The Morning Call---China struggling

 

The Morning Call

 

5/14/24

 

The Market

         

    Technical

 

            Monday in the charts.

            https://www.zerohedge.com/markets/hedge-funds-hammered-roaring-kitty-returns-bitcoin-black-gold-bid

 

            A slight improvement in the outlook for stocks.

            https://allstarcharts.com/10-weeks-of-no-returns/

 

            A sharp rise in bond volatility (see PPI report below).

            https://www.zerohedge.com/the-market-ear/3-bond-volatility-charts-we-are-watching-0

 

    Fundamental

 

       Headlines

 

              The Economy

 

                        US

 

The April small business optimism index was 89.7 versus forecasts of 89.1.

 

April PPI was up 0.5% versus projections of +0.3%; core PPI was +0.5% versus +0.2%.

 

                        International

 

The March UK unemployment rate was 4.3%, in line; March 3 month/YoY average earnings were up 5.7% versus +5.3%; Q4 labor productivity was -0.9% versus -1.0%.

 

April Japanese PPI was +0.3% versus estimates of +0.2%; April YoY machine tool orders were down 14.6% versus -7.5%.

 

April German CPI was +0.5%, in line.

 

The May EU economic sentiment index was 47.0 versus 46.1; the May German economic sentiment index was 47.1 versus 46.0; the May German current conditions index was -72.3 versus -75.8.

 

 

 

 

 

                        Other

 

                          Heavy truck sales increased in April.

                          https://www.calculatedriskblog.com/2024/05/heavy-truck-sales-increased-in-april.html

 

            The Fed

 

              The Fed caved too soon---but what else is new.

              https://www.foxbusiness.com/economy/fed-chairman-powell-finds-lowering-rates-easy-swallow

 

              And the proof can be seen in credit spreads.

              https://wolfstreet.com/2024/05/10/junk-bond-issuance-nearly-doubles-ytd-amid-feverish-demand-in-la-la-land-and-ultra-loose-financial-conditions/

 

The case of higher interest rates for longer. This article addresses why long rates will stay higher for longer---not the short term rates that the Fed ‘manages.’

              https://www.reuters.com/markets/case-forever-high-interest-rates-2024-05-13/

 

            Fiscal Policy

 

This article lays out Trump’s case for tariffs; one of the primary affects of which is a weakening of the dollar. I have always believed that a currency (of a country) is like the stock (of a company). Its strength is a measure of how much the rest of the world wants to own a piece of America.

 

So any deliberate effort to weaken the currency is an effort to make America a less attractive place to invest. It might be one thing if the ruling class weren’t doing everything humanly possible to devalue the dollar anyway: irresponsible spending, a loose Fed, unwarranted foreign intervention consuming lives and Treasure. But they are and it apparently hasn’t been enough to devalue the dollar enough, at least so far.

 

Remember that the US has a huge advantage over virtually every other country because the dollar is the world’s primary medium of exchange. That allows us extraordinary freedom in the pursuit of our domestic and foreign policies. Just imagine what it would be like if the rest of the world decided it wouldn’t accept dollars in exchange for goods or refused to buy our government debt except at much lower prices (higher interest rates).

 

I understand measures to offset Chinese theft of American intellectual property and their efforts to keep their citizens calm and peaceful. So (1) directing tariffs specifically at the Chinese has some merits, plus (2) those Chinese policies will ultimately fail because they make no economic sense [see below]. However, formulating a general policy of higher tariffs on the global community smacks of Smoot Hawley, part two. And we all know how that turned out.

https://www.politico.com/news/2024/04/15/devaluing-dollar-trump-trade-war-00152009

 

            China

 

              The slowdown in China’s credit growth.

              https://www.zerohedge.com/markets/chinas-broadest-credit-metric-just-turned-negative-first-time-2005

 

              China’s dead end economy.

              https://www.nytimes.com/2024/05/11/opinion/china-economy-dead-end.html

 

              Well, maybe not totally.

              https://www.advisorperspectives.com/commentaries/2024/05/13/chinese-exceptionalism-john-mauldin

 

     Bottom line.

 

            More on valuations.

            https://alephblog.com/2024/05/11/estimating-future-stock-returns-december-2023-update/

 

            Are stocks really a good inflation hedge?

            https://klementoninvesting.substack.com/p/public-finances-are-like-stocks

 

            Where to stash your cash.

            https://www.morningstar.com/personal-finance/where-stash-your-cash

 

    News on Stocks in Our Portfolios

 

 

 

What I am reading today

 

            Stress management.

            https://traderfeed.blogspot.com/2024/05/an-effective-technique-for-mastering.html

           

 

                        The health benefits from eating nuts.

            https://www.zerohedge.com/medical/go-nuts-about-nuts-help-keep-cancer-bay

 

 

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