Jul 31, 2012

More Fake Chinese Statistics

An article on Caixin Online is an interesting example of how national and provincial statistics are "compiled" in China. Schoolhouse Shock exposes the dismal state of public education in poor rural areas. This is of course terrible for the long-run economic prospects of the residents (and the overall economy). But it also shows how all the educational statistics are completely fabricated. Regarding drop-out rates, the article says:

Some officials at schools in Gansu Province said on condition of anonymity that the dropout rate is roughly 30 to 40 percent in junior high schools.
Provincial government statistics put the dropout rate at 0.6 percent. Central government figures for Gansu state the dropout rate is lower than 3 percent and declining.

This should be a wake-up call to those tempted to give China's National Statistics Bureau the benefit of the doubt. If educational statistics are so far from reality, why would the economic ones be any better? 

Jul 23, 2012

Don't Blame Europe This Time - It's All About China

Asian stock markets have opened the week extremely weak (no pun intended). No doubt much of that is due to the SPX rolling over on Friday, but there is more. The Nikkei is down 1.8%, Hang Seng almost 3% and Shanghai 1.2% - all of them more than the 1% or so drop of the S&P in the last trading session of last week.

The mainstream media is quick to blame the noise out of Europe, but there is

Jul 18, 2012

Equities Ignoring Negative Data is Cause for Concern

This has been the trend over the last week - bad economic data comes out, yet the market plows on onwards and upwards. Last Friday, Univ. of Michigan Consumer Confidence disappointed by a point and a half (72 vs 73.5 expected). Ignoring that completely, the SPX rallied hard, investors choosing to focus on the positive but heavily engineered JPM earnings instead. It was a similar story when July Retail Sales printed a dismal -0.5% on Monday vs +0.2% expected.

The market tends to ignore bad data points in one of two situations. It does that at the bottom of long bear markets, under heavily oversold conditions,

Jul 17, 2012

RBA Says Enough Is Enough

The Reserve Bank of Australia published the minutes of its July 3rd Monetary Policy Meeting (at which they left the overnight rate unchanged at 3.50% - which was market consensus at the time). After presenting various reasons that the economy is slowing but not catastrophically so, that inflation is contained and will probably continue to be for awhile, the RBA concludes that the previous cuts that have lowered the rate from 4.25 to 3.50 in the space of half a year should be enough to stimulate the economy in the near term.

Given all the uncertainties about China's response to their slowdown, the future path of the European crisis and the recent slowdown in the US, it does make sense to not shoot all of their bullets at once. 

Jul 16, 2012

Market Musings - EUR, China


Using the time-honored headline test, this may mean that the Euro's woes are coming to an end. Technically the chart appears to be stabilizing as well. In addition, the market's focus is shifting to the inconsistencies in China's economic statistics, leading some to believe that the whole data set is actually the product of the propaganda department and not the National Statistics Bureau. Efficiency must have really improved enormously if the zero growth in electricity consumption is indeed correct, given that GDP growth was +7.6% annualized.

Jul 7, 2012

The Job Numbers Were Bad - But Apparently Not Bad Enough

On Friday Non-Farm Payrolls for June showed an increase of 80k versus a (revised upwards) expectation of 100k. Not surprisingly the stock market sold off on the news, but eventually closed less than 1% down on the day. The US economy is growing very slowly but it is nevertheless growing. Which in some sense is a bad thing, as it means that Big Ben will probably not have an opportunity to come to the rescue with another round of Quantitative Easing.

Jul 3, 2012

Will the Fed Sink the Stock Market?

OK, this headline was probably guilty of deliberate catchiness. Of course the Fed will not sink the market. But Wall Street's easy-money addiction might. Relying on "Big Ben" to save the day  has become an instinctive thought process on Wall Street ever since the launching of QE2. When bad data comes out, it is taken as a positive development, because it just might be the last straw that pushes the Fed to action.

Well, not so fast. While everyone would agree that the trillions of dollars printed by the Fed

Jul 2, 2012

A Famous Investor Falls for Confirmation Bias

It is human nature to selectively focus on the evidence that supports one's position and to ignore the rest. This is a layman's explanation of what behavioral psychologists refer to as "confirmation bias". It is also a very common reason why inexperienced traders lose money - they get "married" to their position and hold it long past the point at which their reason for entering it has lost validity. 

In his CNBC interview Financial ‘Armageddon’ Will Happen Despite EU Deal Jim Rogers holds the view that despite the large one-day rally, the agreement at the EU summit on Friday is

Jul 1, 2012

Commodities Super-Cycle Revisited

Back in January we wrote a post highlighting that money has now started exiting commodity funds for the first time in the past ten years. (See Commodities Super Cycle Reversing Course.) This event has proven quite significant, as can be seen by observing the price action of most non-agricultural commodities this year. Gold and Oil are down significantly year-to-date, despite continued calls for a rebound by commodity bulls.

It is quite clear that something fundamental has changed. For example Oil is still very much correlated with equities, but despite Friday's massive bout of short-covering, it tends to go down