India Raises Rates For the 2nd Time in 2 Weeks

I recently covered my short position in the India Fund (IFN) as I thought, from a "Trade" perspective, after seeing a -19% two month swan dive in India's market, that it was finally oversold.

Today, India did what they needed to do, chasing down the inflation run rate, by raising interest rates by another 50 basis points to 8.5%.

At +11% year over year, inflation is running at least 300 basis points over India's slowing economic growth rate. This proactive move by India's central bank should, at the very least, stop the hemorrhaging that they continue to see in the value of their local Rupee currency.

Stocks are discounting mechanism of future news. Now that inflation readings and the appropriate rate hikes are yesterdays news, it's less obvious for me to be running aggressively net short India.

Spanish Inflation Spikes To A 23 Year High

More of the same today coming out of Europe on the inflation reporting front. This will beget further beating of the Wall Street consensus inflation war drums that have finally arrived!

Spain's Producer Price Index for May came in at +7.9% year over year, up from April, and hitting a 23 year high.


Asia Is Slowing? Really? Thanks

This morning, the head of the Asian Development Bank officially cut his estimates for Asian GDP growth in 2008. While our inflation call has morphed into consensus, our "global stagflation" call has not. This revised estimate is another nice admission however, taking consensus closer to reality.

A few weeks back, Goldman also downgraded their Asian Equity market view on select countries. After Vietnam lost 2/3 of its value, and China was down 50% from its October 2007 peak, we gave that a golf clap. That call, like many sell side strategy calls, was a revisionist and reactive one.

Since Q4 of last year I have been calling for Asian growth to be adversely affected by inflationary pressures and social unrest, in addition to the 2nd derivative effects of a US economic growth slowdown.

Asia's aggregate GDP growth for 2007 ended up close to +9% year over year. Look for the revisionist historians to pop into your inbox day by day now, reflected on that being the top in this global economic cycle's growth.

It is global this time, indeed.

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Marking Your Home To Market, Part Deux

This entire notion of Wall Street "marking to model" really stung the likes of the currently employed Dick Fuld and the legion of CEO's at legacy investment banks who have been fired. Now we're moving this trend to Main Street, and we are focused on marking American Net Wealth to market.

The two factors in the model that remain most relevant are A) your portfolios and B) your homes.

If you have more than one of A) and/or B) and its levered, that's probably not good, particularly if either are still "marked to model."

This morning US New Home Sales for the month of May came in lower again month over month at 512,000 versus 525,000 in April. I expect these numbers to decline throughout the summer months and not trough until Americans mark their homes to prices that a realistic market will bear.



Too Bearish?

My call yesterday was that around the 1311 line in the S&P 500, investors were getting "too bearish". From S&P my call was that investors were "not bearish enough". As the facts and prices change, I do.

This morning I am getting confirmation in as much via the weekly II survey which showed "Bears" shooting up to a new intermediate high reading of 39%, and "Bulls" breaking down to a new intermediate low of 34%. When this spread is negative (more Bears than Bulls) you are best served to NOT be running net short.

I've been covering and buying stocks for the last 36 hours. For a "Trade", luck is on my side so far...


More Capacity Constraints

Lesotho noted this week that the country needs to diversify away from any dependence on apparel exports. Is it me? Or is it a sad statement about an industry when a third-world country with half the GDP of Fond du Lac, WI heads for the hills?

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