What a strange world it is where global capital flees persecution by global central banks into the safety of the high priced Dow and the S&P500. Overnight, we saw another record high in the US indexes. As Dan Denning has been saying, we’re in for a global melt-up in the big blue chips as capital seeks a refuge at the ‘core’ of the financial system.
The excuse for the rally this time (you always need an excuse) was better-than-expected data out of China and Germany, two of the world’s biggest net producers.
As a China bear, we found the cheerleading over the trade data amusing. Released yesterday, it showed imports up 16.8% in April and exports up 14.7%. The economy must be steaming ahead!
Meanwhile, China’s major trading partners are visibly slowing. Recent economic data has been poor. China’s electricity consumption in the first quarter was just 4.3%, and first quarter economic growth, annualised, was just 6.4%. But trade is booming! Believe it if you want to, but to our sceptical eye it doesn’t add up.
And a report in the Financial Review today casts further doubt:
Adding to the scepticism over the trade data was a 57 per cent jump in exports to Hong Kong and a 49% jump in exports to Taiwan.’
And it probably doesn’t make much sense to US hedge fund manager Stanley Druckenmiller either. Businessweek reports:
‘Stanley Druckenmiller, the billionaire hedge-fund manager who returned an average of 30 percent a year from 1986 through 2010, said the long rally by commodities is over as China switches to consumption-led growth rather than investing in infrastructure.
‘“We think a decade of commodity demand is over,” he said today at the Ira Sohn Investment Conference in New York. “It’s a poisonous cocktail when you look at commodities going forward.”
‘Druckenmiller, who said in August 2010 that he was returning cash to his clients and would focus on his own investments, is betting against the Australian dollar, which he said will “come down and come down hard.”’
Druckenmiller also said that Bernanke was running the ‘most inappropriate monetary policy in history’ and that stocks would continue to ‘melt-up’ for a while yet. No wonder he handed cash back to clients a few years ago. How does a fund manager act as a fiduciary when they know that it will all blow up spectacularly one day?
So add the hedge fund guru to the list of people shorting the Australian dollar. Which suggests the former battler may scrap away to hold above parity with the US dollar for longer than anyone thinks possible.
But as we’ve written previously, it won’t be the RBA or government idiocy that sends the Aussie lower. It will be the Chinese economy crumbling under the weight of its almighty credit expansion, and despite what the fictitious trade data try to suggest, it’s a process that’s already underway.
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From the Archives…
The US Federal Reserve: What a Humiliating Failure!
3-05-13 – Bill Bonner
The End of the Road
2-05-13 – Bill Bonner
Why Apple’s Advantage is Gone
1-05-13 – Dan Denning
The Kamikaze Rally That Could Drive Stocks Higher
30-04-13 – Dan Denning
Australian Deficit: Where Did the Money Go?
29-04-13 – Dan Denning