Forget Greece and the Fed, China is the real problem!

With headlines on Greece off the front page focus soon shifted to the Fed and China as a rising source investor angst.

Analyses on interest-rate futures indicate the likelihood of raising interest rates in September - 19% in October - 36% in December - 54%. Janet Yellen no hurry. The Fed is trying to decide how will react as American and World economy. It is seen that the stock market is particularly sensitive to this issue. On the other hand, yields on corporate bonds is lower than the average dividend yield of companies in the S & P 500. This logically causes "leveraged buyout" (purchase by companies of their own shares with funds from the issuance of bonds). So LBO leads to increased demand and rising prices of these shares. In two years, S & P 500 increased by 24% and the Nasdaq by 41%. This process applies more and more hedge funds. Debt funds are very low cost already seven years. Bank for International Settlements reported about $ 9 trillion.,transferred in more profitable currencies with purpose carry-trading. These huge volumes according to Bloomberg are in Canada, Hong Kong, Turkey, China ... and are going to move very much after the changing of interest rates.

Seen from the other side, the world is already preparing to raise interest rates by the Fed. The market corrected in advance. To historical minimums dropped the currencies of countries such as Turkey, Mexico, Brazil, South Africa, Malaysia, Indonesia ... It is clear that expectations for September already hit commodity markets and emerging markets. The decline of gold and precious metals is also worrisome sign. Passive assets are offset by trust in USD. It is very important that the Bank of China did not increase their gold reserves for a long time precisely in anticipation of the increase in the percentage in the US and a decline in metal prices.

The downturn in China and its negative drag on U.S. earnings is the biggest single risk investor’s face heading into the second half of the year. When the second largest economy in the world slows significantly the ripple effect touches a whole range of industries that have increasingly looked to Asia as their next leg of growth.  The implications of a China Slowdown have a far reaching effect for not just our industrial complex but Europe’s as well. Business Insider touched on this referring to UBS economists pointing out that China’s flow of imports is the lowest growth rate in five years.

Mohamed El-Erian probably said it best in a recent CNBC interview: “China is no longer a locomotive for global growth…"