We snicker at the more than 14 million new self-directed brokerage accounts that have been opened in China since the beginning of the year. We laugh about the great bubble that's developing as stocks are bid sky-high by foolish investors, including last night when their market advanced 3%. We marvel how the average stock sells at about 50x earnings, meaning we marvel at about how much money is being lost.
Then we yawn about this weekend's interest rate cut, a 0.25 slice taking one-year lending rates to 5.1%. It's the third in a row, but so what? It won't matter. Nothing matters. The data just keeps getting worse and worse.
And you know what? I am starting to think it will get worse and worse until it won't. There's too much money being created in the market for it not to impact the economy. There's enough room with a 5.1% lending rate for multiple cuts, and if the pathetic European Union can be brought back to life, why can't the economy of a once-vibrant, always rapacious group of capitalists come back to life?
I know that the Baltic Dry freight index, my way of measuring Chinese growth, has been totally moribund, flat-lining under this 600 level. The Chinese seem full up on all basic materials. The PMIs are all under 50. As my writing friend and colleague Matt Horween points out, there could come a day that this index is up 50, and you have to be ready for it.
You have to ask yourself, with so many of those brokerage accounts presumably making a profit, and with their central bank having plenty of room to maneuver and with their primary market for goods, Europe, heating up, isn't it just a matter of time? Won't we come in one day and say that stock market's part of the reason why Alibaba (BABA) had 40%-plus growth? The world's largest retailer did put up great numbers. Chuck Bunch, the CEO of PPG (PPG), did say that China's auto demand is getting much stronger, and his company makes the pain for many of the Chinese car companies.
I think it's become too fashionable to say that China's never going to come back, that they built all of those cities with no people in them and that there's nothing more to build, that the country itself is stagnant because there's no real demand for any construction.
But there's plenty of ways for an economy to hum and when it does it will do so quickly. Maybe that's why we've had such a strong move in copper off the bottom in January from $29 to $35. Maybe that's why Brazilian iron ore company Vale (VALE) bounced from $5 and change up to $8 in the last two months, before settling back to $7.63. That's a huge move, especially when you consider that iron ore has gone DOWN in price as the companies refuse to cut back. Maybe it is why dry bulk carrier Diana Shipping (DSX) just had a 10% move in the last few weeks. Could that be a harbinger to what will happen to the dry freight index?
This market's signaling something right now with its strength and its potential breakouts. I think that it is signaling that China's turn is just a few months away.
If that's the case, there are a ton of stocks that will go much higher. They haven't really moved yet. But a stock like General Electric (GE) or Honeywell (HON) or Boeing (BA) or 3M (MMM) will have a monster move when that Baltic index jumps, and increasingly the evidence says that's exactly what will happen.