NEW YORK (TheStreet) -- Doug Kass of Seabreeze Partners is known for his accurate stock market calls and keen insights into the economy, which he shares with RealMoney Pro readers in his daily trading diary.
Among the posts this past week were items about whether the economy is in a recession and signs of a market topping process.
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10 Reasons I'm Looking at ChinaOriginally published on Friday, May 9, at 7:18 a.m. EDT.
I plan to initiate a small starter position in FXI (long) this morning.
- The main risk to China's stock market and economy is a weakening property complex that leads to a 10% (or more) decline in construction activity, which will adversely impact related commodities, the industrial complex and local government finances, serving to lower real GDP by 2% (or more).
- China's property downturn may be more manageable than the consensus believes. The valued economists I speak to are looking for more balanced economic growth of 7.2% real GDP in 2014 and about 6.7% next year.
- The probability of a property downturn that leads to real GDP declining to 5% or less (in 2015) is likely only about one in five (20%).
- Despite general concerns, most indicators of the state of housing (prices/activity) in Tier 1 cities are fairly stable, but fears of Tier 3 cities' inventory-to-sales ratios have risen and have to be monitored.
- An important positive relating to housing is that the Chinese household sector is not particularly leveraged as most Chinese consumers are using their homes as a vehicle for savings, given the better-than-10% wage growth trends and a favorable taxation of property income in China.
- The threat of a financial crisis in China might be overplayed given the high degree of liquidity. Non-performing loans in the banking industry are only about 1%. In the public sector, the Chinese government is capable of issuing bonds to battle any liquidity problems at that level.
- China's labor market has a lot of slack, even though stated unemployment is low, as nearly one quarter of the employed are in the agriculture market. These employed can be transferred into other sectors. Moreover, productivity is still low, leaving room for improvement and sustained economic growth.
- China's political leaders will not allow too much of a slowdown as they fear social unrest. Property market weakness can be buoyed by easing credit.
- Political corruption is slowly receding, serving to reduce business costs and improve profitability. Until recently, companies had no discipline on expenses with unlimited spending on corporate boondoggles and gift giving.
- PBOC is lowering interest rates, doing unsterilized intervention and is comfortable with the current value of the country's currency.
At the time of publication, Kass was long FXI.
Tesla Takes Shareholders for a Ride Originally published on Thursday, May 8, at 2:15 p.m. EDT.
Tesla's management received a multibillion-dollar transfer of wealth from the common shareholders.
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