Economic Indictors-A Global View

[ravi1967]

All I can say is, Harry Truman Lives...
6/29/2006 5:21:19 PM


Stocks rallied strongly on Thursday (June 29).

*****

All I can say is, Harry Truman Lives.

America's 33rd president was not a patient fellow, which I say is reason enough to like him. The fact that he rarely concealed his impatience makes him downright admirable.

Take Truman's famous quip, "I want a one-armed economist so that the guy could never make a statement and then say 'on the other hand'" Wish I'd said that -- I like it even better than Truman's advice to exit the kitchen if you don't like the heat.

Maybe you've heard the one-armed economist quote. It may even have crossed your mind this afternoon if you followed the "Fed Boosts Interest Rates" story. To actually read the FOMC statement was like hearing Harry Truman shout through a bullhorn:

"Readings on core inflation have been elevated in recent months."
"[H]igh levels of resource utilization have the potential to sustain inflation pressures."
"[T]he Committee judges that some inflation risks remain."
On the other hand:

"Recent indicators suggest that economic growth is moderating from its quite strong pace."
"nflation expectations remain contained."
"[M]oderation in the growth of aggregate demand should help to limit inflation pressures over time."
Gosh, you'd think that the 10 FOMC governors who unanimously endorsed the statement were all economists or something umm, wait, they all ARE economists. Look the thing up if you think I'm being unfair. All six quotes come from the three relatively brief paragraphs (168 words) that comprise the Fed's policy statement.

Naturally, the punch line to the Fed's statement is that, after the central bank raised the fed funds rate today, the stock market launched a big rally. This is a defiant mockery of everything the media has said about stocks for nearly three months -- namely that the Fed has been raising rates because of "inflation fears," and in turn "inflation fears" have made the stock market decline.

The news stories tried to make it sound like investors were "reacting" to "dovish overtones" in the Fed's statement. an interpretation that you're welcome to laugh out loud about if you care to.
Our take on today's stock market was in the analysis we provided before the Fed's statement. Wednesday's Short Term Update (June 28) included a chart that clearly said, "Stocks Will Likely Spurt Upward" There was no "on the other hand."

 

[pkjha30]

Hi Ravi

Highly positive writeup.

However I have a worry and a wish both combined in the same sentence. Do we again touch 2632 before we go on to next loop.
I have a feeling that we might have to say goodbye to the bottom of nifty for the time being till we see a new bottom much higher ahead. Your comments will be appreciated.

Pankaj

 

[ravi1967]

hai pankaj,
the negative signal from the rate hike is that Capital Inflows will taper, as less investors will move money from USA to Emerging Markets and Flow from EM's will be more towards assured 5.25% returns in US.Also i think ,FED's next meeting is in Aug ,where a hike may be possible.I infer this from thier statement, that the further hikes, will be based on data available at that time.
Also Bank of Japan's next meet is on July 14th.
Keeping these factor's in mind, will RBI be forced to hike rates ?.If so, what will be impact on Mid-Caps and Small Caps?. Would this cause a shift from Mid Caps to Heavy weights ?. all these are probable factors for a volatile index movement.
We seem to be in tandem with Global markets, especially NIKKIE.So unless, we break away from Global trends and focus on " INDIAN Companies ", we are in for a very volatile time ahead.
I certainly will be happy to make profits, but LOSSES is a big NO.Hence i am already in 98% cash, with 2% only in trading.Only time will tell, if i am right or wrong!!!
Regarding Nifty, it is still 55:45 in favour of a downside.But the depth can only be gauged from Hedge funds, that are urgently in need for Strict regulation from SEBI.
Majority of hedge funds are only for High Net Individuals.So why not regulate the profits they make!!!. Is it because all our politicians are HNI's ?
bye
ravi

 

[ravi1967]

hai all, why not go for Gold. see attached chart

 

[ravi1967]

Stagflation: A new peril for stocks
Stagflation is what happens when you have little economic growth but a good bit of inflation. It's an awful environment for stocks, and it could come back. Here's why.

By Jim Jubak
There are inflation worries, of course. The financial markets are worried that inflation is running so hot that the world's central banks will raise interest rates again and again and again to fight it. That wouldn't be good for either stock or bond prices.

There are slow-growth worries, of course. The concern here is that the central banks will overshoot and raise interest rates so high in their battle with inflation that they'll either slow or stop economic growth. That certainly wouldn't be good for stocks and if growth slowed enough, rising bad debt could take a bite out of some sectors of the bond market.

