Cooking the books on China’s exports–the growth isn’t what it seems

This morning’s export numbers from China are even fishier than usual.

Officially China’s exports rose 14.7% in April, easily beating the 9.2% increase expected by economists surveyed by Bloomberg, the General Administration of Customs reported today, May 8. Imports climbed 16.8% in April against expectations for a 13% gain. Chinese and Asian stock markets were up on the news with the biggest gains coming in shares of exporters across the region.

At the same time the report shows a 0.1% drop in exports to the United States and a 6.4% decline in exports to the European Union.

So how did exports climb 14.7% when China’s two biggest export markets showed decreases? Read more

Slower growth in China is necessary to avoid a bust–but it will reshape the investing landscape

Okay, I know that news that China’s economy grew at a slower than expected 7.7% rate in the first quarter—coupled with worries about a deepening recession in much of the EuroZone and that the U.S. economy might itself be slowing—knocked the stuffing out stocks on Monday, April 15. And that the China news looks like it has broken the momentum of the recent rally, at least for a while. Believe me, I’m not fond of drops of this magnitude.

But…

In slightly longer-term I think this slowing in China’s growth rate is good news.

You see I think it’s intentional. (Which means that a return of fears about an unintentional hard landing aren’t justified.) China’s government is trying to slow its growth rate because its afraid of setting off another bout of real estate speculation, of increasing the flow of hot money into China’s economy, and of the rising tide of borrowing and debt in China especially at the local level.

Investors around the world who had decided that they could count on China revving up its economy again to 9% or 10% growth were indeed disappointed. They’d placed their bets, especially in the commodities sector, based on those expectations. And when those expectations weren’t met they sold and sold.

But the only way China could meet those expectations would be to go back to the old days of stimulus, stimulus, stimulus based on massive spending on infrastructure and other hard assets financed by loans that stood almost no chance of being repaid.

China faces a choice—a slowdown today or a crash tomorrow. And I think that China’s new leaders have picked “slowdown.”

Now like most medicine this one isn’t the tastiest thing to swallow. Read more

Growth fears reshuffle the valuation deck again for stocks

Growth fears have hit the market hard again this morning. The International Monetary Fund cut its forecast for 2013 global growth to 3.3% from 3.5%. A warning that debt at China’s local governments is out of control has reminded investors that on Monday they were worried that reports of 7.7% GDP growth in the first quarter of 2013 meant that China’s economy was slowing—or at least that it wouldn’t hit the 8% or better growth that investors were hoping for. Earnings reports from Alcoa (AA), Wells Fargo (WFC), and Coca Cola (KO) showed declining revenue in the first quarter.

But this morning, rather than giving more details on that news about growth, let me suggest what a revival of growth worries means for global markets and valuations.

First, and this may seem perverse, a rise in worries about growth will hit developing country stock markets especially hard—even though growth in those economies is still projected to outstrip growth in the EuroZone, Japan, and the United States. As we’ve seen over and over again in the last two years, when growth fears rise, the first reaction by traders and investors is to pull money out of “riskier” emerging markets in favor of “safer” developed markets. Read more

Sell Australia’s Westpac Banking on China worries and valuation

I’m going to take advantage of today’s bounce (or whatever) to recommend selling shares of Westpac Banking (WBK in New York or WBC.AU in Sydney.) More specifically, I’m going to recommend selling the shares of this Australian bank out of capital gains oriented portfolios such as my Jubak’s Picks portfolio http://jubakpicks.com/the-jubak-picks/ . I’d keep the shares, however, in income oriented portfolios such as my Dividend Income portfolio http://jubakpicks.com/jubak-dividend-income-portfolio/ for a while longer on the 5.31% yield

I think the yield is attractive and safe. I just don’t see much upside for the share price. Especially with the market seeing the rebirth of fears about slowing economic growth in China. When China catches a cold these days, Australia sneezes.

The problem, basically, is that Westpac Banking has run so far ahead of its banking peers that the shares are susceptible to stagnating or even retreating here. Read more

Retracement,correction or panicky plunge: Initial thoughts on today’s falling markets

As if April 15 wasn’t already painful enough…

Today we’ve got either a standard retracement of the April rally, a sell off in growth-related stocks on a disappointing report on first quarter GDP out of China, or a panicky plunge in oil, industrial materials, silver and gold.

It’s certainly a down market today but the nature of the “down-ness” depends on how your portfolio is positioned.

It’s hard to judge a downturn while it’s in progress—either for severity or duration—but here’s how I understand what we’re seeing today.

Doubts about growth prospects have been rising for months as analysts cut their earnings forecasts for U.S. stocks even as stock priced rose. Last week, earnings reports from Alcoa (AA), Wells Fargo (WFC), and JPMorgan Chase (JPM) that showed year over year declines in revenue. That added to a general sense of worry over economic growth resulting from projections for lower growth in the EuroZone and disappointing retails sales growth in the United States. The clincher for investors worried about growth came overnight when China announced first quarter GDP growth of “just” 7.7%. That was below economist projections of 8% and below the 7.9% growth posted in the fourth quarter of 2012.

If global growth is going to be lower than expected, you’d expect commodity prices to fall. That decline today, however, has been amplified by a previous retreat in commodity prices. So commodities aren’t just retreating today—they’re reacting to today’s move lower as if it is a continuation of a longer bearish pattern. Today benchmark Brent crude is down 2.2% and London Metal Exchange 3-month contracts on copper are down 2.7%.

The biggest damage, though, comes in gold and silver where today has just accelerated a move that turned from correction to plunge last week when Goldman Sachs recommended going short gold. Read more