Shorting Japan, Again...

I re-shorted the bounce in the Japanese ETF this morning (EWJ), for three reasons:

1. Japanese inflation (see chart) came in higher again (month over month) at +2.4% y/y vs. +1.9% in June. As the Yen weakens, imported inflation spikes - the chart is plain ugly. This is a 10 year high, as you can see. American wins = Japanese losses.

2. Overnight, Prime Minister Fokuda, was pleading for another 2 Trillion Yen Government bailout program for the economy. This is more of the same - a leader-less socialist government that doesn’t get it.

3. As GDP goes negative, increased government spending is going to intensify the problems associated with Japan's balance sheet. They already hold an untenable position of 787 Trillion in Yen denominated debt. That's 147% of GDP that is setup to stagflate!

It's global this time, indeed.

Chinese Retail Growth Revisited

I noted on 8/18 that China’s superb 23% retail sales growth needed to be put into context with the sharp decline we’re seeing in other non-Japan Asian nations. The chart below looks at it a different way… It takes retail sales 2 yr trend and subtracts 2-yr CPI growth to show what I think is a more representative view of real underlying normalized spending patterns. Yes, there is still an Olympic-sized bump over the past two months, but over a broader 10-year context, it’s not tough to argue that China is slowing.
Insert Chart Description Here. 2 Sentences Maximum

Europe's Headache: Importing Inflation, Deflating Confidence

Below we have put together a data set that overlays European economic confidence with inflation. In a brave new interconnected world of markets where the US Dollar is strengthening, the Europeans are losing. As the Euro falls from it's all time highs, they will be importing inflation to their socialist tapestry.
  • European Confidence Can Get A Lot Worse...
Chart by Andrew Barber, Director

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The Ultimate Sporting Goods Visual

If you care about anything having to do with the Sporting Goods business, and are as concerned about overcapacity as I am, then you have to see this visual.

Historically, the sporting goods retailers have respected geographic boundaries. Now they're starting to step on each other's toes. Next comes an outright dogfight.
Click to enlarge.

Spoiling an Olympic Tradition!

Kellogg Co. managed to spoil a tradition for General Mills -- the unveiling of Olympians to grace the Wheaties box. By the time Big G made its big announcement today, Kellogg had already one-upped the news by revealing that it signed the biggest of them all, Michael Phelps -
Don't Mess With My Wheaties!

America Is Winning Again

Confused? Could an Obama Presidency be an ultra bullish American catalyst? These are some of the contrarian questions that I asked myself yesterday. Given that there were political implications to these questions, I had some great feedback from our clients – thank you for helping me find some of the right answers.

History students can always look back to find answers. Historical facts don’t lie, people do. That’s why I always look back before I look forward. That’s not my politics, that’s just my process. The US market’s latest 9 month dance with the Leverage Bear could have largely been avoided if those with the vaunted leadership titles of CEO or Managing Partner could have taken a few hours away from their blackberries every day, and read an economic history book, or two.

Lincoln’s high level answer to finding clarity when confused was “always bear in mind that your own resolution to succeed is more important than any other one thing." No matter what your politics, that’s a hard point of advice to refute. That’s America – feet on the floor early every morning, and get it done. Obama’s speech last night may very well inspire some to get up a little earlier today. It will definitely inspire Republicans to tell you it was just another “rock star speech”. That rebuttal will then inspire Democrats to get up earlier still to tell you that Bush can barely read the English in a speech, never mind give one… then pop, pop, bang – another Jimmy Braddock Republican counter punch comes after that.

So what’s the result? I think the answer to that question is simple - America. From Washington to Wall Street, we need to bring passion back to the daily game of life, no matter what your politics. Last night I was walking my son, Jack, to sleep down on the beach in Westport, CT. I am Canadian, he is American. Along the way there were different languages being spoken by different people of different color. When no one is looking, that’s America.

One of the more important points in yesterday’s note was that since July 14th, the American stock market is winning again. Unfortunately for the competition (including the Canadians), that means most other countries have been losing. Understanding the inverse correlation between commodity price inflation and “emerging market” stock appreciation is a critical one right now. Yesterday, Americans won big time, with the S&P 500 closing +1.5%, as the CRB Commodity Index dropped another -2%. This morning, the Russian stock market is down another -1.4%, taking its peak to trough losses since mid July to -27%. Over that same duration, the S&P 500 has gained +8.2%, trough to peak.

Hope doesn’t find itself as a factor within my macro investment model, but that certainly doesn’t mean it doesn’t exist. As we head to the finish line of another month end, American investor hope is building, as Asian and European ones are waning. These hopes and fears are reflected in both currency and equity markets. The US Dollar is up +5% for August to date, while the Russian Ruble is down -5%. For Americans like Jack, whose father has an 85% position in US denominated currency, this is great. If you are a Russian boy, your country is led by a man named Putin, who just saw the world drop your currency by the most in a month since 1999. You’re also seeing global investors withdraw $25 billion from the Russian market as the world has ‘You Tubed’ Putin Power, and doesn’t see promises kept of troop withdrawal. Stock and currency markets don’t lie, people do.

In Asia, the currency market is worse than in Europe. The South Korean Won is leading Asian currencies to the downside. For the month alone, the Won has lost -7.1% of its value – this is the worst monthly decline since the Asian Currency Crisis in 1998! In Thailand, the domestic political environment has turned toxic. In India, as economic growth continues to slow, weekly inflation readings are now running up 3x what they were at this time last year. In Japan, Prime Minister Fokuda, is crying out today for another 2 Trillion Yen - the same old ball and chain of government sponsored bailout money that has led to decades of economic stagnation. Asian growth is slowing. Asia is losing.

Winning is what Americans do. Despite the Chinese winning every gold medal battle they could, Americans ended up winning the war. The Olympic medal count score was 110 to 100 – America over China. What’s next? Only time will tell… and the fact cards will lay on the table, face up, along the way.

Have a great long weekend,

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