trader's market commentary

Rich is bullish, and bullish is rich

This is of course one of the “extremist theories” subject to dispute.

IBD reported today that among wealthy Americans (at least $5M net, excluding primary residences), total asset invested via hedge fund were 2.5% now via 1.7% last year; 17% of those with $5M-$25M said they invested in hedge fund, and number of American millionaire households has steadily increased from about 6 million in 2001 to about 9 millions in 2006, and total number of American household is 113.5 million in 2004.

So, riches are “hedge happy”, and hedge funds have to invest and compete with each other to make riches “hedge happy”.

Another one of Marx’s theories is that, in popular words, you often tend to think from where your butt sits. So, the neighbors of RUPERT MURDOCH may tend to think DJ is cheap at $37, while the friends of subprime borrower Joe may like to short CFC?

Today major indexes all surged although on decreased volumes compared to yesterday.

Still, market is very bullish. NYSE specialist short sale is at 8,10, vs. 3.81 of 11/17/06, and 13.15 of 03/16/07; Ratio of price premium in Puts vs. Calls is at 0.72, vs. 0.37 of 06/12/06, and 1.19 of 04/16/07.(IBD). Bears are somehow half way from either end.

Chart wise, Dow’s upward moving is “tight”, S&P a little bit “loose”, and Nasdaq gaps up and down here and there, even “looser”, creating more trading opportunities.

Traditionally, WS’ summer starts as May starts. But if hedge funds guys don’t want to go to vacation, who else would want to go?

For the next few days, I would guess market will run the bullish “catching up” themes from sectors to sectors, as opposed to “record high” everyday, which makes traders nervous.

marketreflections.com

 

AAPL, the American idol

not because Looprumers.com says Apple's iPhone could gain as much as 6% of the U.S. mobile market by next year.

In a broader sense, Steve Jobs, together with Bill Gates, Michael Dell and Steve Case, all have charmed and fascinated American growth investors, and Steve Jobs in particular these days.

Americans are risk takers, full of “animal spirits” in Keynes’ term, not carrying very much “baggage” as European or Chinese do, with latter’s long history of culture, civilization, royal, imperial, thoughts and ideologies. Not incidentally, three out of four Nasdaq idols we just “nominated” are all college drop-outs.

Another American investors’ idol is, of course, Warren Buffet and just don’t label Buffet as “conservative”.

Buffet started accumulating PTR, one of CCP 200s, when it was traded around 20, a few years ago. He was not even afraid of the Chinese Communist Party back then.

And he is still not these days. Seeing that, CalPERS, one of the largest institutional investors, decide to go stay with Buffet on PTR, and follow Bill Gates into Shanghai Indexes.

We all want to be rich as investors. But how? Technicians love charting. Looking at the “charts” of our idols, I see one common thing: they all got rich in mind first, then in money.

Pursuing richness in money may not be their life goals, but pursing richness in mind is. Bill Gates and warren buffet, in particular, should be “idols” for everybody, in a sense, particularly for those financial “tycoons” in Europe and China. As precious as money is, they decide to “let it go”, going back to society.

That is Bill Gates and Warren Buffet, still challenging everybody, not only with their wealth, but also with their minds and spirits. If Marx and Keynes were to live to today, they would be just challenged as well.

Speaking of Buffet, his purchase of rail carriers’ stock boosted Dow Transport, making “Dow Theory” believers happy. Seeing Q1 productivity growth of 1.7% (annualized) vs. expected 0.5%, and Unit labor costs ‘s 0.6% vs. 3.9%., bulls and Fed are happy too.

Still, it is and will be technician’s show in market for a while. You play your FA bet when market “inflects” and “reflects”, as it did around March 15, 2007, but not now.

Now, we all have to be chartists, as said in my previous posts.

Marketreflections.com

 

Don’t fight the Fed, just ignore him

Because we are all smarter than Bernanke, That is, of course, one of the most market participants’ “beliefs”. In fact, Ben, and the Fed have been fairly correct, clear and consistent in their view of US economy, if “ambiguous” about their rate move, particularly since last summer when Fed stopped the rate hike, but most investors or traders had chosen not to listen.

