Thursday, January 7, 2010

Chinese Being Taken Out?

The noted short-seller Jim Chanos is being profiled in the New York Times as bearish on China, in Contrarian Investor Predicts Economic Crash in China. The title actually says it all. Jim Rogers is quoted derisively against Mr. Chanos' thinking. This blog has reported throughout 2009 about empty office buildings, malls etc., in China and even one empty new city just waiting for people to occupy and work in it.

I am one of the people who does not think that China is necessarily such a giant. It may come to be that, but I have a suspicion--not a fixed belief--that it is an economic catspaw of the West and Big Finance. I don't trust a thing about its economic data except that it appears true that the mother of all credit booms has been going on there to rescue a bad situation.

At home, it appears incredible that much speculation centers around a strong employment number to be reported tomorrow. The arguments against that are numerous. First, the FOMC statement this week was, sadly, strong that the employment situation is likely to remain weak for quite some time. Second, the ADP number, which tracks the national number and covers more businesses than the Labor Dept.'s Establishment survey, was down 85,000 jobs for December. Third, the data on spending and jobs remains mired near its worst numbers of one year ago. Fourth, Discover was out yesterday with its December U. S. Spending Monitor, which showed the following:

The Discover U.S. Spending Monitor fell 3.3 points in December to 83.0 (based out of 100). The decline was primarily driven by a big decrease in post- holiday spending intentions from consumers. While the decrease in spending intentions was anticipated, consumers showed little improvement in economic confidence in December and they grew slightly more pessimistic about their finances. These contributing factors leave the Monitor's index standing at a nine-month low.

Overall, 57 percent of consumers rated the economy as poor, a 2-point improvement from November. Forty-eight percent of consumers felt economic conditions were getting worse, 1 point better than November. The number of consumers rating their finances as poor went up a point to 26 percent. Half of consumers now think their finances are getting worse.

Monitor-Low 43% Have Money Left Over After Paying Monthly Bills

While a lift in holiday sales was good news for retailers, a record number of consumers found little to cheer about when paying the monthly bills. Only 43 percent, a Monitor-low, expected to have money left over after paying the monthly bills. This is the second time in three months the Monitor has broken a new low in this category, breaking October's previous low of 44 percent.

Middle-income consumers were the biggest contributors to the decline. Only 44 percent of them planned on having money left over, 15 points lower than in November. Lower-income consumers showed only a 1-point decline and upper-income consumers showed a 3-point decline.

Furthermore, 26 percent of those consumers who do have money left over said they would have less money left over than the previous month, a 12-month high.

Middle-Income Consumers See Little Change in the Economy, Grow More Concerned Over Finances

Fifty-six percent of middle-income consumers rated the economy as poor in December, unchanged from November. Lower and upper-income consumers rating the economy as poor actually dropped 2 and 3 points respectively.

Middle-income consumers also viewed their finances differently from lower and upper-income consumers. Forty-four percent felt their finances were getting worse, a 6-point increase from November.

On the other hand, bank stocks are on fire, the SPY looks to be in the early stages of a technical breakout from the rounded top it was tracing for the past 10 months, and selected deep discount retailers have found business absolutely booming. These include TJX, Ross Stores, and Family Dollar. Presumably Dollar Tree, which unlike the others did not report on recent sales this week, is participating in the growth in low-end retailing. TJX, ROST and DLTR are all at or just near record stock prices, all having set these records in 2009.

It is these sorts of stocks that are the soundest and most likely to resist the next downturn, in my opinion, with no guarantees. Record sales, earnings and stock price. And unfortunately good prospects.

What appears to be happening on the labor front is that there are fewer layoffs but those who are laid off are languishing a record period of time without being rehired. In the stock market and real economy, it is impossible for Government and the Fed to inject such massive amounts of funds into the real economy and not see some result. I suspect that all that has happened is that Federal deficits are matched by increased sales and profits in the private sector, and that if there were a unified societal budget, business stinks in the good old U. S. of A.

And should China collapse, that would have unpredictable effects at home.

Copyright (C) Long Lake LLC 2010

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