BigTrends

Big news was made today as China announced plans to loosen pegs on its currency versus the Dollar.  This was conveniently announced ahead of the G20 summit of global leaders later this week.  I've previously mentioned that I anticipated some economic announcements ahead of the summit in attempts to stabilize global economies.

As with most everything China does, this likely has motivations to benefit China  on an economic and political  basis.  Sometimes it appears that they are playing a very long-term game of chess in order to conquer the world economy, while the USA and other western economies are playing short-term checkers.

Is a free-floating Chinese yuan a good thing for the world?  As a free trader, I say yes long-term, definitely.  However, this particular move today when examined closer isn't anything approaching that.  For an in-depth look at the move today, take a look at this article.

How does this affect the American economy?  Well if the Yuan gains value versus the Dollar, then it makes the price of so many things more expensive to Americans, which hurts our buying power and causes potential inflation.  Take a look at how many things in stores such as Wal-Mart and Home Depot are made in China.  Nowadays, everything from Food to Drywall comes from the Asian giant.

On the flip side, many are crowing that our American-made products will now be cheaper for the massive number of consumers in China to purchase -- which will benefit our exporting companies and economy.  This may be true to some degree, but remember that China doesn't play fair when it comes to trade ... and China's policies always look out for China first.

On a side note, history may be a bit of a guide when it comes to this.  Remember when Japan was the emerging Asian economic giant in the 1980s and accused of protectionism, unfair trade and devaluing its currency to dump goods in the USA?  Well, China is rapidly on the path to being a "mega-Japan" in terms of influence and economic power.  However, they don't have the demographic and natural resource weaknesses that Japan did -- but they do have their own massive problems with corruption and bureaucracy that must be fixed.

We welcome your thoughts, opinions, and facts on this topic, please reply in the comments below.

Just wanted to point out that we look to be in one of these negative worldwide news cycles. This makes it very difficult to get comfortable from the long-side perspective. Bad economic/debt news from Europe continues on a steady basis, big concerns about China & Asia are emerging, a giant Oil spill that has been extremely mismanaged from a PR perspective, etc.

When Asia or Europe gets roiled a couple of times a week, this weakness then spreads to the U.S. morning action -- and the influence of these markets vis-a-vis the U.S. has become more important than ever. It used to be that the United States stock markets almost always dictated the mood in Asia and elsewhere -- but one can plainly see that China is becoming more and more the big player on the block in so many areas.

Bottom line is that the continued bad news is reminiscent of the banking/mortgage crisis we saw here in recent years. However, it is not likely to affect things in such a drastic manner -- and as a matter of fact, the reaction to bad news will be one of the leading voices showing when the market wants to go significantly higher. . But as I mentioned, it makes it very difficult to make strong upside bets -- so the bias for stocks remains to the downside for now.

Thursday brings to the markets a wealth of knowledge, most important the first quarter earnings from Google.  What will be most listened to is the obvious effect of their decision in dealing with China.  Did that hurt sales and profits?  Going forward how will it matter?  Also, we'll learn about the new Android phone and how much competition it is actually giving to the bigger players.  Further, the ad spending situation and specifically the mobile ad platform.  Apple recently announced a competing product.  There is no question Google is the king of internet ad revenue and that may not change for some time.  However, the bar is continually set higher for this giant.

I wonder though, could the bad news already be priced in?  Oh sure, we haven't actually heard anything material from the company, and they are usually very conservative how they manage expectations, they don't even give guidance on the call.  Unless there was another 'scud' missile out there ready to explode what are the sellers waiting for?  In fact, the stock is UP 10% since the 'stuff' hit the fan back in February.   Any lack of bad news will be good for Google stock, and anything good should propel this back to 600 and beyond.

I took a look at about 15 of the major single-country ETFs in terms of 2010 performance.  There were 2 clear names topping the list and 2 lagging the pack:  Russia (RSX) and Japan (EWJ) were the outperformers, both up over 7% YTD.  China (FXI) and Brazil (EWZ) are the laggards thus far, each down over 1% in 2010.

Hard to say what the causation/correlation is between these countries at this point, because Russia and Brazil are often considered "commodity play" countries.  Currency fluctuations may be playing some part.  But it's something to keep an eye on, especially Japan which has been a laggard for many years now.  There may be some good relative gains to be made in that slumbering economic power contained in a tiny set of islands.

So Time Magazine has chosen Fed Chief Ben Bernanke as its Man of the Year.  This choice is getting some cat-calls from various media and Wall Street types.  However, they could have done a LOT worse ...

Here are some of the Time runners-up:

General McChrystal
The Chinese Worker (this could end up being the choice for Person of the Century)
Nancy Pelosi
Usain Bolt

As I mentioned, Time could have gotten it a lot worse, in my view.  Imagine if they had picked some of these jokers for Man of the Year:

Tim Geithner


Tiger Woods


Kate Gosselin


Bernie Madoff

Much focus and attention these days among investors, traders, politicians, and the media is on China.  With good reason.  Demographics and a growing economy may make this the "Century of China".

However, there is another Asian economy and market that you shouldn't forget about:  India.  This is a country with a massive population and growing education and business base.  Incremental increases in the growth of lower and middle classes in countries like India and China can have earthquake-like fiscal effects.

Take a look below at the relative performance of the Powershares India ETF (PIN) versus the iShares Xinhua China Index (FXI).  You might be surprised to see that the India ETF PIN has outperformed the China ETF FXI since the March 9th, 2009 market bottom.

FXI vs PIN Price Performance Chart

Here are the top holdings of the PIN ETF (as of 9/30/09):

Hi everybody,

Based on your feedback to our "Town Hall" questions, I will be touching on some of the following topics for a free BigTrends TradeCast this Saturday, August 22nd at 11 am ET.

Healthcare Reform and the market.
Inflation and Commodities.
The Economy, Volatility, and Market Trends.
International Growth.
Active Trading to catch both sides of the market moves.

Click here to sign up and register for the Live TradeCast: 

This will all tie into the Index Options Timer advisory program that I manage for BigTrends, with a special discount offer for Webinar attendees.

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Thanks,
Moby Waller

The India stock market is up huge after election results look to have marked a shift away from Left leaning parties.  Expectations are high there for economic reform, infrastructure growth, increased foreign investment and tax reform.  An India ETF, PIN, is currently up about 20%.    China may be feeling some positive effects from this huge bump, as the FXI is up 4.5% currently.  While this does sound like significant political news, be careful of jumping on board after such a strong reaction has already occurred.  If I had to guess, there will be a settling down/mild pullback after the initial euphoria wears off, but then the uptrend may continue.