have been eager to maintain a bull market by dumping FREE MONEY on the investing class?  I know I sound like a real party-pooper when I keep hammering on those boring old Fundamentals but, in the end, we do have to face reality.  Printing money and handing it to Corporations and the Top 1% who own them does NOTHING for the real economy.

The Chinese rally has had no such effect. Even as stock markets saw their net capitalisation increase by $7.6Tn in 12 months, from $3.9Tn to $11.5 trillion – larger that the country’s ENTIRE Gross Domestic Product in 2014 – retail sales figures have declined steadily, and business investment has stayed weak.  I’m sorry for all the people I got into arguements with when I said that the market rally simply wasn’t sustainable but – you are all idiots and I had to straighten you out.  8)

So much of China’s current GDP growth is wrapped up in false increases in market wealth (it’s only paper gains and, when you try to cash it in, the market collapses because that much money simply does not exist to cover the fake market gains) that the (so far) 20% correction in the Chinese markets is $2.5Tn and that is going knock at least a percentage off their GDP, which will then panic investors further, etc, etc.
image: http://pbs.twimg.com/media/CIpS-trUcAAtt8Z.jpg
And don’t forget the margin debt (see my 6/15 note).  What idiots lent out that kind of money to people who were buying Chinese stocks AFTER they already gained 100% in a year?  I guess the PEOPLE will have to suffer because the Banksters who collected huge fees for financing this bubble will now need to be bailed out as it implodes on them.