Those who expect to reap the blessings of freedom, must, like men, undergo the fatigue of supporting it.
The United States adopted the Declaration of Independence 237 years ago, officially declaring the 13 colonies separated, independent, and free from the British. Picnics, barbeque chicken, carnivals, and fireworks have become tradition in celebrating our national day of freedom, and the official kickoff to summer and second half of the year.
Traditionally this time of the year yields the all-too-common summer-slowdown analogy for the markets, and this year appears to be no different. Over the past month, I have spent much time saying a market consolidation is imminent, it's only a matter of length and depth, which is the unknown. The myriad of factors that play a role in this determination is practically innumerable, to say the least.
With that said, China's GDP seems to be top on the "look out below" list, with their GDP trending down for the first time in a decade. Just last night President Xi Jinping commented that being judged by GDP alone was a mistake, and there should be more of an emphasis on social well-being, the environment, and the improvement of one's livelihood. This sounds a little like a man attempting to thwart a shortcoming. And yet not more than two weeks ago there were a plethora of articles debating the effect of China's fake invoicing in order to bolster economic numbers. With a two-year, 40% decline in their equity markets, how much more can be taken?
Shanghai 300 Index
Click to enlarge
What does this have to do with the US? China is the third largest economy in the world; it produced just over 12 trillion in 2012 and has been growing at 10% a year for the last 25-plus years. Now it looks as if 7% is the number to peg. With a 30% contraction within the third largest economy, it's not hard to ascertain what this could do to an already shaky global system.
With Wall Street's eyes pointed to the Asia markets of late, this will likely have a tendency to increase our volatility during the summer slowdown months (July 4 holiday to Labor Day). It's important not to get caught in the hype or in increased daily swings, but rather to continually evaluate the risk your portfolio is designed to handle. Remember, when all else fails, cash is an investment.
I hope this helps and finds you well. Happy 4th of July!
Editor's Note: Read more at Tesseract Asset Management.