Jury is out now at least in financial market: Ben and Fed have been right, and the most market participants have been wrong, and they paid dearly for their mistakes.

Ben and Fed basically see that US GDP’s growth is going to be “sub par”, but not likely turning negative; inflation is stubbornly above their comfort zone of 1-2%, but not likely going above 2.5%, amid US economy “mid-cycle” slowdown coupled with a housing recession, with Fed rate on hold for the foreseeable future.

The ability of Fed, the veteran “banker of the bankers”, in “macro” evaluating US economy should never be underestimated.

That said, Fed’s view of US economy is fairly straight forward and not difficult to understand. In a way, just like technicians and traders, Fed looks at and monitors closely the trends of a few key “growth” (annualized) variables, “real time”.

Trend of US population growth: 1%
Trend of US non-farm payroll growth: 1%

So, whether suprime or prime borrowers, every Joe (“old” or “new”) has a job, with unemployment rate of 4.5% being the “full employment” indicator.

Trend of US productivity growth: around 2.5%

And that is basically the jobs of “Bill Gates” (businesses), and “Warren Buffet” (stock market) and “Bill Gross”(bond market).

Inflation: a bit of more complicated and “political”. But basically, “inflation is always nightmare of bond market, and as growth is the day dream of stock market”, as said in my previous posts on marketreflections.com

And it is Fed’s job to manage inflation, in addition to Fed’s other mantra of employment. Fed's forecast of inflation is 2% to 2.25% for 2007, and 1.75% to 2.0% for 2008.

Of course, Fed has a few other “TA” indicators as well, such as “flattened Phillips curve”, capacity utilization rate (with historical average being 81%), and “spread” between rate of unemployment and the rate of nominal annual wage growth: if it is not greater than 50 base points, it will be out of Fed’s “comfort gap”, and “yield curve”, etc.

Fed’s “macro model” is never a “cut and dry” one, just like any other model, but it has been predicting an US economy cruising on a path closer to “goldilocks” than “stagnation”, since last summer’s stock market correction.

Fed’s model is not only straight forward, it’s free as well.

Nevertheless, most market participants had chosen the “stagnation model”, and paid dearly for it by “selling at fear of stagnation and buying back at euphoria of goldilocks”, since Feb 27, 2007.


Not only Fed’s “intelligence” has been underestimated, but also Fed’s “power” as a state institution. Being “good students” of Keynes and Marx in terms of capitalism economics and politics, Fed knows when and how to use its power. And I have repeatedly written about that in my past posts as well.

Per Bloomberg.com

“A US House panel voted to expand a federal agency’s powers to help low-income borrowers at risk of losing their homes as Congress pushes legislative fixes for the sub-prime mortgage problems”.

Why not ?


“Listen to the Party when playing stock market”

That’s the popular saying in Shanghai stock market, the Party being CCP.

Yes, there is “don’t fight Fed” here in US, but some or most investors/traders somehow choose to “ignore the fed” repeatedly, with percentage of retail and institutions unknown.

Not the smart guys, particularly the smart institutional guys, including those M&A players. I would think, that smart big players in stocks, knowing what they know, shorted the market big time before or around Feb 27, 2007, and then longed the market big time around March 15, 2007. TA wise, these smart big players all have proprietary models, like everybody (including retail ones) else. FA wise, I doubt their models would be “better” than Fed model.

Nevertheless, FA game is over for now, and it’s TA time, at least for today, as said in my previous posts.

