Buy the dip on this fake China crisis!

I had to laugh yesterday. A mate of mine had me on the phone wondering if the ASX was about to take a big dive.

Apparently, investor Michael Burry is short the US market. The reason I chuckled is that in January, my buddy had me on the phone…wanting to get in the market for some action!

Why does anyone care about Burry, anyway?

The movie The Big Short made Burry famous for his big trade shorting the US market before the 2008 collapse. I guess he’s going for number two. Or is it three, four, or five?

What I mean is that many investors and traders who ‘predicted’ the 2008 collapse also did so in the years before and after it happened too.

As in, if you keep saying the same thing for long enough…hey, eventually you’ll be right!

Burry’s short gives Aussie investors a bit more to quake in their boots about alongside the fact that everyone is again worried about China.

I say again, because it’s pretty much been a constant theme for the last 10 years.

Here’s my problem with it: the problems in the Chinese property market are obvious and well known. The market has already priced in what is obvious.

Yes…Chinese youth unemployment is high. I get it.

Have you ever been to Spain? Half the people under 35 still live with their parents and think a permanent work contract is as likely as seeing a unicorn in the local bar.

You don’t hear the Western press worrying about Europe’s effort in this metric do you?

Then there’s the little problem of iron ore for the China bears.

Back in 2015, when China and the world were looking at lot worse than now, the iron ore price was less than US$50 a tonne.

If you check your paper today, you’ll see that it’s around US$113 now and at a three-week high.

Whatever you think about the world right now, the fact is this is historically a high price and Aussie miners are still rocking great margins off this. 

BHP’s dividends last financial year were still the fourth highest in its history. This is after Chinese property has been on the ropes since about August 2021.

I also found these two recent tweets from economic strategist David Goldman very notable:

Another ‘China guy’ I tune into from time to time is Shaun Rein.

He says what’s happening in China now is a crisis of confidence, not liquidity. As in, China’s economy is not great…but it’s not Greece in 2009.

Personally, I think this current China spook is already over. The Aussie market has been down almost the entire month of August. It’s battered…but the world keeps turning.

Take a step back and, if you can, put your emotions aside. You can see from my friend above that the volatility in the stock market can jerk you around like a washing machine.

What I’ve found works for me is understanding and researching the actual businesses that trade on the stock market.

You have to see the current market for what it is…that’s a chance to accumulate cheap stocks!

When else do you get a look at the best prices except when everyone has their knickers in a knot and would rather huddle in cash in the delusion they’re getting a 5% return. Inflation at 5% means your return is actually zero.

I just put together a presentation on why now’s a time to be actively putting your money in the market.

 I’m so pumped because it could be only the third ‘Big Buy’ for my specialty sector in 25 years.

Yep! Investors need to stop acting like a bunch of wimps and get busy like Buffett advises us to do when he says be greedy when others are fearful.

Here’s what I think you need to know about today’s market…

In the early stages of a new bull market, it’s only natural that investors and the market are still rattled by concerns from the preceding bear market.

They say nobody rings a bell at the top. Well, they don’t ring one at the bottom either.

This is why stage one of a bull market is often called ‘reviving confidence’.

It takes a while for everyone to get comfortable that companies can return to growth again after whatever put them through the ringer.

And, in case you don’t know this, Wall Street is walking back from thinking a US recession is a sure thing to a yes/no/maybe/we’re clueless vibe right now.

Yet you can still buy shares today priced as if the US is going into recession and China into a financial crisis.

Neither is likely.

Once the market wakes up to the fact that it’s overlying negative, at least in my view, we could be in for a virtuous upcycle as analysts upgrade their forecasts.

Go here for the full rundown why now’s the time to give the market your best crack.

Best wishes,

Callum Newman,

Editor, Fat Tail Investment Research