This Day On The Street
Continue to site
ADVERTISEMENT
This account is pending registration confirmation. Please click on the link within the confirmation email previously sent you to complete registration.
Need a new registration confirmation email? Click here

Clouds Gather as China Bulls Celebrate

NEW YORK ( TheStreet) -- Although I have been bearish on China for 18 months or so, late last year our work showed there would be a bear market rally in the China economy and stock market. That happened right on schedule.

The latest GDP growth number increased to 7.9% from 7.4% the prior quarter. We don't believe China's governmentally produced economic numbers any more than we trust those from Washington. Our expectation was based on the national congress and appointment of a new China leadership.

Engineering a period of optimism makes it easier for a new government. And under communism, what the government wants is what the government gets, even if it is a Potemkin village.

However, foreign direct investment flows in December continued the one-year declining trend, down a hefty 4.5% for the month. That means foreign capital is flowing out. In emerging markets, that's usually a very big warning signal. It's much more important than the GDP number.

Late last year, China relaxed rules on foreign investments in Chinese stock exchanges. To us, this was a confirmation of the urge to raise foreign exchange and reverse the outflows.

China needs foreign exchange to pay for its global shopping spree. They are buying up natural resources around the globe at an accelerating pace. The big deals get publicity. But there are many smaller deals you never hear about. China knows that the only real assets are what is in the ground, not what the central banks create with their computers.

They also need foreign exchange to support the huge gold purchase program. Currently China is the second-largest gold producer. We suspect that China also wants to be the largest gold owner in the world.

China's big problem is that it is so dependent on exports. It's about 70% of the economy. And it can't do much about the decline in export growth. To see what's happening to exports, let's look at shipping, as obviously the goods have to be shipped.

The chart of the Baltic Dry Freight index shows the shipping rates. If there were a meaningful pickup in shipments, we would expect freight rates to rise. Obviously, that's happening. Here is a chart of the Baltic Dry Freight index going back to 2002 (courtesy of www.investmentTools.com).
1 of 2

Check Out Our Best Services for Investors

Action Alerts PLUS

Portfolio Manager Jim Cramer and Director of Research Jack Mohr reveal their investment tactics while giving advanced notice before every trade.

Product Features:
  • $2.5+ million portfolio
  • Large-cap and dividend focus
  • Intraday trade alerts from Cramer
Quant Ratings

Access the tool that DOMINATES the Russell 2000 and the S&P 500.

Product Features:
  • Buy, hold, or sell recommendations for over 4,300 stocks
  • Unlimited research reports on your favorite stocks
  • A custom stock screener
Stocks Under $10

David Peltier uncovers low dollar stocks with serious upside potential that are flying under Wall Street's radar.

Product Features:
  • Model portfolio
  • Stocks trading below $10
  • Intraday trade alerts
14-Days Free
Only $9.95
14-Days Free
Dividend Stock Advisor

David Peltier identifies the best of breed dividend stocks that will pay a reliable AND significant income stream.

Product Features:
  • Diversified model portfolio of dividend stocks
  • Updates with exact steps to take - BUY, HOLD, SELL
Trifecta Stocks

Every recommendation goes through 3 layers of intense scrutiny—quantitative, fundamental and technical analysis—to maximize profit potential and minimize risk.

Product Features:
  • Model Portfolio
  • Intra Day Trade alerts
  • Access to Quant Ratings
Options Profits

Our options trading pros provide over 100 monthly option trading ideas and strategies to help you become a well-seasoned trader.

Product Features:
  • Actionable options commentary and news
  • Real-time trading community
SYM TRADE IT LAST %CHG
AAPL $113.29 0.33%
FB $91.01 1.43%
GOOG $630.38 -1.13%
TSLA $248.48 2.26%
YHOO $33.14 -1.63%

Markets

Chart of I:DJI
DOW 16,643.01 -11.76 -0.07%
S&P 500 1,988.87 +1.21 0.06%
NASDAQ 4,828.3250 +15.6170 0.32%

Free Reports

Top Rated Stocks Top Rated Funds Top Rated ETFs