Kass: Loosen the Parse Strings

Below is a recap of the flagging Chinese economy from The New York Times this morning:

Hopes dimmed for an imminent pickup in China, the world's growth engine, as a batch of disappointing economic data released Thursday showed industrial production and retail sales falling well short of expectations in July.

Industrial output, a major measure of how healthy the Chinese manufacturing sector is, grew 9.2 percent from a year earlier, far below the 9.8 percent that analysts polled by Reuters had expected. The figure also marked a slowdown from the 9.5 percent seen in June.

Retail sales, which give an indication of domestic demand, grew 13.1 percent in July. Economists had expected the figure to remain at the 13.7 percent level recorded in June.

Finally, investment in fixed assets -- items like equipment and property that are expected to be held for long periods of time and cannot easily be converted to cash -- expanded 20.4 percent in the first seven months of the year, about the same as in the January-June period, frustrating hopes for a more marked pickup that could help lift the overall economy.

3. Quantitative Easing

There seems to be an almost universal view in the business media and on the part of investors that, by definition, stocks will rise ahead and along with more cowbell and monetary easing. The leanings and utterings toward more easing by the Fed and European leaders are seen as almost singularly responsible for the last week's U.S. stock market rally, which arguably occurred as the domestic economic growth recovery became somewhat more ambiguous.

It is also believed that quantitative easing boosts all asset prices and has a positive wealth effect, improves the housing market and buoys economic growth, lowers interest rates, improves employment, and simultaneously fails to cause inflationary fears and pressures.

The problem with this parsing is that history shows (QE1 and QE2) that the aforementioned positive impact is simply not guaranteed and not founded in fact.

The bottom line is that conformational bias on the part of bulls and bears remains a cloud over analysis.

When you are hit with these certain truths, it is up to the individual investor to take these conclusions with a grain of salt and to independently analyze the facts.

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