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The Chinese stock market plunged today (Monday) after regulators imposed limits on margin trading.
Today's sell-off was prompted by fears that those speculators, who are trading on margin, would exit the market. This prompted the 8% decline in Chinese markets.
"What China is doing is proactively tapping on the brakes," Money Morning Chief Investment Strategist Keith Fitz-Gerald told viewers of FOX Business' "Varney & Co." today (Monday). "They're trying to bleed out the speculation; they're trying to get rid of the excess."
U.S. markets are closed for Martin Luther King Jr. Day today, but this could cause a negative knee-jerk reaction in stocks tomorrow when they open up. Fitz-Gerald, however, said it will only be a blip before logic prevails and markets reorient themselves.
Despite that, this move will have an impact on the U.S. stock market. To see why, watch Fitz-Gerald's appearance below.
Record total margin debt in the stock market may seem troubling... but it's hardly the kind of "meltdown" indicator that panicked investors would like you to think it is. Here's the truth behind these high levels of margin debt...