Alibaba and Exports?

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It is Election day and regardless of your politics or mine, I urge you to go out and vote. It is one of the most important duties we have as citizens in this nation. I am not sure how the market will react, perhaps it is time to “Sell the News” as it seems we have been “Buying the Rumors”.

Alibaba and Exports?

Exports weak!
One of the concerns that the Fed had mentioned in their previous FOMC minutes was the dollar strength impacting exports. This morning the Commerce Department released trade data and it “unexpectedly” widen based on the average economist polling data. “Unexpectedly”, seriously? I think some of these economists need to go back and take Econ 101. Even the Fed mentioned their concerns about exports from the strengthening dollar. From their September Minutes:

Some participants expressed concern that the persistent shortfall of economic growth and inflation in the euro area could lead to a further appreciation of the dollar and have adverse effects on the U.S. external sector. Several participants added that slower economic growth in China or Japan or unanticipated events in the Middle East or Ukraine might pose a similar risk. At the same time, a couple of participants pointed out that the appreciation of the dollar might also tend to slow the gradual increase in inflation toward the FOMC’s 2 percent goal.

This ain’t rocket science boys and girls!

Quick Lesson
Here is the basic math on exports vs. imports. When the dollar is strong against our trading nation’s currencies, our exports become more expensive and less competitive, which means they are expected to decline. While a strong dollar makes imports less expensive and we see consumption rise, like a decline in gas prices. I find it ironic that the economist will point to the strong dollar and how oil prices are falling and how it is creating deflation and cheaper gas prices, so why can’t they put 2+2 together and realize that our EXPORTS, by the very same logic, are become MORE expensive for foreign consumers and thus they are buying LESS.

Courtesy of wikipedia

Exports DECLINE!
The September exports hit a five-month low, falling to $195.59 billion (down 1.5%). Exports to Europe fell 6.5% (note the Euro has been declining against the dollar) and exports to Japan had crashed 14.7% (as the Yen has fallen). This is the DIRECT impact of the ECB and BOJ QE broadsides that have sent their currencies crashing against the dollar. What is very concerning is that this is September data, before Japan announced its massive broadside of more QE, bond buying and even buying stocks – which sent the yen off a cliff against the dollar. ECB is expected to fire their QE guns after the New Year, but with Japan’s surprise attack, could act sooner. So think about that for a second, if September’s numbers were bad – what do you think is going to happen in the coming months as the yen and euro continue to plunge against the dollar?

GDP was wrong!

The Trade Gap (net deference between Exports and Imports) increased 7.6% to $43.03 and when adjusted for inflation (CPI) increased to $50.76 billion, this is not good.

This will also trickle over into the Gross Domestic Product (GDP); because just last week the third-quarter published ESTIMATE had a DROP in the trade gap to $38.1 billion. Trade was reported to contribute 1.32 percentage points to the GDP of the 3.5% third quarter estimate. No doubt that this actual widening trade gap and decline in exports will lower the revised GDP estimates.

I am now more suspect that the meeting yesterday between President Obama and Yellen probably included these concerns about the weakness in the coming GDP and economic growth from the dollar strength.

This is one of the key data points in which the Fed monitors to set monetary policy and will certainly give them justification to NOT hike rates as soon as some Hawks expect and could even give Yellen the data she needs to expand accommodative policies.

The news hasn’t hit the pre-market futures with too much volatility, but we have already seen these concerns echoed in earnings from the multi-nationals who have raised concerns about top-line revenue.

The misconception by the media this morning that has me upset is that this expansion in the Trade Gap and weakness in exports is that China is suffering a slowdown and is somehow to blame, while fully ignoring Europe and Japan’s recent plunges in export demand. Seriously, this is getting silly as they like the dollar strength when it relates to gas prices, but ignores it as to its impacts on exports.

Ironically the next story shows only how wrong they are.

Alibaba and China doing just fine!

Courtesy of wikipedia

Alibaba reported earnings and what I want to point out is the sheer size of this company and its growth. The annual active buyers climbed to 307 million up from 279 million a year ago. Let’s think about these numbers for a second, there are only 319 million people in the U.S. based on the Census Bureau estimates, so Alibaba has almost the same number of annual active buyers as there are people in this nation. They grew by 28 million active users in one year, which is more than the entire population of Texas. Its mobile users have surged to 217 million monthly active users, which is insane. The gross merchandise volume rose 49% from a year earlier. ‘

The math reflects the power of volume (population) and the increase in consumer spending. By next quarter they will easily have more consumers than there are people living in this nation and the average sales per client is growing. In users and sales volume Alibaba is larger than Amazon and EBay combined and is growing rapidly.

Slowing growth, perhaps a Bubble?

I don’t deny that China has seen growth slow, but the facts remain they are still growing and also seeing wages increase, consumer spending increase, and access to credit increase. Is China forming a bubble, certainly as any nation that provides huge amounts of debt and leverage, but is it going to burst soon? I don’t think so and here is why.

  • First, China is starting to become more reliant on domestic spending than just exports, their citizens are moving up the income ladder and are getting access to credit.
  • Second, the consumer debt in the nation has not reached leverage ratios that would bring forth concerns of a coming collapse from consumer debt. Consumers are still accessing credit and growing.
  • Third, the population is not even close to being fully tapped out yet; they still have a flood of new consumers coming on-line and moving up the income ladder.

What are the concerns about China, I think they have far less to do with their domestic economic growth potential and far more to do with the BRIC bank, U.S. dollar as a reserve currency, oil/gold purchases, and international trade. They can disrupt U.S. economics and trade that can send shock waves into our nation and I believe they are getting to a point that their own nation can absorb those shock waves more readily every day as they are slowly becoming a more domestic consumption reliant nation.

Scapegoat vs. Reality!
China is certainly an easy scape goat for politicians (on both sides of the aisle), economist, and patriots. This morning some are blaming the trade gap widening on China, but it is not the only or even the significant reason, which is really the dollar in combination with the other Western Central banks launching salvos of QE. However, we can’t deny that China is a threat on a different level which I outlined above.

Let’s just make sure we understand why things happen rather than taking the simple way out and finger point. We have become too much a nation of blame gaming – which skews and masks the reality on the ground.

Support & Resistance

INDU 17,000
The index lost a little steam yesterday and I think there is a pause to see if the election results actually mean anything, which it really doesn’t. We could see a slight pull back.

NDX 4100
Alibaba earnings are impressive, but the tech heavy index is giving up a little steam and I think 4100 visit in the near-term is a reasonable consideration.

SPX 2000
The SPX has seen a solid move, but I think we could see a little reprieve. The VIX is holding up in the 14s and we could see a quick blip to 15 or 16 if we see weakness after the recent impressive rally.

RUT 1140
I am not sure if we will get a run up to the 1200 level before a visit back to 1140 first. I think we get a little retracement in here.

Buy the Rumor / Sell the News?

We bought on the rumor of QE ending and the Republicans winning the Senate, it made for a strong rally and now it is time to take those profits off the table and reconsider. Are we in the buy the rumor / sell the news rally?

I think we could be setting up for a little retracement to the downside, but nothing drastic. I think this market needs to take some time to consider the recent volatility it has seen, Fed policy, economic data, and the approaching holiday season. We have succumbed to the hype around the QE and mid-term elections, which will be over tonight – time to catch our breath and take a little profit off the table.

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