DEBATES ON WHETHER THE CORRECTION IS OVER

As I am writing, it is 12.30am, DJIA is up about 300 points.  The second day into recovery after DJIA drop about 11% from its peak in July 2015.  CNBC, BLOOMBERG, CNN and other Financial media was searching frantically for an answer for the correction on Monday 24 and followed by Tuesday 25, 2015.  Lots of statistics and arguements or discussions on this topic.  It is like everyone is scrambling for an answer to justify the 1,000 points drop.  Actually, it is very difficult to find an answer that can be explain logically when the cause is effected by sentiment (i.e. human behaviour).

So, most financial media and investors alike, felt a relief and think that the correction is over.  What do you think?

My short answer is NO.  (Will discuss in Part 2)

THE PANDORA BOX IS OPEN

Who is the culprit that open the pandora box?  Everyone is pointing their fingers at China, while, everyone else were also at the party. Just to share some figures on China.  You will make the deduction.

GDP                                  USD10.4T

TOTAL DEBT                      USD28T (1998: USD2.0T)

FOREIGN RESERVE         USD4.2T

USD DEBT                         USD1.0T

PMI                                     47 (July), first time below 50

Steel industry                     using 50% capacity

What I can sum up, China is over capacity in many sectors.  Just have to check on their rail cargo trend, utilisation of electricity for industries, car sales, infrastructure, glut in properties/ghost cities.  It will take them a while to deleverage.  There are some similarity with Japan, only different, Japan takes about 10 years to increase the % debt to GDP from 100% to 130%, while China takes about 7years to increase from 90% to 170%.

1998 to 2015 (2Q)

Debt  increase                       14X  (from USD2.0T to USD28.0T)

Steel industry increase           6X

Auto industry increase          25X

Export increase                    13X

GDP increase                       ???

GDP today is about USD10.4T 

Do you think USA has decoupled from China?  Most of the job created in USA since 2008 mainly came from shale oil boom.

WHAT TO DO NEXT?

You have to think along the line that the world is deleveraging and contracting at the same time.  There will be many billions write-off from BRICS and Australia/Columbia/Export countries to China (commodities collapse) as crude oil may not be bottom yet.  Focus on defensive stocks (fundamentally) not effected much by the contraction.