China sets 8% growth target for 2011

Does Beijing really mean it?

On Saturday, March 5, China’s leaders announced a new five-year economic plan that set a target of 8% growth in China’s GDP this year and average annual growth of 7% over the next five years.

That would be a huge change for a country that saw 11.3% average annual growth over the last five years.

The government also said it planned to keep prices stable through 2015 (the official inflation rate was 4.9% in January) and to increase household income by 7% on average during the five-year period.

If China actually achieves these goals, they would have profound effects on the global economy. Slower economic growth would mean slower growth in demand for global industrial commodities such as iron ore, oil, and coal. Faster income growth—and during the last five years growth in the income of China’s workers badly lagged the rate of economic growth—would mean more demand for everything from cosmetics to cars to chicken.

I don’t think there’s any reason to doubt that China’s leaders take these goals seriously and intend to reach them. I just doubt that they can actually deliver. Read more

Growth keeps coming in softer than expected

I’m starting to see a theme here. And it’s not one I like.

Last week the GDP and durables numbers showed a U.S. economy that is still growing but that is growing a little more slowly that projected. That’s what the consumer spending numbers released yesterday, February 28, show too.

I had expected the U.S. economy to accelerate in the first half of the year before leveling off to sustained growth of 3% or so in the second half.

Now? Too early to throw out that scenario. But early enough to go, Hmmm….

In January, according to data from the Commerce Department, consumer spending rose by just 0.2%. (The Commerce Department also revised the increase in consumer spending in December down to 0.5% from the 0.7% reported a month ago.)

The January increase was the smallest since June. Part of that was undoubtedly the effect of the winter storms during the month. But some of it also seems to have been the result of higher food and fuel prices cutting into eating out and shopping.  And, horror of horrors, U.S. consumers look like they might have actually saving—rather than spending– some of the money from the payroll tax cuts passed by the lame duck Congress in December. Incomes climbed 1% for the month, but the savings rate increased to 5.8% from 5.4% in December. What concerns me is that while the weather was better in February than January, the turmoil in Libya was worse than that in Egypt and oil prices that had gone up on worries over disruption in Egypt, a relatively minor oil producer, went up much more on worries over disruption in Libya, a major oil producer. If consumers were nervous in January, it’s likely that they were even more nervous in February. Read more

Watch tomorrow’s initial claims for unemployment number for signs that the economy is strong?/weaker? than expected

Time to torture the data!

Wall Street will have the red-hot irons and the Spanish boots out in full force tomorrow morning trying to extract the last bit of information out of the initial claims for unemployment number that will be released at 8:30 a.m. ET.

The hope will be to bend, spindle, and mutilate the data until it tells whether or not unemployment has peaked—or is about to peak—much earlier than expected.

That was certainly the implication of last Friday’s surprisingly low number of jobs lost in November—just 11,000. Most economists had been expecting that unemployment wouldn’t peak until the middle or end of 2010. The November job loss number suggested that the peak could come earlier. Maybe as early as the first quarter of the year.

The implications, if that’s true are huge. They include a stronger than expected economic recovery; a faster than expected turn in Federal Reserve policy toward raising interest rates; and a switch from a falling to a strengthening dollar.

What has the initial claims number been telling investors recently? Read more

Nervous? Afraid to stay in but scared to get out? Join the club (and read my three strategies for coping)

Feeling twitchy?

Your portfolio is probably full of stocks trading at 52-week highs. And I’ll bet you’ve thought about selling.

And you would do that–except that the stock market keeps going up (well except for the last couple of days), cash pays close to nothing, and it’s hard to find a stock to buy that’s not already trading at its 52-week high.

I think you’ve got three choices at this point in this stock market.

1. Sell despite the signs that this rally is likely to run into the first half of 2010. Your money will be safely in cash but you won’t make squat for six months.
2. Hold if you’re fully invested and buy if you have some cash in the knowledge that you’re betting on market momentum and global cash flows to drive this market higher even in the absence of reliable forecasts for the economy and earnings in 2010. You’ll be hoping that you can somehow see the turn coming (or that there won’t be a turn) in time to beat the rest of the world’s investors out the door.
3. Hold carefully and buy even more carefully when and only when you can find some fundamental facts that say the 52-week high isn’t a ceiling but a stopping off point on the way to a higher high.  After all Ford Motor (F) did climb to a new 52-week high at $8.98 a share from a 52-week low of just $1.01 a share. But the stock did trade above $14 in 2004. In that year the company made $1.59 in earnings per share. Wall Street estimates Ford will earn 43 cents a share in 2010. It’s clear that the stock will has upside from here if earnings come through.

I think there are problems with each of these three strategies. But I do think that if you take a dash of this and mix it with a pinch of that, you can come up with a strategy that limits risk and gives you decent upside exposure. Let me lay out that hybrid strategy for you and suggest a few stocks suited to playing mix and match. Read more

Capitalism could still get a stem to stern overhaul. To keep score in the Revolution track something economists call “externalities.”

“A crisis is a terrible thing to waste,” said Stanford economist Paul Romer way back in 2007 near the start of the recent (or should that be “current”?) global fiscal and economic crisis.

You certainly understand why if you take a look at U.S. economic history. Most of the time the structure of our economy seems ruled by inertia. It takes a crisis to change anything significant. It took the repeated financial crises of the late nineteenth century to produce the Federal Reserve, antitrust rules, and the Income Tax. The Great Depression to produce Social Security, the Securities & Exchange Commission, and the National Labor Relation, and more. (Hey, it was a BIG crisis.)

And what do we have to show for the crisis that has bankrupted the next generation?

Bubkis is the common conclusion. A tweak of CEO compensation here. A little cosmetic gussying up of bank balance sheets. Maybe, just maybe, some feeble protection against rapacious credit card lenders. Oh, and health care reform that is either “The path to socialism” or “Gee, I wish it went further” depending on your politics.

But compared to the bar set by the Great Depression, the Great Recession seems to have produced remarkably little change.

Well, I say it ain’t so. We’re engaged, final score isn’t in yet folks, in the most far-reaching effort to change the way that capitalism works since Bismarck invented the old age pension. Read more