And now there are stagflation worries to add to the list.

Concerns that we could see a rerun of stagflation, that dreadful mix of slow-to-no growth and high inflation that made a good part of the 1970s such a bad time for investors, have been on the rise this year. But until recently, I hadn't seen a convincing explanation for why this monster should rear its ugly head now. However, the Bank for International Settlements, based in Basel, Switzerland, the bank for the world's central banks, warns in its most recent annual report that global stagflation is a real possibility. I find the bank's logic convincing, and I think investors need to factor the possibility of stagflation into their thinking.

Why you should be thinking about stagflation
Most of the time, we associate high inflation with periods of fast economic growth, based on Keynesian economic theory, named after the great English economist John Maynard Keynes. (Keynes is, to the best of my knowledge, the only great economist who was also a masterful investor: He managed the Kings College, Cambridge, portfolio to an average annual return of 13.2% from 1928-1945.)

According to Keynes, fast growth in demand leads to bottlenecks that prevent supply from keeping up with demand. That leads to rising prices for goods and services. At some point an inflationary psychology sets in -- the price-wage spiral -- as higher prices cause workers to demand higher wages to keep up, which in turn produces higher prices

 

[ravi1967]

Your Last Chance At the
Secret African Supermarket
by Tom Dyson
Contributor, Daily Wealth
July 12, 2006

The Benguela Railway runs 1,300 kilometers from a major Atlantic seaport into the center of Africa. It connects some of Africa’s richest mineral deposits and farmland to the world’s consumers.

Problem is, it hasn’t worked in 20 years. They dynamited the tracks in the 70s during the Angolan civil war.

But what’s this?

Go to Angola today and you’ll notice – in the muddy fields beside the tracks – three tidy little camps have sprung up. They accommodate Chinese railroad workers. They’re rebuilding the railroad... replacing sleepers, bridges and stations. Total cost: $800 million.

$800 million is a lot of money in Angola. But the Angolans aren’t paying for it. The Chinese are.

Not many people realize this, but right now, Chinese engineers and businessmen are crawling all over Africa. They’re trawling for oil and minerals, and at the same time, preparing African markets for Chinese-made goods. The Benguela Railway is just one tiny example. Get this: Africa is China’s number one oil supplier.

According to Business Day, “Angola beat Saudi Arabia, the world’s largest crude oil exporter, as China’s top supplier of the fuel in the first quarter [2006], shipping 6.28-million tons of crude oil compared with the 6.01-million tons supplied by the Middle Eastern state, according to customs data.”

There’s a rumor Sudan has “huge untapped oil reserves.” China has approximately $4 billion invested in Sudan. China also has large positions in Nigeria, Chad, Gabon, and Equatorial Guinea.

According to Le Monde Diplomatique, there are 674 Chinese companies with operations in Africa. In Zambia, Chinese-run farms supply the vegetables sold in Lusaka's street markets. In Botswana, Chinese companies control the construction industry and in Nigeria, a Chinese firm launched Nigeria’s first space satellite.

Nigeria is interesting. I spoke with a Nigerian taxi driver last year. He told me the Nigerian government has established Chinatowns in all of Nigeria’s largest cities.

I could go on. I have a three page list saved on my computer with all the references to Chinese business in Africa.

It’s not just business. The politicians are involved too.

Last month, Chinese Premier, Wen Jiabao toured seven African countries and signed 71 agreements. In April, Chinese president Hu Jintao visited Morocco, Nigeria and Kenya. And later this year, Beijing will host a huge summit meeting between Chinese and African leaders.

Did you know China recently named President Robert Mugabe of Zimbabwe an honorary professor in the Great Hall of the People in Beijing?

It all points to one thing: Africa is finally emerging.

Right now, most investors wouldn’t even risk their spare change in Africa. It’s totally off the investment map. There are no ETFs and few listed stocks. They don’t even have sweatshops there yet. Chaos is the only story the media cares about. And even that doesn’t make the front pages.

This is all good news. It means we can still get in cheap.

Don’t delay though. Africa won’t be a secret for much longer. As it gets harder to procure commodities elsewhere, investors will to look to Africa. It’s what the Chinese are doing. They are tying up supply lines of strategic resources. It’s the only low-hanging fruit left on the planet. And they’re doing it with stealth, getting in there before the crowd finds out.

Tom


2006 Tom Dyson