"They!?"

Meanwhile, China is attempting to cool its economic growth rate, and pace of inflation, at least that is the official spin. A “right brain” observation of China’s recent interest rate ratchets, and increased reserve requirements, might suggest China is actually attempting to raise the value of its currency. If true, such a revaluation would be HUGE in terms of rebalancing the World’s economies, as well as huge for our economic recovery. Indeed, China needs to consider Brazil’s example whereby Brazil decided to move (at the margin) from a manufacturing, and export, driven business model towards creating more domestic demand. Accordingly, between 2005 and 2007 Brazil raised the value of its currency, yet its economy remains pretty spunky. I believe China will eventually adopt a similar strategy, realizing that its manufacturing/export driven model will eventually fade as the Vietnams of the world inherit said model (I am bullish on Vietnam). Further, I think a deal will be struck to achieve such “ends” since China’s food supplies have been severely hurt by the shift in the “tropics.” This may imply America subsidizes China’s food shortfall for an accord regarding the revaluation of China’s currency. I realize such thoughts are unconventional, but they could be net worth changing since winning investments come from unconventional thinking. Recall, I proffered similar unconventional thoughts in 4Q01 when China was joining the WTA. Subsequently, I opined China’s per capita incomes would rise, driving a secular bull market in “stuff” (energy, base/precious metals, water, electricity, timber, cement, agriculture, etc.). I continue to think rising per capita incomes in the emerging and frontier countries will foster profitable investments in “stuff”; and I continue to invest, and trade, accordingly.

The call for this week: Well, today is session 58 in the September – November “buying stampede,” making this stampede the longest I have seen in more than 40 years of market observations. It is also Thanksgiving week and history shows the DJIA has ended this week higher in 38 of the past 59 years (or 64% of the time). Additionally, over the last eight years the Dow has gained in six of those years with its best performance (since 1950) coming in 2008 with a 9.73% weekly rally. Its worst week was in 1973 with a drop of 4.2%. Hence, I continue to cautiously favor the upside. Meanwhile, the “oil” that makes the “economic engine” run, namely the M2 money supply, has increased for the past six months (+6.2% annualized rate). Such increases only reinforce my recommendations on “stuff stocks” (preferably with yields). As for my views that the waning inventory-rebuild cycle will give way to a capex cycle, recent CFO surveys show intentions to boost capital equipment expenditures (capex), and hiring, are increasing. Therefore, my longstanding strategy that a “profits boom” will give way to an inventory rebuild, and then a capital expenditure cycle followed by increased hiring, and then a pickup in consumption, remains “stirred,” but not shaken. As for the strongest sectors, they remain Energy, Basic Materials, and Information Technology, while the best performing market capitalization class is the mid-caps. I think those areas are “buys” on any weakness and continue to think any near-term selling will be contained, leaving the major indices higher into year-end provided the 1130 – 1160 zone on the S&P 500 (SPX/1199.73) is not breached to the downside.