China Devalues it's Currency. So What? (Part II)

By: Frank Yunker

Date: 2015-08-27

The stock market has been pushing higher for months without a major correction. It's long been overdue by some accounts, but it seems the catalyst for this past week's market crash may have been the devaluation of the Chinese Yuan two weeks ago. The truth is, plenty of investors have been jittery for months. Plenty of investors have some money sitting on the sidelines. Better to keep money on the sidelines and just invest the gains after the crash. For the long term, that may not b e true, but investors may only see the short term. In the short term, as stocks dive, investors lose the ability to be rational. The tipping point came, at least some say, when the Chinese government put additional restrictions on selling within the Chinese stock market. If some Chinese investors need money, the only option was to sell American stocks. More than likely, the general economic malaise hitting China, combined with the devaluation, meant investors could be sure that the stocks that do business with China are headed for a slowdown. A slowdown in one of the largest sectors of the world economy is enough reason to get a little jittery and, more plausibly, American investors caused the quick drop as much as any other group. Interestingly, the market rebounded nearly as quickly as it fell. The market is realigning and readjusting to a new normal. Or at least it should be. Amazon is still losing money, yet the stock is well above $500 per share. We've been predicting its fall since it hit $300. While we've been wrong for months on end, the truth is, at some point it will reach the tipping point. It may be Alibaba or some other upstart that will provide the tipping point, but once the price drops there will be no stopping it. Will there be a drop again? That much is certain. What triggers the drop is likely to something all-together unrelated to the price of any one stock or market segment. Amazon is in the news today for cutting staff. It's not likely to bring down the whole market, but that tidbit should be enough to bring the AMZN ticker down. If only the markets were rational.