Marketreflections.com

 

050707 The “perfect twin engines” of global capitalism train


US economic “macros”:

GDP real growth rate

3.9 2004

3.2 2005

3.3 2006

2.1 2007 (projected)

Productivity: about 3.0%, 2000 –2005,
about 2.5% 2005-2007


Inflation as measured by spread 10Y TIPS -T

267 base points 042005

254 base points 042006

244 base points 04022007


Theoretical value of 10Y yield (growth + inflation +term risk premium - CCP discount)

2005 =3.2+2.67+?-?= 5.8%+-

2006=3.3+2.54+?-?=5.8%+-

2007=2.1+2.44+?-?=4.5%+-


Value of 2Y T is largely “impacted” by Fed

Actual yields and spread:

10Y T yield 2Y T yield spread 2-10 yr
4.9, 072004 2.8 210 bp

3.9 072005 4.1 -20 bp

5.3 072006 5.25 +5 bp

4.64 05072007 4.68 -4 bp


Approximately, corresponding to the slowing of growth rate, the whole yield curve “sinks” on the long end, and has become more “inverted” than “steepened”, reflecting

1) The reduced “term premium” or increased CCP discount; particularly on the long end

2) The market’s “dancing in steps with Fed” , particularly on the front end.



Equities

S&P overseas sales % change

30% 2001 (“911”, China joined WTO Nov 2001, Uncle Sam and CCP’s comradeship started)

49% 2007, six years later


S&P earnings (briefings.com)

Very strong earnings growth through 2003, 2004, 2005, and 2006. Earnings grew at a double-digit rate through most of that period, and in many quarters was in excess of 20%. During the same time, the stock market rose, but not at as fast a rate as earnings. The S&P posted gains averaging about 9% in 2004, 2005, and 2006.


Faster earnings growth than price (stock index) growth means that the P/E declines. That is what has happened the past few years.


P/E on S&P: ranging from 15.6 Q22006 to 16.8 Q12007.


So, what is in market’s mind?

Long bonds are “overpriced”, with yield below where it “should” be, for whatever reasons.

Equities are “under priced”, see in Fed’s model of yield parity.

So, why not sell bonds(borrow) and buy equities? Consequently, M&As and private LBOs have been on Monday AM news for too long to remember.


Back to the global capitalism train

US slowing down? Yes, but earnings will come more from the growing rest of world economy, which will hopefully bail US out eventually.




So, what’s in Fed’s mind?

As long as Joes have jobs, as long as S&P earning grows, as long as spread of 10Y TIPs --10Y T is around 250 bp, as long as spread of German 10Y T and US 10T is around 40-50bp, and as long as USD moves in a” managed channel”, everybody is happy, then why change the rate?


Long term prospect:

Ben and Next president may count on US’s revival and growth in “mind power” business, to balance off the CCP’s manufacturing power, so US would not “top out”.


For CCP, it is too busy with its manufacturing business in the foreseeable future and it has yet to think about “mind power”, particularly in terms of “reforming” its political and social system.


If you combine US and China into one economy, you don’t see “imbalance”, but almost a “perfect” twin engines of the global capitalism train, complementing each other in driving the train forward.


I don’t see any significant probabilities of this train getting off the track, “sabotaged” or failing on its own, and I think that is what financial market sees as well.

If this is the case, I see bond yield curve largely stay where it is, but to be more “inverted”.

For equities, to be in yield parity with bonds as defined by Fed model, S&P has to further expand its PE to catch up.

Commodities and gold should do well as well, why not?

Relative rate of return

I would guess the order would be equities, commodities (including gold), and bonds.

marketreflections.com

 

When CCP discounts, Uncle Sam buys

Marketreflections.com


I have defined the CCP discount in my previous writing: since “911” and China’s joining of WTO in Nov 2001, and the ever improving comradeship between Uncle Sam and Comrade CCP, the twin captains of global capitalism train, bond market sees significantly reduced future economic and political volatilities, or the “CCP discount”, which largely balanced out the conventional term premium in long bond’s yield.

Bond market

Corresponding to the CCP discount, is the “yield conundrum”.

Conventionally, a bear market in
bonds starts when the Fed funds target rate
“bottoms out”, and ends when the Fed stops raising
rates.

The most recent “bear” market in bonds started Q3 2003, when the Fed
funds rate was at 1%, and ended in mid-2006 with
the Fed funds rate at 5.25%.

Nevertheless, “despite 17 increases in
short-term rates, all segments of the bond market
had positive returns from the third quarter of 2003
through the end of 2006, making that time period a
very unusual “bear” market. In fact, this was the first
time that bonds posted positive returns across the
board in a bear market cycle since 1972 through 1974.” (calvert.com)


And in1974, by the way, SF-88 Nike missile site stopped its operation, if you read my previous posts.


