Tom Dyson

From Tom Dyson, publisher, Palm Beach Research Group: China’s stock market is crashing…

More than $3.4 trillion in wealth has been lost over the last several weeks.

For context, that’s more than the United Kingdom’s annual gross domestic product (GDP)—the fifth-largest GDP in the world. Or 14 times the GDP of Greece.

The crash is already worse than the one in 1987—precipitated by “Black Monday.” Some analysts are comparing it to the collapse of 1929—which started the Great Depression.

The Shenzhen index (similar to the U.S. S&P 500) has fallen 31% over the last 10 weeks. The Shanghai Composite (similar to the Dow Jones industrial average) has plunged 28%. On July 27, it dropped 8.5%—the biggest one-day decline since 2007.

The country’s entering a depression. The government is saying its 7% growth will be the slowest of the past 25 years.

  China’s slowdown is decimating commodity prices.

The country is the biggest consumer of nearly every major industrial commodity:

  • 12.4% of oil consumption (and it’s the largest net importer)
  • 50.6% of coal (it burns more coal than all other countries combined)
  • 47.3% of steel
  • 64% of iron ore
  • 46% of zinc
  • 40% of copper.

If the Chinese economy tanks, the demand for these commodities drops with it.

The Bloomberg Commodities index, which tracks future prices for 22 commodities, sank to its lowest level since 1999. Eighteen of the 22 commodities in the Bloomberg Commodities index are now in bear markets—down at least 20% from their market highs.

The Bloomberg industrial metals index is down 52% since 2011.

Earth-bomb

Bottom line: China is still the “world’s workshop.” A crashing China means weakness and pain for commodity prices worldwide. Plan for years of depressed commodity prices as markets seek to re-establish an equilibrium.

  At PBRG, we’re taking advantage of China’s bloodbath…

The stock prices of a few great companies have been punished in the broad commodities sell-off, even though there’s nothing wrong with the businesses. The business models are structured in a unique way that insulates them from the carnage around them.

One such company has paid dividends for 25 years straight. And right now, that dividend yields 16%.

The last time shares were this cheap, they rose 356% over 20 months.

All Infinity subscribers can click here to access the pick in the August issue of Tom’s Confidential.

August Recommendation