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Retirely in The things you own end up owning you,

Pay no attention to the fact that China’s stock market wiped out all its gains this year in under two hours trading this morning

“This is a real disaster and it seems nothing can stop it,” said Chen Gang, Shanghai-based chief investment officer at Heqitongyi Asset Management Co. “If we don’t cut holdings ourselves, the fund faces risk of forced closure. Many newly started private funds suffered that recently. I hope we can survive.”

I’ve stayed away from the stock market, but it seems odd that a failure in the Chinese market would translate into drops in the US.  Sure, everything is connected these days, but I’d have figured investors would move to the relative safety of the US market instead of risking money in the Chinese one, which should bring the market up in the US. Don’t forget that tons of US investment houses and banks have lots of Chinese stock.

“China’s economy is pretty ugly and some sectors have bubbles,” said Wu Kan, a Shanghai-based fund manager at JK Life Insurance Co., who’s keeping his holdings unchanged. “Selling pressure around global markets is also weighing on local sentiment. The Shanghai Composite may fall to around the 3,000-point level.”

“The news on pension funds over the weekend was positive, but not having the expected required-reserve ratio cut or any other larger measure seems to have disappointed investors,” said Gerry Alfonso, a Shanghai-based trader at Shenwan Hongyuan Group Co. “But it is questionable whether even with one the market would have rebounded.”

And while it’s true in general that most people underperform the index (present company included over the past two years, in large part because I’ve been waiting for a correction that took until now to occur), a 25% meltdown in Shanghai definitely qualifies as a huge flashing red light.

In deference to the indexers, the V-shaped recovery from the crash in the price of oil back in October 2014 (From SPX 2000 to 1820 and a all the way back again in one month!) was just weird. Not red-flag weird, but yellow-flag, “Dafuq? Charts aren’t supposed to look like that!” kind of weird, but everyone who held through it or bought the proverbial blood did OK.

The problem for those heavy on cash is when to stick one’s toe in the water. I can afford to draw back a few bloody stumps if I’m wrong, but there’s a limit beyond which it’s most prudent to just say “fark it,” and wait it out. 1994 (Mexican Peso crisis) and 1998 (Asian Contagion) and 2003 (NASDAQ crash and 9/11 bear market bottom coincided with the week the bombs started flying) and 2011 (debt ceiling crisis) and 2013 (taper tantrum) were buying opportunities. But 2008 (nope, that time we really were boned!), not so much.

The investment thesis of the past decade – pre- and post-2008 crash – has been that ongoing aggregate demand for energy and commodities sufficient to elevate a billion Chinese farmer-peasants to a middle class standard of living, will keep the world’s economy running. Not only is this thesis now in doubt, there are questions domestically involving assets such as West Coast real estate — how much have prices been driven up domestically by Chinese investors looking to hold assets offshore or set up a pied-a-terre in the West? And despite the fact that some of these were cash buyers, how much of their capital was based, at least in part, on the price of equities in Shanghai? Any wealth effect brought on by the Chinese bubble is likely to vanish as it pops, and without buyers lined up to pay $10M for a condo they’ll never even live in, how many projects involving snazzy glass towers in SF and NYC are still viable?

But those are long-term concerns. In the immediate term, some of what we saw domestically on Friday was forced selling, and we’re going to see more of that tomorrow: money market funds have seen a flood of new cash over the past month, and given last week’s drubbing, managers of such funds are likely to be low on cash and may be forced to sell stocks today in order to meet redemptions from panicked clients who sold their US mutual funds on Friday.