Growth is Seriously in Question

Dear Traders,

The Chinese meltdown continues as I am writing this newsletter. With BABA and JD collapsing in the US markets, other Chinese companies as well as American companies with huge exposure in China, such as Apple, are also under pressure. Nevertheless, volatility is excellent news for traders. Today, I traded BABA for a nice reversal, thanks to a call out from Brian. You can watch my recap here.

There are plenty of pain points connected to Russia’s war. Credit-default swaps are indicating Russia is going to default on its foreign debt. As holders of euro-denominated bonds issued by JSC Russian Railways were still waiting for their coupon payments, Putin introduced new rules for foreign creditors, allowing payments to be made in rubles instead of USD or EUR to those who are based in a country that has imposed sanctions on Russia, no matter what currency the debt was issued in. This means that if you have lent money in USD or EUR to any Russian company, such as JSC Russian Railways, you will receive junk rubles back if your country has sanctioned Russia.

Besides the impacts of the war, the financial markets are plummeting because of inflationary pressures from supply chain disruptions due to COVID-19. When you combine all of this together, it is easy to see why the outlook for growth is seriously deteriorating. There also should be little surprise in the fact that the sell-off of the global financial system is signaling more distress than at any time since the pandemic commenced. Goldman Sachs cut their US growth forecast for this year to 1.75% from 2% and warned that the probability of a recession in the next year may be as high as 35%. With slow growth and high inflation, economists’ worst fears may come true: a repeat of 1970s-style stagflation.

We are heading into the weekend and let me tell you, thank God it’s Friday. I hope everyone can use these two days off to relax from the markets and enjoy life. Life is too short, and if we are nearing the next meltdown of financial systems along with a potential world war, it is most appropriate to focus on family and friends and meaningful pursuits whenever we are able to.

See you on Monday!

Andrew

PS1: When time permits, I encourage you to practice your trading in our free web-based market replay tool. It is conveniently available 24/7 and we have just finished upgrading it to better meet your needs. You can check it out here.

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