We’ve landed in Xi’an, one of China’s biggest cities.Not long after touching down, we connected with my brother who flew in from Chengdu.He’s been living there for over a year now.
Xi’an appears to be undergoing continuous growth. No matter where you look, you see cranes in almost constant operation. Old buildings are being taken down and replaced with new ones. Much of the new construction is designed to look like the old, both inside the walled city center and outside of "downtown" near our hotel. Even the strip malls are built to look as though they are 1,000 years old.
In the future, a visit to your family physician, or any specialist, will begin with a quick scan of the computer screen, where a few keystrokes will tell the doctor everything he or she needs to know about you – all the way from how much you weighed at birth, to X-rays of that bone you broke when you flipped your motorcycle thirty years ago, to how much you spent on blood work last year, right up to the hypertension pills you took after dinner yesterday (and maybe even what you ate, although hopefully not).
I hope you’ve enjoyed my running commentary on China over the past few issues. These "travel pieces" provide the opportunity to step back from the daily action in the market. It is always important to take a moment to consider the macro-trends that are playing out around the globe.
I find the cultural differences between the U.S. and China fascinating. And I also believe that by gaining an understanding of the Chinese culture, and the perspective of its people, we will become better investors in Chinese companies.
Intel (Nasdaq:INTC) reported excellent earnings last night, as I expected. The chip-maker beat on revenues and earnings per share. The stock is up close to 3% in the early going. That’s because Intel’s results weren’t exactly a surprise. During its mid-quarter update, Intel said the quarter was looking good. And the stock ran from $19 to $20.50 over the last few days. And as of press time it’s at $21.00.
Intel’s earnings are especially important because the company beat revenue expectations. As we know, investors want to see revenue growth. Costs have been cut, and if the economy is truly turning around, sales should grow.
There should be no doubt that the Cash for Clunker Stock Rally is directly related to the relative value of the U.S. dollar. Please note the strong support at 76. Also note that the dollar rallied hard from 76 starting in September 2008. That was when Lehman collapsed and money rushed for the safe haven of Treasuries.
Finally, early strength for stocks on Tuesday didn’t turn to weakness. In fact, stocks finished the day with a flourish to close at the highs. Textbook.
Maybe even a little too perfect …
Traders have been anticipating a rally for days. The shorts are all covered. Bloomberg reports that hedge fund-iteers Paulson & Co. (unrelated to Hank or Goldman) recently took the last of its 606 million pounds in profit from downside bets on English banks …
Paulson: "Let others fight over the crumbs of profit in banking."
& Co.: "Right you are!"
No, a rally was coming. Who’d bet against the Dow after it hit 6,440, turning the clock back to 1996? But, more importantly, who’s going to bet that the rally keeps going now?
Once again, early strength for stocks yesterday quickly turned to weakness. There is a battle going on between the bears and the bulls. Despite all time lows for consumer sentiment, there is a growing number of analysts and market strategists who believe a rally is at hand.
We’ve been seeing signs of a rally for a couple weeks now. That’s why I recommended taking a few positions in select stocks.
The late rally Friday left stocks up for the day and provided some evidence that we may have seen a short term low. It would be good to see some follow through today, though it will be something of a victory if the lows for the S&P 500 hold at 666.
Stocks didn’t exactly finish higher yesterday. In fact, they gave back all of Wednesday’s gains, and then some. But now, in a particularly ironic move, stocks appear to be ready to move back to the upside after the unemployment rate is reported to have risen to 8.1%.
Of course, we know why stocks would rally under these seemingly negative circumstances….
Investors know unemployment is rising. Fed Chief Bernanke has called for the unemployment rate to peak somewhere in the 9% range during this recession. At 8.1%, we’re almost there.
Finally. A positive start for stocks finally finished that way. We’ve seen several rally attempts fizzle over the last couple of weeks. Once the S&P 500 hit 700, a lot of traders were looking for some upside. Let’s hope it sticks.
Wednesday’s rally could have been stronger, though you can’t really be surprised that investors aren’t jumping head first back in the stock market. Volume appears to have been solid, but not outstanding.
The most encouraging aspect to Wednesday’s rally was leadership. We got leadership from technology and oil. If investors are buying in anticipation of an economic recovery, then oil necessarily must trade higher. Because any uptick in economic activity means increased demand for oil.
And with OPEC production cuts taking hold and recent reserve draw-downs, the oil market has to be tight.
As much time as Fed Chief Bernanke spends before Congress, it’s amazing he gets any work done. I have to say, I’m starting to like Bernanke. His forthright talk is certainly a refreshing change from Greenspan’s garbled speech. Yesterday, he expressed his feelings about all the bailouts.
It is a strange sight to see the Dow Industrials trading at 6,700. That’s still a level from 1997. And it still indicates that people don’t want to own stocks. At this point, it seems to be as much about available capital for investment as a willingness to invest.
Valuations are low, the Dow is trading with a p/e of around 20. But that’s still not as low as it’s been during past recessions.
Warren Buffett’s annual report for Berkshire Hathaway was released over the weekend. His letter to his shareholders is one of the most widely read investment documents there is. Buffett’s down home charm, inviting sense of humor and investment savvy are always a great read.
Perhaps the biggest surprise was that the net asset value of Berkshire Hathaway dropped by $11.5 billion. Buffett was not immune to the market’s drop. Despite well-publicized investments in General Electric (NYSE:GE) and Goldman Sachs (NYSE:GS) that are down considerably, the lion’s share of balance sheet loss has come from derivatives, what Buffett has called “financial weapons of mass destruction.”
Last month, Q4 2008 GDP was expected to show a 3.8% annualized drop. Economists were expecting the actual number to be -5.4%. But GDP came in worse than that this morning. The U.S. economy shrink at a 6.2% annualized rate between October and December, 2008. That’s the worst performance in 25 years.
Stocks fell sharply on the opening, partly in response to the news. But should it be that big of a surprise?
After all, we’ve known that the fourth quarter was bad - that’s why the S&P 500 is trading at 1997 levels. Is there any reason to have been hopeful that maybe it wasn’t so bad?
Don’t be surprised if buyers step in during today’s decline.
Daily Profit
comment