And while China’s move represents a tax cut for Chinese consumers and workers (better purchasing power) it’s ultimately a tax hike on American consumers, since imported goods will cost more at the cash register.
A message to all those people blaming China for our slow, jobless recovery: Shame on you. Stick to your own knitting.
Washington is the problem, folks. Our government’s massive overspending, over-taxing, and over-regulating has caused corporations and banks to hoard $2.5 trillion in cash and credit. If all that money was unleashed, it could ignite the economy. But the problem is everyone is absolutely scared to death of Washington’s anti-business, anti-profit, anti-investment policies.
The Market: Sell into Rallies. The yuan-based stock market rally completely fizzled on Monday as triple-digit gains were wiped out by the end of trading. The biggest market mover was gold, which dropped about $25, while the greenback held firm.
Let me raise a few key questions: Did the yuan crush gold? Is the strong dollar deflating stocks and the recovery? Is gold overvalued right now?
Stocks are still off about 8 percent from their late-April peak. From my perch, I think it’s going to be difficult to return to that peak, or to surpass it, for some time. Not impossible, but difficult.
I also happen to agree, at least partly, with Nobel Prize?winning economist Robert Mundell’s recent take on the dollar. He believes that the 20 percent overshoot of King Dollar, relative to the euro, possesses some deflationary consequences that could slow the recovery rate. And the euro decline will speed-up the German and (northern) Euroland recovery rate.
Here’s a little economic reality check: Despite Monday’s gains, copper is still off around 20 percent. Jobless claims are moving up, not down. U.S. retail sales and housing starts have both recently surprised to the downside.
These are not good signs.
While manufacturing production remains the single strongest part of the economy, I’m wondering whether it also might slow with the decline of industrial commodity prices, due to an overly strong dollar. Now, you know me. I’m all for a strong, stable, and reliable dollar. But huge swings in the greenback always produce lagged consequences in our economy. This worries me.
Let me state for the record that I’m not a double-dipper. I’m just in the slowdown camp. And tepid growth could very well slow down the stream of corporate profits.
In other words, a slowing economy, a big 2011 Washington tax-hike wall, an overly strong dollar, ongoing debt concerns in Europe, and bad economic news from the BP catastrophe in the Gulf all leave me feeling realistically cautious on the stock market. For now.
Let me conclude with the following thought. I’ve mentioned this a bunch in recent weeks, and I’m sticking to my guns here: Why not consider taking some profits off the table, before the tax man arrives next year? Taxes on capital gains and dividends are heading higher folks. Why not book some gains before the IRS grabs them?
I’m not suggesting that investors sell everything they own. But investors may want to seriously consider lightening their portfolios a bit. Take some profits on these mini-market rallies.
No, I am not going all doom and gloom. I’m just saying this is a good time to be cautious. That’s all.