China Expecting to Get Back on the Growth Track

When I signed off yesterday morning, I told you that I was watching a mini-rally in the currencies. Well, that mini-rally turned into a real rally as the morning went along. Especially, after the risk assets got a boost from the consumer confidence revival. Yes, consumer confidence was much stronger than forecast, and the risk assets took off!

By mid-afternoon the euro (EUR) was pushing 1.4350, and all the “little dogs” were following along with their own version of a rally versus the dollar. But a funny thing happened on the way to the forum, and profit taking set in. Oh brother! Can’t these guys wait until there is a really BIG move before they take profits? Oh well… I know you’re saying, “But Chuck, don’t you always say that it’s not a profit until you take it?” Yes, that’s correct… But the rest of us just want to have a diversifying asset in our investment portfolio, and are not interested in half-euro moves to take a “profit”!

This morning, German business confidence, as measured by the think tank, IFO, printed an increase in the index number for the fifth consecutive month! The index number rose from 87.4 in July to 90.5 this month. I would say that it was quite the move, eh? Given the exports data I gave you yesterday, you can see why German business confidence is strong… And I’ll tell you something… Perception or sentiment toward an economy, is half the battle, folks.

Now, I had a few emails from readers yesterday responding to the note I made about Germany’s economy rebounding, and putting the recession in the rear view mirror. The readers all said that the economy is not as strong as it appears, and that after the upcoming elections, things will be different. Hmmm… Well, I guess you can decide for yourself, which camp you want to be in… Me? I’m going to remain in the “recession is over for Germany” camp.

I know, I know, the recovery is nascent at best, but come on! It’s better than a sharp stick in the eye!

There was a radio interview on Bloomberg yesterday with a panel of investment strategists, and some were of the opinion that, and tell me if this at all sounds familiar, the dollar will continue to weaken this year as the global economy recovers from recession and investors seek currencies linked to growth…

The idea was simply that too many investors had cash tied up in T-Bills and T-Notes, and that as the global economies recover ahead of the US there will be higher yields to be had in those global economies. So, when the investors sell their T-Bill and T-Notes to buy overseas, the dollar will get sold, and thus lead it to weaken more and more.

OK… So… How many times have you heard that from me in the past year? Geez Louise, but these strategists will all claim that they came up with this idea first! FAT CHANCE!

Speaking of Treasuries… I sent along a note to Chris the other day, but I think he ran out of room, and then I completely forgot about it yesterday… But once again the US Treasury is going to the well. And they will auction $197 billion in new Treasuries this week. Is it just me, or does anyone else wonder just how much more debt foreigners can choke down? I guess the thing to do this week and next is to check the cartel’s, I mean the Fed Reserve’s balance sheet to see if they take back any of these auctioned Treasuries like they did last month with the seven-year T-Note auction. Monetizing the debt, printing more paper dollars like it’s Monopoly money.

And in a follow up from yesterday’s report on the budget deficit being forecast for the next 10 years… The total of the deficit for those 10 years is now forecast to be $9 trillion dollars… And in a follow up from yesterday’s rant about forecasts… The $9 trillion is over than $2 trillion more than was forecast just six months ago! Hmmm… Another $9 trillion!

Hey! A month ago, when I prepared for the Agora Financial Investment Symposium in Vancouver, the national debt stood at a level that put each citizen’s piece of the debt at $37,000. Today, just one month after I pulled that data, each citizen’s piece of the debt now stands at $38,191! That’s absolutely shameful, folks.

In a seldom talked about country, Sweden… They too saw a bump in their consumer confidence report for this month. Like their neighbor, Norway, Sweden is beginning to see some real traction in their economy. And it shows when consumer confidence bumps higher, when it was forecast to be negative! Sweden’s Riksbank, meets next Thursday, and while I don’t expect any move, I would look for the Riksbank to confirm a positive outlook for the economy.

In Japan… Their exports fell for a tenth straight month in July as demand from all of the nation’s major markets deteriorated. Shipments tumbled 36.5% from a year earlier, thus once again making my point for me… This is no “safe haven”!

Reserve Bank of Australia (RBA) member, Roger Corbett, gave a speech last night, and for my money sounded quite upbeat about the economy! He hedged his upbeat tone a bit by saying that “how consumer demand holds up in light of no consumer stimulus will be one of the determining factors in how quickly our economy in Australia recovers.”

Hmmm… That sounds reasonable to me… In fact it sounds quite OBVIOUS! So… Today, we have a new “Mr. Obvious”… HA!

A research center in China, the Development Research Center, issued a report saying that Chinese economic growth may exceed 10% in the first quarter of next year. The research center believes that China has already passed its worst period for the economy, and will meet the center’s goal of 8% growth this year!

OK… I know there are a lot of skeptics out there regarding the data that China prints… But, it’s what we have to work with! And… I also recall many times over the years, the so-called Chinese experts, would say that that growth was going to stall, only to see stronger growth print. So, for now, I’ll stick with what I see reported, until I see other wise!

Chinese growth is good for commodities… And what’s good for commodities is good for Australia, New Zealand, Brazil, Canada, Norway, and South Africa… There’s your lineup for the “resource countries” and what a lineup it is! Wink, wink…

The Daily Reckoning