Corresponding to the CCP discount and the consequent yield conundrum in bond market, is an inverted yield curve, putting a ghost of recession into the minds of many people.

And technicians in stock market have been long chasing the ghost of 10% correction.

Neither ghost has shown up yet.

Stock market

Perhaps still scared of the most recent bear market (Q12000-Q12003), the major indexes had been more or less crawling in a largely horizontal, or slightly upward sloping channel from beginning of 2004 to mid-2006.

Since mid-2006, shrugging off the baggage of the last bear market, the fear of stagnation and global imbalances, and the most recent subprime, the major indexes have managed to crawl out of the “bottles”.

Chartists would tell you that after the measured, compressed, and tight channel, the outcome would be a powerful “break out” on upside, or “break down” on downside, with a lot of “energies” to be released.

Further looking at charts, the tight upward slopes the major indexes built when battling out of the most recent corrections are even more “measured”, or “compressed”, and even more upwards slopping since March 15, 2007

One Chinese trader, commented on those charts:

“FROM JUL 06 TO OCT 06, THAT WAS A MEASURED MOVE; FROM OCT TO FEB 07 THAT WAS ANOTHER MEASURED MOVE; AND FROM THE FEB LOW UP, WE ARE IN THE MIDDLE OF ANOTHER MEASURED MOVE AGAIN!!

MEASURED MOVE IS A HUGE BULLISH PATTERN LIKE CUP AND HANDLE; FALLING WEDGE BREAK OUT; BUT, IT IS ALSO A STEALTH BULL MOVE, AND WILL SUCK THE MOST SHORTS IN ON ITS MOVE, WHICH WILL ONLY FUEL IT LAST LONGER AND GOES FUTHER AND MOVES HIGHER!!”


Behind the wall of worries

So, what the hell is going on?

Yes, even Congress is going to help subprime borrowers a little bit, a lot of them, if not 2M out of 10M will still lose their houses;

Yes, American consumers are still under the mountain of debt, and US financial market is supposed to attract $2B a work day to finance US’s trade deficit.

Who are the lenders?

An increasing amount of the funds comes from China.

Per Henry Paulson:

“China's savers are earning about 2.5 percent on their roughly $2 trillion of assets, even as the economy advances at an annual rate of more than 10 percent”, due to many reasons such as the lack of fully developed domestic financial market, the lack of social security system, etc.

And the lack of “animal spirits”, I would quote Keynes. Just look at Japan, people are still scared savers, even with fully developed financial markets and social security system. Capitalism is still largely new in Orient, and people needs time to get used to it.

With the CCP discount, American borrowers can’t complain, prime or subprime. Consequently, American household homeownership has increased from 67.8 in 2001 to 68.9 in 2005.

Why not? While the CCP discount is still in the mortgage rates, while concrete, copper and other building materials are still not too expensive in world market, why not borrow and buy houses now? The about 10 million American subprime borrowers may not ever be able to realize their “American dreams” otherwise. Now, most of them have houses they deserve and should be able to keep them, which will become appreciating asset again when the current housing “correction” is over. And for most of them, house may be their only important asset.

I would think that Greenspan, Ben, and Congress all know about this. And largely because of the CCP discount on the long end of the yield curve, Fed is in no hurry now to cut the rate on the front end.

CCP knows about this as well, and they are working hard in developing their domestic financial market, and buying all kind of resources from around world like there is no tomorrow.

Tomorrow, the good deals may not be there any more.

Knowing that, corporate America is busy with selling bonds and buying equities, with M&A deal, public or private, announced on every Monday. And Warren Buffet wants to jump in too.

“When war is neither hot nor cold, money is bullet”, as titled in one of my previous post. I would think that Iraq war may very likely be one of the last few wars of that nature for the foreseeable future. Both the name and the way of game have changed. For the on-going economic war, the money is bullet, and it has to be made of paper, not gold, not silver.

