More bad news from China...

 The slowdown in China continues...

 

The flash Markit/HSBC Purchasing Managers' Index (PMI) – a measure of economic health for the manufacturing sector – just fell to an eight-month low. The PMI's most recent reading of 48.1 fell short of expectations for 48.7. A reading below "50" signals a contraction for the sector. The index has been below 50 since January.

 

And that's just the latest news of an economic slowdown for the world's second-largest economy.

 

 The Chinese economy grew 7.7% in 2013, matching its pace in 2012. That's below the double-digit gross domestic product (GDP) growth of the past 30 years.

 

China also recently announced that retail sales, fixed-asset investments, and industrial output fell...

 

Growth in retail sales climbed 11.8% in January and February from a year ago, the slowest increase in three years. Analysts were expecting 13.5%.

 

Industrial output rose 8.6% in the first two months from a year ago, according to the National Bureau of Statistics. Analysts expected 9.5%.

 

And fixed-asset investments – capital spending on real estate, infrastructure, machinery, and other physical assets – grew 17.9% in the first two months from a year earlier. It was the lowest level in 11 years and fell below expectations of 19.4%.

 

 Yes, China's economy is still growing... But China is the world's growth engine. Growing demand from our neighbors to the east is important to keep markets (and especially commodities) rising.

 

 Markets were further rattled this month when a solar company became the first Chinese firm to default on a bond. Chinese Premier Li Keqiang also announced further defaults were "unavoidable."

 

Still, as with the rest of the world, investors are expecting China's central bank to step in with a bailout if things get bad enough. As Hongbin Qu, chief China economist at HSBC, recently said...
 

We expect Beijing to launch a series of policy measures to stabilize growth. Likely options include lowering entry barriers for private investment, targeted spending on subways, air-cleaning and public housing, and guiding lending rates lower.

 Reuters, citing unnamed sources, said China's central bank was prepared to introduce measures to keep the economy growing at 7.5% a year (still lower than 2013's 7.7% expansion).

 

Keqiang also said last week that construction plans would be accelerated to ensure proper growth.

 

 But even hints of easing didn't stop the copper market from plunging. "Dr. Copper," as the industrial metal is known, is a key measure of global economic activity. The metal is used in everything from computers and cars to plumbing and power lines.

 

And as you can see from the chart below, the "doctor" caught a cold this year...

 

 

 The Dow Jones and S&P 500 were down following the news of China's slowdown. Gold fell nearly 2% to below $1,310. Meanwhile, the technology-heavy Nasdaq Index fell as much as 2% as the technology darling's momentum trade was crushed today.

 

We've long warned you about the obscene valuations of certain unproven technology firms like electric carmaker Tesla, 3D-printing company 3D Systems, and video-streaming firm Netflix.

 

In Tesla's case, the company trades for around 130 forward earnings (despite not making any profits).

 

We also laid out the bearish case for 3D Systems. At the time, the company sported a nearly $10 billion market cap and traded for more than 20 times sales. For perspective, consider Porter's "Black List," which he includes in his Investment Advisory newsletter. It's a list of companies with market caps of more than $10 billion trading for more than 10 times sales – one of his general measures of market "frothiness."

 

 And we're not the only ones... Hedge-fund legend Seth Klarman, founder of the $27 billion Baupost Group, is a famously conservative and secretive investor. In his latest letter to investors (which we discussed here), Klarman warned about bubbles forming in the market. From his letter...
 

A skeptic would have to be blind not to see bubbles inflating in junk bond issuance, credit quality, and yields, not to mention the nosebleed stock market valuations of fashionable companies like Netflix and Tesla Motors.

 Tesla fell as much as 9% today before recovering. Netflix was down 9% at one point. And social-media giant Facebook fell more than 5%.

 

Social-networking company Twitter hit its lowest price since December. 3D Systems hit its lowest price since October.

 

 

It looks like the air is finally starting to come out of this trade.

 

 

 New 52-week highs (as of 3/21/14): Berkshire Hathaway (BRK), Chicago Bridge & Iron (CBI), C&J Energy Services (CJES), Comstock Resources (CRK), CVS Caremark (CVS), EMC (EMC), 1st United Bancorp (FUBC), GigaMedia (GIGM), Johnson & Johnson (JNJ), KLA-Tencor (KLAC), Marvell Technology (MRVL), and ProShares S&P 500 BuyWrite Fund (PBP).

 

 Doubling your net worth in five years isn't bad... How do you compare? Let us know here at feedback@stansberryresearch.com.

 

 "At the end of Feb. 2009 my net worth was $1.6 million. As of March 7, 2014 it was $3.5 million. How did I more than double my net worth? Mike Williams' True Income bonds, providing commercial real estate loans to a couple of local small businesses (thanks to Steve Sjuggerud), John Doody's gold and silver stocks, Chris Weber's advice on gold and silver funds (CEF and GTU), Dan Ferris' Extreme Value picks, and a few of Porter's oil, gas and tech stocks. My wife and I spent over $100,000 each of those years on living expenses. Overall, I think I've done OK." – Paid-up subscriber Jim Flowers

 

Regards,

 

Sean Goldsmith

New York, New York

March 24, 2014