A Bull in China's Closet

Posted: Oct 15, 2011 12:01 AM
I told you earlier this week how I was very interested in those inflation numbers coming out of China. Well, that number came out exactly where we wanted it to. For September, CPI in China was 6.1% and PPI was 6.5%.

Some of you might be saying, Jack, 6+% inflation—that still seems high. And you’d be right. But the expectation was over 7%. Moreover, the prediction is that they’ll get that number down to 4% going forward.

For the time being, it appears that inflation in China is under control. While we may not get an official announcement about a monetary easing policy until later this year, I believe we’ll at least see a quiet end to the tightening. And a China that’s back online with spending and lending, my friends, is very bullish.

What isn’t bullish, however, is this garbage bill approved by the U.S. Senate earlier this week called the Currency Exchange Rate Oversight Reform Act of 2011. The bill, which is being presented as a way to even out imbalance with our second-largest trading partner and help U.S. producers, would impose tariffs on China for the way it manipulates its currency. But really, it’s another example of protectionist policy coming out of Washington at a time when we can afford it the least, and it could seriously disturb Sino-U.S. trade going forward.

Raising the price on Chinese imports is not going to bring production back to our shores. All it’s going to do is make goods imported from China more expensive for U.S. consumers. In an economic climate that’s already fragile at best, how does this make any sense? I don’t see this bill creating a single job here in the States—all I see is a first shot in a potential trade war.

This is not the way the world’s strongest economy is supposed to act, and anyone who supported this bill—republicans included—should be voted out of office. Just as we took a step forward by getting the free trade agreement with South Korea through Congress, we decide to get tough with our bankers and fastest-growing customer base? Folks, that’s just not the way it works. This is just another example of legislation that hurts America and Americans, and I am sick and tired of it.


The market seems to be holding its steady gains and getting right into the teeth of that resistance level of 1215-1220 in the S&P. The key now is whether we can punch through it—and continue to punch through it on a weekly basis going forward.

I talk to a lot of portfolio managers, both here and in Europe, and lately I’ve been hearing something very interesting that’s making me believe even more that the market is going to surprise people as we get closer to the end of the year. A lot of them are underperforming right now because they had been representing that scared cash that was on the sidelines.

Remember, their job is to beat benchmark indices, so they’ve got some work to do in the next few months if they want to keep making their boat payments. That’s a big reason why classic asset allocation is driving the markets right now—a lot of these portfolio managers who got caught on the sidelines are scrambling to get out of fixed income and into equities where they can see some returns. The last 8 or 9 days is a textbook example of what happens when scared cash rushes into the markets—keep an eye on that 10-year to gauge how cash is flowing.

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