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Under The Radar

02/16/2010

Unfortunately most of the "meat" never gets exposed to investors; they just witness "the fat". So flying deep under the radar here are some bullet points that I believe support my emphatic position that the current market correction should not be portfolio altering. DON'T BET ON THE DEEP DIVE.

U.S Retail Sales continue to trend higher from the December trough. Granted much of the consumer spending has been with the support of government incentives. However, the process of time should allow for a smooth transition from government incentives to actual disposable income being deployed for consumer spending. The Employment picture is healing.


Source: Bloomberg

CHINA BUBBLES - Expect continued measures by the Chinese Central Bank to prevent inflation and asset bubbles. In 2007, a similar tightening process began with Reserve Requirements  being raised 9 times and the actual benchmark interest rate 6 times. However, I believe chatter about a China Housing bubble is incorrect. I have stated all along that Chinese banks have cleaner balance sheets than here in the U.S.; they understand credit risk and act accordingly. For instance, a housing purchase in China requires at least a 25 to 50% down payment. Loans are not given with financing for more than 75% of the homes purchase price. Also the household debt story is rather different than the rest of the developed world. Household debt as a % of GDP in China is 25%. In the UK 108%, the U.S. 100%. They are a nation of savers, not debtors. 

CORPORATE BONDS - Are stocks truly that expensive with the Moody's BAA investment grade corporate bonds yielding 6.43%?



Source: Bloomberg

QUANTATATIVE EASING - If anything, the Euro crisis highlights the need last year for unconventional measures to be adopted. Keep in mind how aggressive the Chinese and our own Federal Reserve were in their efforts, hence the nice recovery. However, Europe criticized and was reluctant to get too aggressive. They did not expand their balance sheet as we did. The aggressiveness of QE, and its success, should guide investors toward markets such as the US and China for opportunities. Steer clear of those regions such as the Euro zone that did not fight hard enough.

Finally one week removed from the first margin call of 2010, the carry trade unwinds; I am even more confident that the liquidation process was a tremendous buying opportunity in the commodity and materials space. I suggest a reread; I just did myself, of last week's blog.

Happy Presidents Day, although I liked it better back in the day when we just celebrated George and Abe!

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