This morning, again, I am in conflict about the market. I understand that emotion is verboten when one has money riding in this game, but some days it is so hard to check emotion. Some days the market is so stupid, so irrational, so acting without thought, I just can’t help myself.
I get it. The market needs some rebalancing. I get it. Today, the market is simply taking its cue from China to do some selling. Selling, by the way, that will give opportunity to those who have fought the tape for too long. Yes, today is a good thing for the market, I get it, but when I was reading this morning, I could feel the emotion churning inside. I both liked and disliked the market action. I liked it for the rebalancing and I disliked it because the market is, well, childish sometimes. The breathless media blurts out that China is going to implode and the child-like market sees a boogeyman under the bed.
- Commodities, Stocks Drop on China GDP Report; Even Bird Flu Has Investors Worried.
Oh for heaven’s sake! China’s GDP came in at 7.7%, not the 8% economists had predicted, and less than the 7.9% for the previous quarter. This tiny, itsy bitsy deviation has re-energized the wild-eyed wanderers and they are singing loudly again.
- If the economy is growing only at 7.7% and they’ve built these stockpiles of unneeded stuff, then you could have demand for commodities collapse and the economy could collapse as a result of that.
Let me see … China has built a stockpile of “stuff” and because the Chinese economy only grew at 7.7% not 7.9% (7.7% mind you), demand for commodities will drop, thus collapsing the whole economy. Wow! I used to teach argumentation at a university and in the deeply rich academic parlance of the Greeks, the masters of argumentation, I would call that supposition, well, let me see … oh yeh, I’ve got it … ridiculous.
The author of the far-fetched idea above is right about one thing, though, and it is one more sign of the market’s fearful behavior today, commodities are dropping, and China is not the reason.
Gold is dropping like a stone because folks are seeing the opposite of what the market is reacting to today – the future is brighter economically and, thus, brighter for the market. And, oil is dropping because traders see today’s news on China as one more sign the global oil glut is real and might last for a bit.
As to both commodities dropping, this is not a problem for the global economy and global markets; it is a blessing. Gold dropping fast to lows not seen for quite some time will release money from that overburdened trade and that money will find a home somewhere else in the vast asset classes of the market. Oil dropping will help the global consumer and the global producer with lower energy prices, thus stimulating economic and market growth.
Actually, now that I have written about my conflict, I feel less conflicted. In fact, I feel no conflict at all about the market reaction today. A sell-off needed to come and it is here, at least to a degree. If the market ends up deeply in the red today, the bears will say, “I told you so,” and the silent but smiling bulls will move in to buy assets at lower prices.
Never forget, when analyzing the market, always look to the bigger picture. Always look for clues as to which direction things are headed in the longer term. This will make the medium-term more predictable and the shorter term less surprising.
- Japan has agreed to a “robust package of actions and agreements” to address U.S. concerns over access to its auto and insurance markets as part of a deal paving the way for Tokyo to join the U.S.-led Trans-Pacific Partnership (TPP) talks.
It is likely that the US and Japan will reach agreement on opening up markets to one another. For the number one and soon-to-be number two economy in the world (after China collapses from its massive depreciation in growth), this will be a boon to trade and growth for both countries. It will also be a boon to the global economy, as well. China, watch out. Mr. Shinzo Abe just might be waking up a sleeping tiger.
As to the US, since it has recently been stroked with the brush of economic failing, don’t count on the economic momentum going away too soon. The US economy is by far the biggest tiger in the jungle, and when its states begin to growl, watch out.
- The worst of the budget crunch that afflicted state governments after the 2008 financial crisis appears over, data from the Census showed on Thursday. The Census reported that state tax collections last year surpassed their previous peak, and all but three states registered a surge in receipts.
The “Great Recession” is coming to a close in the US. This is good news for the market and the global economy. You know, now that I think about it, China just might survive, especially if the Chinese people can find a way to buy all that “stuff” piling up and they can find a way to deal with lower energy prices.
Trade in the day; Invest in your life …
