China Exports Fail
Research for Online Investors

8/10/12

Chinese exports rose by one-percent in July, down from 11.3% growth year-over-year in June.  Imports rose 4.7% indicating some shift to domestic demand.  June’s import growth was 6.3%.  Alistair Thornton of HIS Global Insight observed these were “the worst export growth number since November 2009.”

The Exports numbers followed yesterday’s disappointing July Industrial Production growth that was at a three year low.  Commentators theorized these bad numbers would spur the government to loosen credit within days, not months.  The BBC covers the story with China export and import growth slows sharply in July.

European markets traded down on the Chinese economic numbers and the U.S. markets opened negative this morning.  We are meandering in negative territory, but the VIX hasn’t budged.

Don’t worry, be happy.

Uncle Ben, Uncle Jeng or Uncle Mario is going to ride to the rescue with showers of low priced credit.  Investors seem to be of one mind.  Central banks are going to print money.  Central banks are going to lower interest rates.  Central banks are going to buy sovereign bonds.  Central banks are going to buy mortgage backed securities.

It is different this time.

Pardon the use of multiple popular sayings, maybe I have become enthralled with the bear argument, but it seems like investors are collectively “whistling by the graveyard.”

I don’t know how hard a sell off the market would face, if one starts.  We seem to be held up by the promise of central banks providing quantitative easing.  But precious metals are not confirming this.  Crude oil is up, but that can also be explained by a cursory observation of the Middle East.

Last week, we found a news item that 65% of future QE by the Federal Reserve was already baked into the market.  To maintain these levels, we think the market is drinking up more of it every day.

There is a popular opinion the market is going to have a good six months to finish out the year.  If this boat is getting overloaded now in anticipation, there will only be disappointment as sentiment changes and investors leave the market.  Everyone, it seems, is concerned about missing the next big leg up.  This would indicate any sell off will be shallow, because buyers will rush in to get money invested so they “don’t miss out.”

I don’t know.  But, I don’t think it is different, I am not happy, and it is definitely not different this time.  We often advise you to have your list ready to buy on downturns.  Our subscribers to the Long Term portfolio have some great dividend payers to buy.  But I am not sure we should be anxious.  The more I see of the market holding on here with some of the lowest volume days of the year, the more cautious I am becoming.

Be afraid, be very afraid.

If I am wrong, what have we missed?  Not much.  The big boys aren’t buying here, except for some scraps and pieces.  If the market pops through 1426 (closing high on 5/19/08) we will jump, but for now it feels safer to watch.

This week was the 67th anniversary of the atomic bombing of Japan by the U.S. that would end World War II.  On Aug. 6, “Little Boy” exploded over Hiroshima killing 40,000 Japanese outright and another 100,000 within a few days.  Estimates are that as many as another 100,000 died from uranium poisoning and other injuries in the next five years.  Three days later, on Aug. 9 “Fat Man” was dropped on Nagasaki.  Fat Man was a plutonium bomb.  An estimated 35,000 were killed immediately as 2.5 square miles of the city was leveled.  Another 35,000 died in the months that followed from radiation exposure.

Japan surrendered on August 15 and signed an Unconditional Surrender on Sept. 2nd aboard the USS Missouri.  Dropping the atomic bombs has become controversial with some making the argument that it wasn’t necessary.  The U.S. military had plans for the conventional invasion of Japan to commence in November 1945 with estimates of U.S. casualties at 700,000 to 1.2 million.

Japanese deaths would have been heavy.  The U.S. military estimated five to ten million Japanese casualties.  The Japanese Military estimated up to 20 million Japanese soldiers and civilians would be killed or injured in an invasion.  99% of all Japanese soldiers fought to the death at Iwo Jima rather than surrender.

President Harry Truman wrote in his 1955 memoirs that the atomic bomb probably saved half a million U.S. lives.  It was the last time the U.S. fought a war to win.

Mailbag:
I like your charts.  Transports appear to be hunching over even though I see higher highs and higher lows.  I'm going with hunching over to touch your toes.  I am selling out of the money covered calls.---subscriber S.B.

John’s reply:  We try to bring you actionable information, glad the charts helped you.  I have sold calls, in some cases in the money in our managed accounts.

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