Back To School, Back To Equities

The biggest news of this first day of post-holiday, post-summer trading is the renewed strength in equities. All across the world, except Tokyo, stocks looked and acted muscular, and perhaps are bolting out of the late-summer gate for a sharp rise before the historically shaky (and contemplative) month of October.

The Dow and S&P were up boldly, looking past softer crude prices again. NASDAQ came out of the red for the year on the back of the bell-weather, Apple stock. Apple today is up 1.80% and it gave traders of many blue-chip tech stocks a little bit of backbone. The other two American exchanges are still in the red for the year but they have been showing signs of recovering from the August gully washer.

All the equities that moved up were paying close attention to the jump in German exports in July. Germany drives the European economy along with France. What is truly remarkable is that Germany’s imports rose about the same amount as its exports. Germany found its export strength mostly within the EU and associated countries in Europe, and in China. (Daimler’s exports to China were up 53%!)

We would offer one short word of caution. The trade within the EU is a bit illusory, given the size of the economic block. We might compare trading among the states of the United States in a similar way and get a false impression about “exports.”

The strength in equities obviated the need for a play in gold as a safe haven. Gold was helped by a weaker U.S. dollar, but regular trading shaved enough off the yellow metal’s price to push it into the red as of late afternoon. Silver, however, is trading up not quite 1.5% and palladium is up over 2.00%. The latter two metals may be reflecting more optimism over future industrial demand.

The generally firmer tone in equities also pushed bond prices down and yields up, reflecting the same iffy demand for haven bets.

Prospects for economies in the U.S., the rest of North America, and Europe seem strong, if not actually in the booming category (to echo Warren Buffett’s opinion). But, the long, slow, solid, if unspectacular growth may be setting up a deeper economic fitness that will serve the West when another slowdown occurs.

We are highly critical of China, as anyone following our fundamentals commentary knows full well. But, we just can’t help ourselves.

China's dollar-denominated exports declined by 5.5% year-on-year in August; imports crashed by 13.8%. A good barometer for those import numbers? Importation of crude oil was down 13% July into August of this year, even though the crude import number for the first eight months was still up.

China has lost more than $3 trillion dollars in equity value since its markets began skidding. Unlike other global indices, they aren’t showing a lot of life right now.

The world needs every major economic component to hit on all cylinders to avoid a mini-recession in 2016 or early 2017. (Yes, we are thinking about the possibility already.)

Wishing you as always, good trading,