Economists have been downgrading China’s growth recently…

First, it was Nomura (NMR), and now Goldman Sachs (GS) is cutting its GDP forecast for the rest of 2021.

Not only that, the delta variant is spreading fast… reaching nearly half of China’s 32 provinces in just the last two weeks…

And, Chinese air travel is seeing its biggest drop since the beginning of the pandemic, pushing global flight capacity down.

Currently, 46 cities have already advised its citizens to refrain from traveling.

The delta variant is also hitting the global economy at a vulnerable time… right as growth is already decelerating and inflation is hitting corporate earnings.

But, China has been sounding the alarm bell for a while now…

To understand China, investors simply need to gauge how frequently they clamp down on their own economy.

Oftentimes, no news is good news.

But, the chart below shows that for the past few months, beginning with the Alibaba episode when they fined the firm $2.8 billion, event risks – any unforeseen occurrence that can cause losses for investors – out of China have been popping up more frequently…

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Most economists, our Fed included, tend to miss the writing on the wall… instead preferring to wait until lagging data comes in to update their models.

Problem is, by the time they see it – it’s too late.

So their downgrade of China in reaction to the spread of the virus is puzzling… given China itself has been telegraphing that it’s been undergoing economic issues since the beginning of this year.

China’s Actions Confirm That Something Is Wrong

But the types of regulatory muscle China has been exerting tells me two things: inflation and speculation are becoming a big problem. The media likes to sound the “big brother” alarm for all data points but, in this case, it seems like there are more than a few underlying economic issues at hand.

One of them being the recent news from China’s state media on Friday warning semiconductor manufacturers that there’ll be no tolerance for speculators in the chip market. As the global chip shortage has strained numerous areas of the supply chain, it’s caused prices to spike in various industries simultaneously.

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Recent economic data, lagging as it may be, has been confirming the slowdown for months now…

To understand this, I look at the Purchasing Managers’ Index (PMI), which is used to provide information about current and future business conditions to company decision makers, analysts, and investors.

China’s manufacturing PMIs have been trending lower since the beginning of the year, peaking in March at 51.9, while the U.S. services PMI peaked in May.

Every Corner of the Economy Seems To Be Confirming the Same Thing

It should raise some eyebrows when even Amazon comes out and reiterates that we’re headed into a lower-growth phase, with dual pressures from both sales and increased costs, and yet the market shrugs off an 8% decline in a company worth at least $1.7 trillion.

I don’t think the word “complacency” is enough to describe the state of the current market.

Just look at these quotes from Amazon CFO Brian T. Olsavsky:

I would count on wage pressure in the immediate future… we’re watching it carefully, but it’s probably one of the bigger elements of inflation in our business right now.”

Slower growth will continue “for the next few quarters.”

Sales growth was the lowest in two years… prompting Olsavsky to actually ask investors to ignore the slowdown and remember all of the growth the company had in the last 18 months.

After the initial selloff, the market obliged, and resumed to make more all-time highs.

Data points from all over the world are converging upon an uncomfortable reality…

And now, we’re seeing this reality in the oil market – which might be the first to crack.

Take a look at the chart of crude oil prices…

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The chart shows a months-long price channel break… a direct result of the slowdown from flight traffic. Given variables in crude’s calendar spreads, there’s more downside ahead.

Both Jeff Clark and I have been calling for a retracement – temporary price reversals that take place within a larger trend – in energy prices. It seems that is what’s happening now.

The only thing to temporarily stop the commodities bull market is a comeback of COVID… and right now, the oil market is selling off – which tells me things may be serious.

I’m sure this week’s headlines will connect the dots of falling oil prices with “inflationary pressures abating!”… just like they did when lumber fell from their highs. Don’t let them fool you though, as long as the real interest rate is negative, another 5-10% drop in crude is just a drop in the bucket.


Eric Shamilov
Contributing Editor, Market Minute

Reader Mailbag

In today’s mailbag, Robert and Rodger share their thoughts on the government’s influence on the dollar…

First of all, I really appreciate reading your Market Minute and the updates for the Delta Direct, Delta Report, Breakout Alert, and Jeff Clark Trader. They provide a solid framework to make decisions from, particularly for the short term.

I’m 67 years old and still working as an electrical engineer. I didn’t get involved with stock trading until 2015, when it became obvious I couldn’t count on the people managing my 401k to provide me with any retirement. So, I rolled what I could into IRAs and have been managing the accounts myself since. The main reason I never got involved in stock trading before was I knew it was a rigged game and I had no clue how not to be one of the many victims.

As an engineer, I think logically about how the world really works and never ignore gravity. That is a real handicap in our current criminal environment, where the banks blatantly manipulate the markets, and the people who are supposed to prevent it turn a blind eye.

Nothing is more blatant than the manipulation of the price of gold. I’m absolutely amazed at how completely criminal it’s become. They are the Mafia, in plain sight, and our criminal government is a major partner.

The one thing I keep reminding myself, over and over, is gravity always wins. They may defy it much longer than we think is possible, but gravity always wins. At the end of the whole mess, gold, silver and now bitcoin will be the real money left standing.

I know you’re friends with Teeka Tiwari. Fortunately for me at the end of 2016, I had the realization that maybe cryptocurrency is how I’ll buy groceries when the dollar becomes worthless. Between you, Teeka, and Stansberry Research (where I am an Alliance member), I may not go hungry when the government destroys the economy and we have another major depression.

– Robert

I agree with you Mr. Clark, the current policies are eroding our dollar. We’ll have to wait until 2022 to change the course we are on. Thanks for keeping us informed.

– Rodger

Thank you, as always, for your thoughtful comments. We look forward to reading them every day. Keep them coming – and send us any questions – at [email protected].