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The Bureau of Labor Statistics reported revised productivity data this week. It appears that the revised seasonally adjusted annual rates of productivity change in the first quarter were:
0.5 percent in the business sector and This means that manufacturing statistics were lower than earlier reported and the cost of labor is rising. What is quanxi? Quanxi is a concept that defines the web of connections and relationships in China. The more quanxi you have, the more connected you are in Chinese society. Since China is a rigidly controlled society, favors are usually doled out from the top down. The people in the top echelons of government share their knowledge of what is happening with those in their immediate circle and those in the inner circle share with their own circles. The closer you are to the innermost circle, the more quanxi you have. One of the observations about the recent sell-off in China is that the innermost circle did not share advance information about the most recent tax hike on stock transactions. Even the people who were considered the most in-the-know were taken by surprise. This has shaken the people’s faith in the system. Western reporters are saying that the effects of the decline will be limited and not affect our markets. See further comments below. (Thanks to George Ure’s www.urbansurvival.com for this explanation.) I think I can, I think I can…
…The Japanese indexes keep chugging uphill. Last night the Nikkei index rebounded from earlier losses to close marginally higher. The pattern is now developed enough to suggest that the up-trend may be sustained until the Nikkei makes a new 2007 high. After that, a trend change is in the making. Is investor money exiting our markets and heading for Japan? China stocks cascade over the edge…
…but the headline reads, China stocks continue to rise on reassurance. Let’s get this straight, folks. After five days and a 21.5% plunge, the Shanghai Composite index only partially recovered over a two day period. I am not reassured. What really happened is that Chinese stocks declined 7.3% on Wednesday morning before a stunning rebound. I wonder how many Chinese citizens were ready for this? Got quanxi? Et tu, Brute?
Not only did the Dow Jones Industrials suffer the largest two-day drop since March, but the rising trend has been broken. Investment bank Morgan Stanley has issued a “full house” sell warning after three key indicators it uses to predict the direction of shares started flashing. Notice that my link is from a British newspaper. The domestic press seems to be ignoring these larger issues and just reporting the “reaction” of the market to other events, such as the dramatic rise in interest rates (to be discussed later).
Bonds are in a steep decline.
Today Reuters reports, “Bonds in tailspin as yields breach 5 pct.” What we are witnessing is a global effort to stem inflation through competitive rate increases by the central banks of the world. The European Central Bank raised its benchmark rate to 4% on Wednesday and New Zealand raised its rate yesterday. The expectation is that Australia will do the same shortly. As a result, our long-term treasury bonds dropped another 1.5% this morning (not shown in chart). Hopes of a housing turnaround are dashed.
The spring housing market has turned into something of a dud, dashing hopes of a turnaround. The Philadelphia Housing Index, composed of the 20 largest homebuilders in the U.S. has declined nearly 4% already this week. All of the usual suspects are being paraded across the stage to explain why houses aren’t selling, from weather to tightening lending standards and speculators fleeing the market. While the economists are predicting the housing market to “bump along the bottom,” the chart is saying that the bottom is still far off. The dollar stumbles at the 50-day moving average…
…but the fall hasn’t been as much as predicted by many. This is a time to await further developments, because if the dollar can rise above the 50-day moving average again, its near -term future may look a lot brighter. Today’s rising interest rates are giving the dollar the potential for a comeback. The decline in the dollar may have been predicated on the rate hike by the European Central Bank. Although the Federal Reserve has done nothing, the dollar has strengthened again as U.S. Treasury rates have risen. The gold rally fizzles…
…as central banks unload their gold. Economists and traders call for a “buoyant market” but today’s action belies that thought. Again, most market watchers assume the con-tinuation of the most recent trend. What is not recognized is that the (up) trend may have already ended in mid-April. In today’s Money Week, the author asks, “Is this it for gold’s bull market?” Then he proceeds to explain why gold prices are going higher. My response? Not if we have another day like today. Relief at the pumps.
We are fast approaching the $2.15 target mentioned in last week’s newsletter. CNNMoney’s headline today reads, “Oil turns higher despite gas swell.” The news media is shrugging off increased gasoline supplies and concentrating instead on declining refinery activity and the cyclone battering the Middle East ports. The charts, on the other hand, are suggesting lower gasoline prices, at least for now. High gas prices affecty our utility bill as well as the cost of driving.
USA Today is already anticipating higher heating costs this winter as well as higher electricity costs this summer to power our air conditioners. That may be so, but natural gas’s struggle at the trendline suggests this up-trend hasn’t much gas left in its tank. A must-see video interview with Marc Faber. "Markets obviously peak out when everything looks best and bottom out when things look horrible" Please make an appointment to discuss these strategies by calling me or Claire at (517) 324-8741, ext 19 or 20. Or e-mail us at tpi@thepracticalinvestor.com. Regards, Anthony M. Cherniawski, President and CIO Disclaimer: It is not possible to invest directly into any index.
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