What China's Slowing Growth Means for You
It's hard to be disappointed with JP Morgan's
(NYSE:JPM) $1.09 a share earnings for the second
quarter. After all, analysts were looking for just $0.74 a share. But still,
JP Morgan's 47% earnings beat isn't being called a "blowout."
If this has you scratching your head a little, don't worry,
I suspect you're not alone.
One of the big reasons that JP Morgan beat earnings
expectations so handily is that it had to set aside less loss reserves for
bad loans. That's a good indication that the company is working its way out
of the problems created by the housing bubble.
That should be a good sign for other banks as well. If we're
looking for banks to start lending, then clear evidence that non-performing
loans are becoming less of an issue is a step in the right direction.
But at the same time, JP Morgan's revenues did not beat
expectations. Revenues were essentially in line, missing the forecast number
by a small amount.
Ultimately, it seems to me that Wall Street is being
impatient about the global recovery. Clear signs of improvement are not
translating into a booming economy.
Now, it seems reasonable that it would take some time for
the U.S. economy to work
through the imbalances that nearly broke our banking system. But I don't
remember the last time Wall Street was accused of being reasonable. It's like
they are saying if we don't see +5% GDP growth, then we must be headed for a double dip of recession.
I saidyesterday
that we wanted to see Treasuries and gold sell off. That's not happening.
Traders are selling the positive earnings news from JP Morgan and Intel
(Nasdaq:INTC).
It's clear that traders do not want to give up any gains
from the recent rally. There is little conviction that stocks can hold onto
their gains, even when earnings are good.
I wrote the other day that I thought Citigroup's (NYSE:C)
had the potential to be a "sell the news" event. It's still disappointing to
see it happen, and a day early at that.
"There's no more tightening happening
in China…" head of
China research for Standard Chartered
Bank in Shanghai Stephen Green told Bloomberg.
That comment comes on the heels of reports that
China's economy grew at "only"10.3% in
the second quarter.
As we know, China's government has been tightening
loan requirements to curb lending to fend off a nascent real estate bubble.
Some feared that China's economy was
on the verge of overheating after stimulus efforts led to 11.9% first quarter
growth and over 3% inflation.
China's 2Q inflation fell to 2.9%. That's
a victory for China, as analysts were
expecting 2Q inflation to be much hotter at 3.3%.
Now, let's not forget that China's attempts to slow its growth have
been cited as a threat to U.S. and global growth.
But this report suggests that China's economy has already cooled to an
acceptable level of growth. That, in turn, suggests that the Chinese
government can ease off the brakes a little.
So keep an eye on Chinese stocks. As TradeMaster's
Jason
Cimpl told us yesterday, Chinese stocks are due for a
rally. And a rally for Chinese stocks would undoubtedly be good for
U.S. stocks. Jason sold his position in
Ford with an 11% gain and recommended buying two new Chinese
stocks.
Other upside
catalysts on the horizon: earnings tonight from Google (Nasdaq:GOOG),
earnings tomorrow from Bank of America (NYSE:BAC), Citigroup (NYSE:C) and GE (NYSE:GE), and a Goldman Sachs (NYSE:GS)
settlement with the SEC.
It's rumored that Goldman is in talks with the
SEC
to settle the various fraud charges hanging over the
company. A settlement would launch Goldman's stock price and take the Dow
Industrials along with it.
As always, thanks
for all of your comments, and please keep them coming:dailyprofit@wyattresearch.com
