Everyone's talking about the weak data coming out of China as a reason for the market's initial decline. I think that's just plain wrong because there are two sets of numbers from China, some weak ones involving imports and some strong ones covering exports.
Make no mistake about it, exports are horrendous, down an astounding 20%. But imports were only off minus-3%, something that makes sense given the Communist Party's attempts to reinvigorate the domestic consumer spending economy.
First we have to ask ourselves, is it really a shock that imports are down? Isn't that what this index I am always talking about, the Baltic Freight -- which measures bulk shipments around the world but principally to China -- has been saying with its descent from 1000 to 800 over the past few months? Isn't that what the collapsing prices of steel, aluminum, iron, nickel and copper are saying? That import number isn't revelatory at all.
But the export number says to me that the consumer economy may be better than we think, that China's non-building, non-infrastructure economy might be getting stronger. This is not idle chatter. Remember, I have been saying that Nike (NKE), Starbucks (SBUX) and Apple (AAPL) have noticed a pickup in sales in China. But this morning we got what I have really been waiting for, a resumption in car sales after a three-month decline. That's right, sales rallied 3.3% from a year earlier and are now at 1.75 million vehicles. Now you could say the Chinese consumer is reacting to a decision by the government to cut the sales tax on some small cars with engine sizes below 1.6 liters from 10% to 5%. Still, I don't care. It shows that the stabilization of the stock market is starting to put the Chinese consumer is a better mood. (Starbucks and Apple are part of TheStreet's Action Alerts PLUS portfolio.)
We know we can't really assess the impact of the almost 50% decline in the stock market from its mid-June peak. But we did know that car sales had been hit hard and that made us feel China's import weakness was matched by a slowing consumer. That double whammy cast a pall over China's economic fortunes.
One has to ask, though, if China's so bad, why has the Chinese stock market been able to maintain its stand above the key 3000 level, rallying again last night to 3239, up 0.17%? Sure, that's small potatoes, but if things were as dire as the export number suggests, believe me that index would be down and down hard.
I have been saying that some of the commodity producers have begun to blink, recognizing that China's imports aren't coming back any time soon. We have seen cutbacks being made in copper and in certain grades of paper that, to me, are meaningful. I see zinc production slowing, too. I would not want to bet on any commodity until I see the demand-side pickup, and that hasn't happened. However, one thing is certain: If China were to announce a major series of infrastructure moves, you would see a snapback in imports.
To be sure, a decline in Chinese imports pretty much expands the margins of all the companies away from China that use these materials, especially the U.S. housing market. What's more important, though, is a recognition that the damage the stock market may have caused because of its swoon seems to be running its course.
I don't know when the Chinese government's going to be done propping up stocks. I do know, though, if you've been stuck in the market, you are getting a terrific chance to sell, and unless you bought from January to June, you could be sitting on some pretty big gains. Yep, at least part of the news, for the first time, out of China is good news, it's just that no one else but me is willing to say it. I don't mind. I was in early on the European turn. Now I am thinking the same about China and that's fabulous news for the world's economies.