back from China

I was away in China for a couple of weeks. Some of my observations>

1. Inflation is running high and people are anxious
2. No one believe the prices of real estate will ever drop which gives me some doubts
3. The construction of high speed rail is enormous in terms of both the mileage and speed.
4. urbanization is fast. Plenty of jobs in the cities.
5. Wage is on the rise for low skill workers.

China raised interest rate again

High inflation in China has forced the hand of Chinese central Bank again and the interest rate is raised again by 25 bps. It may push down commodity price in short term. but given Fed's ultra loose monetary policy, it is hard to see oil and other hard assets to stay low. The world is heading into stagnation.

CSCO is up today. I would take profit @22.

Tax cut extension

The tax extension deal is not good for the fiscal health of United States. There is no way deficit will be cut to 3% GDP in foreseeable future. The tax cuts will benefit retail sales especially on the high end.

Bank of Montreal did a deal today. It seems Canadian banks try to use their excess capitals. Current yield curve is good for banks.

Fed meeting

Federal reserve had a meeting today and nothing has been changed. The Fed claims that the inflation is trending lower which gave them the reason to continue QE2. With both food and gas prices surging, and cotton price is reaching new highs, I do not believe there is deflation or disinflation at all. Inflation will be a big problem in one year. By the end of next year, we may see high inflation, high deficit and high unemployment.

The market is expensive. But there is always some opportunities. I am interested in getting POT again @ around 135 (sold @47 2 weeks ago).

interest rate

The interest rates on longer term bonds have increased 50bps in 2 weeks despite Fed's QE. The implications are

1. The FED would not dare to stop QE2 which is going to fuel inflation.
2. Debt and deficit problems in U.S. are getting worse everyday. Deficits in short term is a fiscal boost for economy but longer term is a crisis waiting to happen.
3.The steepening yield curve is good for banks and insurance companies.

too much speculation in the market

The market is overall pushed up by a few high flying stocks, such as Netflix, amazon and etc. The P/E for some stocks have reached crazy levels in early 2000. I will be very careful on those high growth stocks. I will not buy anything right now.

time to sell POT

I bought POT@140.1 C$ after the BHP was rejected by the Cdn. government. It is now trading around 146.5. It is not bad to make $600 in 3 weeks.

The European problem is spreading and it is giving a boost to U$. I think all paper money will be devalued against precious metal.