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 In The Lonely Bull

Stock markets around the world have been scorched by problems in China. A slowdown there has apparently created financial pressures now reaching crisis proportions. The commodity super-cycle peaked August 2011 coinciding with the beginning of the European debt crisis. As commodity prices declined, levered inventories, especially in China came under increasing pressure. That pressure has now reached real estate speculators and finally stock market traders. Real estate cannot be easily sold to meet liquidity needs, so stretched investors sell what they can, stocks and bonds; even international ones if they have them. Money is being sucked out of many markets everywhere to save core positions and assets. As prices decline across the board, problems are created for others around the world.

Until the liquidation pressure abates, it will be hard for markets everywhere to focus on fundamentals.

Leverage needs to be reduced or eliminated. Fortunately this is not just beginning, but really started four years ago. The final phase of a liquidation cycle moves quickly so this might be close to the end.

The U.S. has been largely immune from this process, but got pulled into it when the commodity collapse finally got to the strongest commodity of all, oil. Clues to when this particular crisis is over will be when oil and other key commodities finally stabilize. That may be soon. China will spend some time yet sorting out its problems, but the U.S. and Europe will move on. Stay steady, my friends.

El Solo Toro

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