Today, I would expect market to cheer up after Fed reads the same “bedside story” again at 2:15Pm.
Marketreflections.com

 

051707 Has Bill Gross's clock slowed?

Marketreflections.com

Between an ideologue and a chartist, as one of my postings titled, I struggle everyday.

But, let start with Bill Gross first.

Bill Gross, uneasily sitting on the rising front end of the yield curve, with his huge bet on 2Y T to go up in price as Fed cut rate per his ideology, is now asking “Mnestro” Greenspan for a little help, with cost unknown(reuters.com).

An admirer but not a believer of Bill Gross on his almost 2 year old bet, I nevertheless often make my own ideology-based and money-losing trades, and I am going back to Professor Gedanken for help, free, revisiting “moving light clock” (see my previous postings). Please assume I actually understand it and correct me.

http://www-atlas.lbl.gov/QuarkNet/Wo...#300,13,Moving Light Clock”

Assume Bill Gross is doing the well-known elevator “thought experiment”:

Bill stands inside of an elevator in a free-fall or accelerating upward, holds two mirrors with his two hands, perpendicular to direction of motion of light pulse, and observes light pulse bouncing between those two mirrors, with light speed=c, the distance between the two mirrors=d, the time light pulse moves from one mirror to another (one way) =t.

To Bill Gross, and in his reference frame as he stands inside of the moving elevator, t=d/c.

To an observer outside of elevator in a different reference frame, light travels actually a LONGER PATH between the two mirrors (still one way), because gravity warps space resulting light traveling in a CURVED path (D), opposite to the straight line (d) as observed by Bill Gross inside of elevator.

Whether inside or outside of elevator, light speed is still constant at c, but T =D/c for the observer outside of the elevator, and t=d/c for Bill Gross inside of the elevator. Since D>d, T>t, Bill's time clock has slowed significantly to the observer outside of the elevator.

Back to Bill Gross’s bet on Fed’s rate cut.

Standing inside of his “housing and debt” elevator and thinking in his reference of frame, bonds yield =< growth rate of GDP, GDP growth rate =< 2%, Fed rate <5.25%, with CPI=2-2.5%, almost for 2 years.


For the Mr. market standing outside of Bill’s “housing and debt” elevator, Fed’s rate may or may not go below 5.25%, depending on the “curving ” of GDP growth path obviously, among other things. And as far as Mr. market and almost everybody else in the world of reality and outside of Bill Gross’s world of ideology can see now, Fed probably would not cut the rate for the foreseeable future.

Has Bill Gross's clock slowed? Betting on that, wolfs jumped on with huge short positions built up recently on 2Y T (see my previous postings). They always do and like that.

One of the differences between an ideologue, very often of bears and bulls, and a chartist, very often of wolf types is:

Bears and bulls often lock themselves inside of their own world of ideology or FA and refuse to come out, wolfs travels between and visits those two worlds, and the marketplace, with only one ideology in mind: pursuing profit.

I better write this on the wall of my computer room.

 

051707 What is the next elevator for wolfs to shoot down?
marketreflections.com

“No absolute reference frame”, Einstein said.

Wolfs probably understand that very well. Once they find that market participants have a fixation on an “absolute reference frame”, whether it is about a “macro”, an industry, or an company, they will analyze it thoroughly, FA and TA wise, then short the “over priced” and long the “under priced”. If market participants have not got one fancy “absolute reference frame’ to fantasize with , wolfs would try to find one for them.

Subjectively, wolfs do that for a profit. Objectively, that is the way market functions as a mechanism of information and risk processing, capital allocation and income re-distribution.

Stock market has started working that way, ever since Dutch established Amsterdam Beurs in the early in the early 17th century. The Dutch "pioneered short selling, option trading, debt-equity swaps, merchant banking, unit trusts and other speculative instruments, much as we know them" (wikipedia.org). Sometimes, I wonder why the stock market had “escaped” Marx’s thought experiment, which may be one of the fatal errors in his otherwise great work on capitalism.

