Let’s imagine the stock market as a whole bunch of balloons. One or two can pop loudly and everyone will jump and then laugh it off…[but,] eventually, enough balloons will pop that the weight of the debris overwhelms the remaining balloons’ ability to keep the string aloft. Then your whole bunch falls down…In like manner, some kind of catalyst sets off every market collapse…The last balloon to pop isn’t any bigger or smaller than the others; it just happens to be last…[It begs the question:] “What are some candidates for that last balloon?”
The above comments, and those below, have been edited by Lorimer Wilson, editor of munKNEE.com (Your Key to Making Money!) and the FREE Market Intelligence Report newsletter (see sample here – register here) for the sake of clarity ([ ]) and brevity (…) to provide a fast and easy read. The contents of this post have been excerpted from an article by John Mauldin (mauldineconomics.com) which was originally entitled Thoughts from the Frontline – Balloons in Search of Needles and which can be read in its unabridged format HERE. (This paragraph must be included in any article re-posting to avoid copyright infringement.)
A Chinese “hard landing” is probably the biggest, most obvious balloon right now and, actually, China is big enough for multiple balloons. Their stock market downturn [has] produced one pop already. Beijing’s currency adjustment may have been another one.
On the other hand…the data from China shows their growth to be slowing but still likely to be above 4% which is not exactly disaster territory suggesting an imminent hard landing for China…
We say in our new China on the Edge video (which premiered this week – click here to watch it) that the country is making a huge transition. Xi Jinping knows he must escape dependence on exports and build a consumer-driven domestic economy. This transition is having a global impact by virtue of China’s sheer size. On the other hand, the data I trust from [the] China Beige Book and other sources indicates the economy is in better shape than most Westerners think. President Xi’s government has been up to the challenge so far.
If China turns out to be the last balloon, it will have to be popped by something we don’t currently anticipate:
- a military coup,
- a vast peasant uprising,
- military clashes with the United States,
- a major corporate accounting scandal,
I am NOT predicting any of these; I mention them precisely because they are so unlikely. Does China have big challenges? Absolutely, but, in general, I think we know what they are, and the market is ready for them.
I think the last balloon will pop elsewhere in the world. In the following sections (see HERE) I’ll run quickly through some other possibilities that come to mind. Again, I’m not predicting any of these will happen. My point is that they are real possibilities that could set off wider problems.
*http://ggc-mauldin-images.s3.amazonaws.com/uploads/pdf/150927_TFTF.pdf (Thoughts from the Frontline is a free weekly economics e-‐letter by best-‐selling author and renowned financial expert John Mauldin. You can learn more and get your free subscription by visiting www.mauldineconomics.com)