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ok well hows this: lets start with America and CHina.

right now, the latest figures from china have had higher than expected inflation (mostly from food though) coupled with blistering growth > 11% in the second quarter.

China imports goods from south east asian nations (SEANs) and exports them to the US/EUR/UK/Japan. further, china imports a good amount from Japan. where can i get data on these? world bank? IMF? chinese current account broken down by goods/services/remittances by country?

china also imports a ton of commodities and will likely continue to grow at a very fast pace of at least 8% for the next few years.

a few things that are negatives in china:

1) stock market bubble: share prices up by 400% in over 2 years and average p/e ratios backward looking at 50. this isn't a huge problem though because even if it does fall, the total value of tradable shares (not held by govt) is only 35% of gdp vs. 180% of gdp in america. further 80% ofchina's urban households own their own home. so debt isn't a big part of the chinese culture

2) some data i could find show that china's exports to the US increased by 14% vs. 40% to the EU. it is estimated by the owrld bank that if US consujmption falls by 1% of GDP, that oculd knock off .2-.5 percentage points off china's GDP. but even if us consumption falls by more, the chinese economy NEEDS to slow down. further, that might help to reduce their trade surplus and alleviate some political pressue from the US>

3) unit labor costs were possibly under threat as average wages rose by 15% ina year in china. the good news here though is that productivity rose even faster so there are still declining unit labor costs in china that could help fuel demand for china's cheap exports.

further, china's banks are in better shape now than they have been previously (non perfomring loans down to 7% from 30% in 2001).

investment in china is HUUGE (45% of GDP and growing by 25%...thoguh this includes land purchases as investments which really aren't)...but corporate profits are still growing meaning that the artificially low cost of capital hasn't sparked overinvestment yet. (we'd expect to see falling profits if investments wree growing too fast).

china is also protected from crisis by the massive FX reserves.
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now onto the US:

this last week showed some good and not so great data.

- strong employment report (relative to losing 4k jobs) of 110k vs. 115k expected jobs added. increase in m/m wages of .4% vs. .3% expected.

- expanding manufacturing (ISM manufacturing and non manufacturing surveys were good. former below slightly at 52.00 and the latter above expectations at 54.8)

- consumer credit expanded by over 12.5billion vs. about 9billion expected

- motor vehicle sales came in at expectations 12.4m

- for both july and august, personal income and consumer expenditures came in at or above expectations

- construction spending came in at .5% growth vs. -.2% expected fall in august. but overall this area seems weak in terms of the US economy.

- consumer sentiment came in at 83.4 vs. 84.3 so slightly below. but overall given the turbulence in august, this is promising. september's number is obviously important as well.

- corporate profits are still very very high (4.3% latest growth rate). near 40 year highs in real terms.

- durable goods orders fell in august by 1%point more than expected but that follows a very large gain in july of 5.9% vs. 1.0% expected.

- inflation is within the fed's range (even urban CPI) though pressures remain given the weak dollar (larger import prices...but that is balanced by fewer imports) high capacity utilization (82.2%) strong production growth (.2% vs. .3% expected)and a very tight labor market which might loosen up slightly given the layoffs expected in the near future. highly unlikly though that wage pressures will ease any time soon.

- current account was at -190billion last reading, better slightly than the 195 and 200 in the previous 2 quarters.

- business inventories continued to rise by .5% / month in september

- nonfarm productivity rose by 2.6% while unit labor costs still rose by 1.4%

so overall, we still have a fairly strong economy given the occurrances of the recent past.

however, it is important to note that the new data coming out this week and this month/next month will be hugely important interms of determining where we are likely to go.

it might be the case now that 2 year yields at 4.15% are a bit too low in the short term. this bond reflects expectations of interest rates in 2years. if growth comes in strong w/o easing inflation pressure, this could move up to 4.25-4.4%.

similarly, the 10 year yield is right now at 4.65% or so and may be underestimated given the amount of possible inflation in the next 10 years (higher BEI than we've seen in a while, but as i mentioned int he first bullet in the first post, that could be either too high or still too low depending).





ok folks, so there are some more data and thoughts, feel free to chime in [img]/images/graemlins/smile.gif[/img]

thanks,
Barron