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Win the battle, lose the war. Pyrrhus of Epirus, Greek king and statesman in 270 BC
The U.S. stock market is thriving, while China’s deteriorates. China could intervene to limit stock market losses, but it is not. Is China purposely losing a battle to win a war?
While the U.S. stock market continues to reach new highs, doubling in value since the March 2020 low (the fastest and largest correction on record), China’s stock market is in the doldrums. The S&P 500 index returned 20% this year through mid-August, while China’s A50 index lost 15%.
Pundits attribute China’s stock market struggles to two factors – its central bank has withdrawn cash from the markets, and its government has stepped up regulations affecting the education and technology industries.
The Chinese government appears to want a stock market correction. So, why are those guys going in the opposite direction of the U.S.?
A striking difference
Unlike the U.S., China is not propping up its stock and bond markets with massive amounts of money, as shown in the following graph.
Since the start of the pandemic, the money supply in China has remained stable while it has increased five-fold in the US, and there is another $4.5 trillion awaiting U.S. legislative approval.
Poking the bear
The U.S. is poking the inflation bear, testing to see how much money printing will cause serious inflation, while proclaiming that inflation is transitory. By contrast, China has refused to follow suit even if it allows its stock market to lose value.
A hypothesis: The war for economic superiority
Time will tell, but China may be purposely losing the 2021 stock market battle to win the long-term currency war. Economic domination is its ultimate goal.
The zero-interest rate policy (ZIRP) in the U.S. and other countries like Germany cannot last because its costs are mounting – more and more money is used every day to prop up bond prices.
The potential for the Fed’s tapering has set off alarms for good reason. The demise of ZIRP will burst the stock market bubble and trigger a debt spiral.
A U.S. loss is China’s gain. These are dangerous times for the U.S. economy.
What should investors do?
Although it might not be patriotic, investors should keep an eye on the Chinese economy and stock market for possible investing.
In the U.S., the odds of inflation and a stock market crash increase every day, especially on those days when the market goes up or Congress passes another spending bill. Baby boomers are in serious jeopardy because they might not have the time to recover and most are currently in the investment risk zone.
Investors should move to safe inflation-protected investments like TIPS, precious metals and essential natural resources, and they should ignore the standard advice to “stay the course” in the throes of the next correction.
For more details, please see Baby Boomer Investing in the Perilous Decade of the 2020s.
Ron Surz is co-host of the Baby Boomer Investing Show and president of Target Date Solutions and Age Sage, and CEO of GlidePath Wealth Management.
Advisor Perspectives welcomes guest contributions. The views presented here do not necessarily represent those of Advisor Perspectives.
