Submitted by Mark Hanna
Courtesy of MarketMontage. View original post here.
A lot of eyes are on China for the next region in the world to implement some new form of stimulus. If you recall in 2009 China was the country which actually led the world in economic growth with a massive stimulus program approaching 25% of GDP (to put in perspective the U.S. stimulus at the time was roughly 7% of GDP). Of course as we wrote at the time it would lead to a lot of poor investments and bad debts (which came true) and China has “learned its lesson” from their seeming reluctance to embark on anything of similar magnitude. That said, they have deliberately been trying to slow down their economy the past year, due a real estate bubble and a spike in inflation. But with their top trading partner (Europe) in a tail spin, some have questioned whether things have gone too far – hence the “soft landing” vs “hard landing” debate. Some also are speculating with a once a decade leadership change fast approaching the Chinese are sandbagging data / stalling on stimulus to create a nice playing field for the new leaders to come in and impress – very similar to what a new CEO does when they throw the kitchen sink of bad news in the first quarter they take over a troubled company so that future results will look ‘relatively’ impressive. We shall find out in the next few months but the market certainly seems to be betting this way of late with a lot of commodity related stocks spiking. Then again this has happened numerous times the past 12 months with each rally being met with heavy selling shortly after.
Last night a “binder full” of Chinese data was released including GDP. As always, take with massive amounts of salt…
- Gross domestic product expanded 7.4 percent in the third quarter from a year earlier. That matched the median estimate…. and compares with a previously reported 7.6 percent expansion in the second quarter. GDP rose 2.2 percent from the prior period, a four-quarter high.
- Industrial production increased 9.2 percent in September from a year earlier, rebounding from a three-year low of 8.9 percent expansion in August, today’s statistics bureau report showed. Economists forecast a 9 percent gain, based on the median estimate.
- Retail sales advanced 14.2 percent in September from a year earlier, the most since March, compared with the 13.2 percent median estimate. Fixed-asset investment excluding rural households rose 20.5 percent in the first three quarters, higher than the 20.2 percent median forecast in a survey.
Disclosure Notice
Any securities mentioned on this page are not held by the author in his personal portfolio. Securities mentioned may or may not be held by the author in the mutual fund he manages, the Paladin Long Short Fund (PALFX). For a list of the aforementioned fund’s holdings at the end of the prior quarter, visit the Paladin Funds website at http://www.paladinfunds.com/holdings/blog
