WWII 066: China Update, Inverse ETFs for a Stock, 3% to 5% per month in Safe Investments, Record Millionaire Households

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Main Topic: What is Happening in China These Days?

Do you remember a few years ago, before the oil and gas crisis took over the news, that everyone was worried about what was happening in China?

China’s growth rate was slowing, China was going to experience a real-estate crash like we had here in the U.S.? Remember that? Commodities were plummeting because China was going to start cutting back on building out all those ghost cities, you know, the cities with empty streets and empty buildings?

Well, it’s time to take a look at what is happening to China today and to figure out what that means to us here in the U.S.

Listeners of this podcast know that I always go to the data before forming an opinion on anything. Most of the data I look at comes directly from companies in the form of annual reports, or from Barron’s, Business Week etc.

In an article in Barron’s with the headline “At last, Green Shoots for China’s Economy”, writer Carl Weinberg writes that China’s premier, Li Keqiang has stated that he needs only three indicators to understand the state of the Chinese economy: electricity production, railway freight traffic, and bank credit.

Where does this kind of data come from? Why, from China’s National Bureau of Statistics, or NBS, of course. NBS has a website with a ton of statistical databases that you can suck down and analyze to your heart’s content.

Let’s take a look at what these indicators are saying through February 2017.

Electricity production is grew at an accumulated growth rate of 6.3% through February versus the previous year, a positive sign for energy.

Railway freight traffic accumulated growth rate was 8.3% in February versus a year ago.

Bank Credit – Chinese credit growth slows as stimulus declines. Bank loans grew at the slowest pace since 2006. I weigh this statistic as very indicative of the future growth rate of China. The growth in debt in China has been fast and furious and has caused a major problem for the People’s Republic. China needs to de-lever and has thus far not been willing to take the pain of that deleveraging.

From an article in financial Times: Chinese banks traditionally splurge on lending in January, following the renewal of lending quotas at the start of each year. But central bank data released on Tuesday show new local-currency bank loans were Rmb2.13tn ($310bn) last month, far above the Rmb994bn in December but below the Rmb2.54tn in January last year. It was also short of expectations of Rmb2.30tn, according to a Reuters poll.

https://www.ft.com/content/8e9ac634-f2b5-11e6-8758-6876151821a6

Outstanding bank loans grew at 12.6%, which is actually the slowest pace since 2006. The decline was even through the People’s Bank of China guided interest rates higher last month.

President Xi Jinping is attempting to stimulate growth now that his campaign against graft is over, while also attempting to contain inflation and asset bubbles and deal with inevitable failure of a large number of over-levered businesses.

China’s Manufacturing purchasing managers index (PMI) was 51.8% rising for two consecutive months, a good trend. Non-manufacturing PMI was 55.1%, up from 53.8 a year ago.

So in summary, there are “green shoots” in China, but the cans it has been kicking down the road have turned into an enormous pile.

As investors, how do we react to any of this? Speaking for myself and my clients, I tend to prefer domestic companies that do most of their business here in the U.S., are not exposed to huge commodity price swings, and therefore not really impacted by a problem in China.

Ask JB: Inverse ETFs on a Single Stock

Question: why no inverse ETF on a single stock. (self.investing)

submitted 1 day ago by AutisticTrader

Let's say I wan to short a stock, $GM for instance; if I am not "set-up" with margins etc, it's not that simple; but if I want to short the $&P 500, or gold or other indices/sectors I can easily do so with ETFs, even 2x and 3x.

So, I would think that there is a market for inverse ETF on single stocks, something like $GM or any of the big ones, let's say the components of the S&P500.

Is there any practical reason that I don't see?

JB Says: Yes, it costs nothing to open a margin account, and then you can short or buy puts. ETF’s are costly to put together, so no ETF manager would want to put millions into creating one when a potential customer can just open a margin account and have a number of ways to bet the same way.

JB What is a safe investment that gives you 3 to 5% a month?Help (self.investing)

submitted 1 day ago by rexmorrow

JB Says: Asking this question is like asking directions to a leprechaun or Forest Fenn’s treasure. At 3% a month, the annualized return is 36% and at 5% per month the annualized returns are 60%. My suggestion is to stop looking for unicorns and start reading about value investing.

Do you have a burning question on investing you would like answered? Click the button below to send it to me and I will answer it on the podcast!

News: Wall Street spending is up

http://www.cnbc.com/2017/03/31/from-a-200000-aston-martin-to-1000-escorts-wall-street-spending-is-up-commentary.html

http://www.cnbc.com/2017/03/22/record-number-of-millionaire-households-in-us.html

About the Author

Jeremy Scott Bailey is an investor, author, entrepreneur and host of the “What Works In Investing?” podcast now available on iTunes. He is founder and Chief Investment Officer of Burgeón Group, Inc. an investment advisory firm that provides portfolio management services to families and individuals.

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