Good morning!

The fun & games continues with the major indices and currencies. I'm running late today, because I had to see how the Chinese market would behave, and it opens at 1:15am UK time, and I was up anyway. So of course I got sucked into things, and hyped up, and ended up not having much sleep! Therefore I'll be updating this article throughout the afternoon, so please refresh this page later to see the full report.

US/China markets

Perma-bear Marc Faber was on CNBC yesterday, saying that the sharp falls in US markets have nothing to do with China, but are more being driven by poor US economic data, indeed he claimed that manufacturing is already in recession. There have been plenty of other figures showing that the US is entering a soft patch, and with profit margins so high, perhaps corporate earnings have peaked in the short to medium term, who knows?

He may be right to a certain extent, but the US Futures and the Chinese markets mirror each other's movements much of the time, although China is much more volatile.

I do increasingly get the impression that policymakers don't really know what they're doing, and are certainly not in control of events. My view is that the mother of all credit bubbles (in China) could end very, very badly - and drag the Western banking system down with it too. No idea when though. Like the Euro crisis, this issue seems to recur in waves, then get smoothed over, then returns - as arguably the underlying economic problems are being masked, rather than fixed.

They also said on CNBC that the first 4 days of 2016 saw the largest percentage falls ever over that time period. Who knows if that is a harbinger of doom or not, but it's interesting nonetheless. With so much automated trading, there's no doubt that markets can be very volatile these days - "flash crashes" now happening from time to time, e.g. Aug 2015.

Therefore my approach at the moment is to be more cautious than usual. I'm only opening new long positions if they seem compelling value, and/or where there's clearly been a clumsy seller, and the shares are just selling off for spurious, or no reason at all. As I've mentioned before, it's always good to have a pot of spare cash on the sidelines, so that you can deploy it picking up bargains (selectively)…

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