The relentless rise in the stock markets from the lows of 2009, to the highs seen in 2015, have made many market participants complacent. Every dip, has been bought and the traders have been rewarded. However, on close analysis, the economy and the equity markets are setting themselves up for a harsh winter ahead, which is expected to persist until 2020. The equity markets will have to go through "The Great Reset" and even the Fed will not be able to rescue us.
A collapse does not happen all at once. The weak links give out first, followed by the stronger ones. Similarly, this time, it is China's economic slowdown, the oil crisis and a probable Euro crisis, all of which will end with the crisis of the largest economy of the world.
The China Slowdown
China is a great example of how one discovers that under adverse economic conditions, any amount of propping up by the central banks, does not yield results.
The Chinese stock market continues its unabated fall, even after their government introduced various market supporting measures, throughout the year. The following are a few measures, which did not yield any results, and the markets continued to tumble:
- The People's Bank of China cut interest rates six times last year; it also lowered the bank's reserve requirement ratios (RRR) several times in 2015.
- It let go of its control on the setting of deposit rates by the banks, encouraging competition among the state-controlled banking system.
- It also allowed pension funds to invest 30% of their assets in equities for the first time ever.
- It introduced a four-month freeze on IPOs.
- A number of other measures were also announced which are outlined here.
Despite all of these measures, the stock market continued to collapse.
Along with the equity markets, the Chinese economy is also in tatters. Various interventions by the government and the Central Banks have not been successful in propelling the nation on a path toward the growth of previous years, and, as a result, the economy continues to falter.
The above chart reflects the extent of the slowdown in China. It is experiencing one of the worst growth rates of the last decade, barring a small aberration during the "Great Recession."
The continuous growth of China was the engine of growth for the world economy, as China is the largest contributor to world growth. However, since 2012, Chinese growth numbers are on a downward path and continue to spiral further.