Profit From The No. 1 Threat To The Global Economy
The British newspaper The Economist recently released its updated ranking of threats to the global economy, and number one on the list isn’t what you might think. It’s not ISIS, Russia or even low energy prices.
#-ad_banner-#It’s China.
Specifically, the Global Forecasting Service at The Economist says that the likelihood of China experiencing a “hard landing” within the next five years is the top threat to the global economy. The culprits: deterioration in the manufacturing sector, sky-high debt levels, ongoing currency depreciation and ill-conceived interventions into the country’s stock market.
The backdrop for this turmoil is the need for policymakers to guide China’s maturation from a largely manufacturing-based economy to a consumer and services-based economy. From the report:
| This month we are raising our risk of China experiencing a hard landing at some point in the next five years to 40%, from one in three previously. There are many conceivable routes to such an outcome, varying from a house price crash to the state sector crowding out investment, but we are particularly concerned by the rapid build-up of debt in the economy. At more than 200% of GDP, the private-debt stock is at levels that have coincided with crises in other economies, such as Japan in the early 1990s and the US in 2007. The implicit sovereign support for the (largely state-owned) banking sector and deposit guarantees should militate against bank runs, but expectations of a rise in non-performing loans could still cause damaging volatility, impairing the functioning of the banking system. Completing our new, more bearish view on China, we have revised down our economic growth forecast for 2018-20 from an annual average of 5.1% a year to 4.7%. |
According to the Global Forecasting Service, this prediction assumes China recognizes that its credit problem has become unsustainable by year-end and takes adequate measures to improve the situation.
If it does not, then the consequences will “further feed the ongoing global commodity price slump (especially in oil and, in particular, metals), with a hugely detrimental impact on those Latin American, Middle Eastern and Sub-Saharan African states that had benefited from the earlier Chinese-driven boom in commodity prices.”
Not only that, but with Western manufacturers and retailers dependent on Chinese demand, we could see major ripple effects in the European and U.S. economies — “far more than would have been the case in earlier decades,” noted the report.
Many of the most powerful names in business, finance and politics read The Economist. (Bill Gates reportedly reads it cover to cover every week.) So when it issues an important forecast or warning, people should listen.
We’ve also issued warnings about China in these pages before — most notably from our resident options expert Jared Levy. And so far, those warnings have proved prescient.
Here’s what Jared had to say in the most recent issue of his premium advisory, Profit Amplifier:
| Beyond the borders of communist China, investors, analysts and the media know that the country’s problems are bigger than it lets on. We realize that the economic statistics and data it offers to the world are manipulated and that the potential for real economic disaster is more than just remote. Like I’ve described in past issues, China’s data deception has helped the country skirt along for years of declining growth and a currency that’s losing its value quickly. But to date, the country has not faced an internal revolution like what we might be seeing now… As economic trends continue to degrade, I see the internal struggle and doubt of the people as means to expedite the downturn beyond what the models are currently pricing in. The downturn will be exacerbated by skittish investors who don’t understand what’s going on, but will panic when stocks begin to correct when they realize they are losing their savings. |
If Jared’s predictions ring true again, then U.S. markets could be feeling more shockwaves from China in the months and years ahead. But rather than panic, Jared recommended a trade to his Profit Amplifier readers that could lead to gains of 30% in two and a half months from just a 7% downside move in Chinese markets.
If you’re familiar with Jared’s work, then you know that he and his readers hope to accomplish this through the power of options. Options are one of the simplest and most effective tools for profiting from special situations like the chaos brewing in China. And thanks to what we call the “Levy Technique,” Jared is able to take advantage of these situations by only risking a small amount of capital — while maximizing the upside for each and every trade.
Case in point: Back in July, Jared recommended another bearish options trade based on China’s weakness that landed his readers a 39% return in seven days — that’s 2,036% annualized — while risking just $525.
And in February, a bearish bet on another China proxy delivered a 36% profit in seven days — or 1,896% annualized — risking only $350.
If you’d like to learn more about Jared’s strategy, including how you can begin collecting double-digit gains from his trades within a matter of days, simply visit this link.