Now, with capitulation of Gross, Russell and Roach to the bulls’ “international decoupling thesis”, the stock indexes may actually be directionless for a while, if the rising of wall of worries slows down.

Nevertheless, with the ever-growing financial markets encompassing all regions and sectors of modern capitalist economy on a “flat” earth, with market participants getting “sucked” in from every corner of the global village, there are plenty of “elevators of absolute reference frames” around.

Which one would wolfs start to shoot down next? Would that be gold and other PMs? Just guessing.

 

my daily post at

http://www.itulip.com/forums/showthread.php?t=1289

 

"Hide brightness, nourish obscurity"
________________________________________
060107 Tao Guang Yang Hui (躹âÑø»Þ), or "Hide brightness, nourish obscurity"

Marketreflections.com

Watching today¡¯s wresting of bears and bulls with each other, particularly on those mega caps, made me thinking of the 1970¡¯s MAD between USA and USSR.

The bears and bulls today largely respected each other¡¯s ¡°neckline¡±, so the wrestling is ¡°polite¡±, basically between resistance and support, if you will, for a lot of stocks.

Do they want to break the necks of each other? I am sure they want to. That is all the game is about.

However, the super traders and computers of MMs on those mega caps use both teeth and brain when in fight. They are not just "adrenaline junkies" as they are perceived.

Today, they must have been watching and thinking thought about the ¡°bottom lines¡± carefully. If time is not right and everything else are not ready yet, you don¡¯t want to launch a full-scale assault prematurely, wasting your gun power. Let¡¯s just eat the ¡°little guys¡± in between us for today, the head of bears and the head of bulls must have ¡°talked¡± to each other. This way, they had a ¡°detente¡± today, although bulls still managed to have ¡°record high¡± for indexes today.

The current ¡°detente¡± is fragile though, for bears, and the more so as time goes forward.

Still, today¡¯s ¡°detente¡± reminds me of the Cuban Missile Crisis in 1962. The Russian bear kind of crossed the ¡°line¡± and the American bull was ready to fight a full scale of MAD, and that MAD did not happen. The Russian bear retreated out of Caribbean, the America¡¯s ¡°back yard¡±.

About 20 years later, the ¡°cow boy¡± Reagan came up with a way to suck the ¡°economic blood¡± out of the Russian bear, and it worked. USSR started its capitulation around 1985, when Gobi came to power after the last few old ¡°red army¡± soldiers finally died out of the political arena.

Deng, one of the few Mao¡¯s ¡°comrades¡± who survived Mao¡¯s periodical ¡°political purges¡±, and a tough political ¡°animal¡± of ¡°Mao breed¡± himself, quickly figured out that Uncle Sam would do the same ¡°Reagan trick¡± to CCP. And worst than that, CCP can¡¯t play USSR ¡°hedge¡± card anymore.

Instead, Deng used the famous ¡°Deng¡¯s Cat trick¡±, and transformed CCP into a ¡°humongous¡± capitalist almost overnight, a capitalist no other capitalists have ever ¡°traded¡± with. And everything after that is history.

Today, Deng and other Mao¡¯s ¡°comrades¡± have long left, with CCP in the hands of a few ¡°Red Young Guard¡± type politicians, like Mr. Hu.

As smart and strong as Hu has proven himself, he is not comparable to Deng. But Deng¡¯s trick has managed to construct a MAD between USA and PRC, secured by both missiles and US Government Bonds, among other things.

The ¡°pivot point¡± to kick off USA-PRC MAD is actually 911 event in 2001, which turned CCP into a ¡°comrade¡± for Uncle Sam, from a ¡°competition¡±, if not enemy. Soon after that CCP entered into WTO, among other things.
With that ¡°pivot point¡± , ¡°resistance¡± atop CCP broke, ¡°resistance¡± atop US bond broke.

If you look at 10Y US T, the rally actually started in Jan 2000, ahead of CCP¡¯s entry into WTO in Nov 2001.

Nevertheless, it is still a cross-market confirmation of CCP¡¯s breakout. The US stock market¡¯s confirmation came around in Jan 2004, and the Chinese own stock market¡¯s confirmation kind of just ¡°started¡±.

