With China liquidating dollar assets, we should be especially careful trying to fish for a bottom in this vehicle. I remain confident that the bull market still has a long way to run, but that it will be buffeted by strong headwinds in the weeks (or even months) ahead. When global stocks begin to stabilize over that time, investors’ focus will slowly return to economy prospects, particularly that of China and the U.S. The new reality will not be expectations of continuing sub-par growth, however, but of a contraction and imminent recession or worse. The resulting epiphany will shift money out of stocks and into bonds. It’s coming, but we’ll need to be patient until the herd sees what it must in order for reality to sink in.
