Quick thoughts on Global Economy 

Quick thoughts…

China:

  • Chinese stock market has fallen 30% in last 3 weeks
  • 80% of stock market is held by individual investors. US has much less proportion as there are more institutional investors: mutual funds, etc.
  • Chinese individuals are borrowing money to invest in the stock market. History repeating itself again just like Dot-Com bust.
  • Chinese gov’t is ordering banks and companies to buy into the stock market in order to provide a soft landing for the economy
  • Economy is certainly inflated by the government and has been growing too fast. More steady growth needed.
  • There is still a lot of value in the China and the Chinese economy but there is certainly a heavy correction that is needed.

Greece:

  • First developed country to default on IMF loan.
  • Rejected terms from creditors. Will be very interesting to see what happens next. May be kicked out of the Euro.

US:

  • Dollar will continue to remain strong but will flatten growth. The uncertainty of other currencies is causing foreign money to be infused in the US Economy. This has been happening for last 6 months but will be reduced given situation of global economy. 
  • Real Estate market will flatten and will decline slightly. Areas surrounding Bay Area have already begun to flatten. 
  • Even in the Bay Area, market has been flattening as compared to before when there would be tens of cash offers on houses. This may be due to the lack of influx of Chinese cash.
  • Companies that have recently IPO’d and are not making significant profit will not be able to survive on their own and be acquired. 
  • Companies that are inflated and over hyped will face reality and either disappear or be gobbled up for pennies on the dollar. 
  • Consolidation of the market. 
  • US Companies that have larger pockets will survive and gobble up smaller companies that they can buy for cheaper given the lack of capital access. Those that have larger China plays will suffer more than others.
  • US Market will still be stable but will suffer a 10-20% correction due to situation of global economy. 

Safeer Mohiuddin

More Info:

  • http://www.nytimes.com/2015/07/06/business/international/chinas-market-rout-is-a-double-threat.html
  • http://www.bloomberg.com/news/articles/2015-07-05/china-stock-plunge-leaves-market-more-leveraged-than-ever-before
  • https://twitter.com/davemcclure/status/617900046621671424
  • https://twitter.com/george_chen/status/617904881957875712

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