The core of Deng¡¯s tactics is ¡°Tao Guang Yang Hui (躹âÑø»Þ), or "Hide brightness, nourish obscurity".

It worked and it is still working, fooling a lot of people a around, including those perm bears in stock market today, possibly.

TA wise, the "Hide brightness, nourish obscurity" is often the ¡°cup¡± part of the ¡°cup with handle¡±. After that, ¡°pivot point¡± often shows up, with or without handle, depending how impatient the herds are.

Capitalism have made ¡°fuses¡± or "handle" shorter, for all of us, weather we like it or not. Nobody wants to wait, or can¡¯t afford waiting.

For those bears who have not yet covered short positions, rest well in the weekend. The wresting coming up in the next week could be very challenging.

Marketreflections.com¡¯s daily market commentary
http://www.itulip.com/forums/showthread.php?t=1289

 

061007 market next week: a world of 2 non-men and 2.5 men

Marketreflections.com

Disclaimer: marketreflections.com is not politically associated with any political organization, and often uses “political incorrect” language in its analysis. It is politically “neutral” and provides views of a “pure” investor and trader.

Reagan basically disabled Russia into a “half man”, and a “half man” still has to be defended against with US’ missile defense line running cross Eastern Europe, now a part of “non-man” or NATO, and also with a possibly “independent” Kosovo. Why not?

However, the US missile defense line may have a “gap” in Asia. I am not sure the other “non-man”, Japan, who had long been “disabled” politically and militarily, and not long ago financially (“yen appreciation ”) by US, will have enough guts to fill the gap with US, in terms of “developing and deploying” a missile defense system in Asia. Most likely, Japan will “play” it, rather than really doing it.

Historically, 1989 is a critical year in world politics. USSR “peaked” as a world power, Japan “peaked” as a financial power, and a few “Chinese intellectuals” almost made CCP “peaked”. That year, although “smiling from ear to ear”, Reagan had to leave the White House as US President.

I would not say Reagan’s departure “saved” CCP, but it definitely made Deng’s job a lot of easier. Top politicians are not really “produced” by top colleges, such as Yale, Moscow Univ., etc.

In the case of CCP, no matter what college you graduate from, if you can survive and prosper within CCP, a world-class political “machine”, you are most likely a good politician. Although not comparable to Mao and Deng, Jiang and Hu are actually very good, much better than people, including Uncle Sam, had thought.

To hang on as a “man” and to compete with the other “man”, Uncle Sam, CCP knows it has to stay with Deng’s “cat trick”, and maintain China’s economic growth, relentlessly. China can’t afford any significant slowing down, otherwise China will be disabled as well into a “half man”, if not a “non-man”. China’s DF-31A etc., China’s financial, “mind” and other “high” economic powers are not even comparable to those of US, currently.

China is a “man”, largely because there is no other “men” left, except US, in the current world.

That said, China will do whatever it could, economically and politically, domestically and internationally, to grow its economy, in the framework of US-CHINA MAD (“mutually assured development” secured by ballistic missiles, US Treasuries, etc.)

As long as US-China led high-speed global capitalism train keeps going forward, with everybody on board, willingly or unwillingly, there is no real and serious inflation to worry about, particulary in the non-service sectors, because the world economic boom is more likely a “deflation boom”.

ST, bond yield may continue to adjust to a “high growth” world, and stock market may have to adjust to a high “yield parity” between bond and stocks, nothing more serious than that. And USD will be a world reserve currency for at least “100” years (Robert Mondell, supposedly), and “yen carry trade” will continue most likely. What do you expect a rich but a disabled and a non-man to do, in terms of his currency?

I think more likely the current stock market’s “dip” (kind of “half” of the last correction, in terms of %) will be done next week, if not already done. I would buy at dip big names of US “running dogs” of DJI 30, and “growing puppies” such as GOOG. I actually like LFC, CAF, BIDU too, the CCP’s “running dog”, None of them had dipped very much though.

TA wise, more likely, we may not have many “buy at dips” next week. Short-squeeze seemed to have already stared last Friday.





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