Wednesday, February 10, 2010

Australia's Unemployment Rate at 5.3%

Australia's unemployment rate just came in at 5.3%, better than the expected 5.6%. The AUD is up 115 points against the USD. Check this post out for information about investing in Australia.


Investigating the Validity of China's GDP Numbers

China's GDP statistics are often viewed with a dose of skepticism. The government frequently sets targets and those targets are almost always surpassed. When the government aimed for 8% full-year GDP growth, they got 10.7%  growth. If an investor is suspicious of these numbers, is there a way to get at the real number or at least find out whether or not this number is completely off and misleading? After all, inflated numbers can add to an irrational optimism that could create bubbles in the Chinese stock market.

A creative way to solving this problem, pointed out by a few economists, has been to measure the electricity consumption of China. Throughout the histories of the major economies, there has tended to be a very strong positive correlation between electricity consumption and GDP growth. This makes intuitive sense. As the economy grows and businesses need more energy to operate, electricity consumption will obviously follow. Further, as standards of living increase, electricity consumption per head increases. No wonder many economists doubt China's economic numbers, especially when situations like this arise:
"Power consumption in Sichuan dropped 9.9% in the first quarter, but its economic growth in the same period reached 10.8%. The local government explained the economic growth is mainly led by the post-disaster reconstruction. "I don't know how the economy grows in this area," said Zhao Bingren."
 However, I believe at times the positive correlation between electricity consumption and GDP growth can weaken. Through extraordinary advancements in productivity and investment, an economy can rapidly grow while electricity consumptions stagnates or even declines. Think of it this way: China leapfrogged two generations worth of old and slow computers and jumped right into the fast Dells and HPQs with Intel pentium processors. This huge investment resulted in amazing gains in productivity, relative to years without the computers. Was electricity consumption greatly impacted? No. New machinery and methods of production can result in tremendous productivity gains while still requiring the same amount of electricity as old machines. In fact, China's productivity grew at an extraordinary 8.2% in 2009 and once comprised more than 40% of GDP growth in periods within the decades of 1970-2002.

It may be time to grant China more credit.

Sunday, February 7, 2010

The Week Ahead: 2/08/2010 - 2/12/2010

There will be little economic data released this upcoming week. International trade will be released on Wednesday, Retail Sales / Jobless Claims / Business Inventories on Thursday, and Consumer Sentiment on Friday. Of these reports, the biggest market mover will be jobless claims since the 4week average has rose three weeks in a row, the unemployment report had conflicting signals, and the press really scrutinized last week's number. As always, I will be providing an analysis of Thursday's jobless claims when the number comes out.

There will also be a slew of earnings this upcoming week. For the full list of companies, check out this earnings calendar.

The main focus this week will be on the costs of insuring debt of the PIGS. I'll be looking at the CDS market to see whether these insurance premiums are rising or contracting after last week's spike. For the week ahead, I'm very bullish and currently long a couple high-beta names, such as FCX and TSL.

Friday, February 5, 2010

In TSL and FCX

Today's market action has so far been extremely encouraging. As the market has rallied off its lows, I've entered into high-beta names, such as Trinity Solar (TSL) and Freeport McMoran (FCX). I've placed tight stops on these trades and look to be out in two-weeks' time. For a long-term view, I'll continue to follow the earnings and economic data.

Unemployment came in at a much better-than-anticipated 9.7%, although the report had many conflicting signals and the nonfarm payrolls fell 20,000. However, I liked the rise in temp-hirings within the business sector because 1.) It's a leading indicator into the health of the labor market and 2.) I'm looking for a summer internship :)

Thursday, February 4, 2010

Jobless Claims Analysis, 2.04.10

Jobless claims rose 8,000 to 480k last week, pushing the 4-week moving average up for the third consecutive week after 19 straight weeks of declines. As a leading indicator into the health of the labor market, this statistic gives me a bearish sentiment. Further, stripping out personal investment in inventory in last week's GDP report takes the number to 2.2%, much less than the reported 5.7%.

My posts over the last few weeks have been alluding to a possible inflection point coming in the markets and I believe today's market action constitutes that inflection point. The latest price movements either represent a pull-back in the markets and today is a great buying opportunity or they represented the beginning of a much greater broad market decline.

Monday, February 1, 2010

Largest Oil-Exporting Countries to the U.S.

From the Energy Information Administration:

(Chart cut-off slightly, but data shown is relevant)
Crude Oil Imports (Top 15 Countries)
(Thousand Barrels per Day)
CountryNov-09Oct-09YTD 2009Nov-08YTD 2008

CANADA
MEXICO
NIGERIA
SAUDI ARABIA
VENEZUELA
IRAQ
ANGOLA
KUWAIT
BRAZIL
ALGERIA
COLOMBIA
RUSSIA
ECUADOR
EQUATORIAL GUINEA
LIBYA


I find it interesting that politicians and the media often talk about how the U.S. needs to break its reliance on oil from the Middle East. The data, however, shows we get more than 50% of our oil from our neighboring countries. Perhaps the politicians are trying to spur investment into alternative energy by skewing the situation into a national security problem.

One other thing to look out for: Follow the production rates in Canada's Alberta province oil-sand projects. If Canada begins to export more oil to the U.S., then movements in the price of oil will have a more dramatic effect than usual on the value of the Canadian dollar.