China’s crackdown on several industries has demolished Chinese stocks listed in the U.S. Everybody’s panicking about the stuff I’ve been warning about when it comes to investing in China, a communist regime — the random enforcement of laws, corruption, a lack of transparency and so on.
And when I say everybody, I mean everybody. And if the person has an opinion about Chinese stocks, it’s going to be that you should sell them and run for the hills.
As the collapse of these stocks has accelerated, there are margin calls, and that forced liquidation is working its way through the markets Tuesday in not only Chinese stocks but also in some U.S. stocks. The crappiest of the small-cap tech stocks that I’ve long warned about are crashing.
I’m going to make a contrarian bet amid this forced sell-off action in Chinese stocks by nibbling a little bit of Tencent
and the iShares MSCI China ETF
for a shorter-term trade. And I’m buying back a little of the JD.com
that we’d sold at higher levels during the past few months. Be careful out there, as always, because if Chinese stocks keep tumbling, the action from those names could accelerate in their impact on U.S. markets.
One of the big tells that the market has turned from Blow-Off Top phase to being somewhere on the other side of the Bubble-Blowing Bull Market for most stocks is how they react to news of new money raises. In January and February and into March of this year, whenever a company would make an announcement declaring that they were selling securities to raise money for the balance sheet to invest in their businesses, the stocks would rally on the news.
That’s not the case anymore, as Virgin Galactic
and many others that have raised money have seen their stocks collapse on the news. The reaction is reflective of the continued decline in thousands of small-cap stocks, most of which are down 70% or more from their highs earlier this year.
Meanwhile, I want to keep reminding you that there are literally hundreds of stocks that have come public in the last year or two that will go to zero. Some will be fraudulent. Some will suffer from bad luck and just fail.
Doesn’t matter why — they’ll cost people billions in coming months and years. There’s a lot of trash in the markets. I took the picture, below, when I was describing how I think there’s a lot of “trash” in the stock markets and in the crypto exchanges while on a road trip to White Sands in New Mexico last weekend and happened to look out the window at the train going by with graffiti on it: