As Caterpillar (CAT) and Alcoa (AA) rise in trading today, do your portfolio a favor and give them both a plaintive shrug.
The karmic wheel is simply turning against the global economy. It's now at the point of self-fulfilling weakness, with Gross Domestic Product and housing numbers freezing blood and the likes of Bill Clinton commenting that the United States economy is already back in recession.
Today came another bad surprise, this one in the guise of good news. China surprised everyone, and probably even themselves, in cutting interest rates by a quarter of a percentage point. Knee-jerk reaction from traders of cyclicals who do businesses in China was (like the action in Caterpillar and Alcoa) favorable. They gave the stocks a supporting lift.
But that's a mistake.
The financial fungus infecting the United States has obviously spread to China more rapidly and severely than expected. The flow of information out of China and from its government does not rise to a level that European and American traders are accustomed to. There is simply a marked distinction in thoroughness and timeliness in information flow and this level of shock and surprise is case in point. This interest rate cut speaks to a slowing in the economy that far exceeds expectations.
Meanwhile, back in the United States, there will be no assistance. The five months of uncertainty thanks to a presidential election that is up for grabs will be no friend of the economy. What's that? Our central banking system is poised to help? Don't forget that our Fed has already pumped enough money in the banking system to raise the Titanic. A little more won't do the trick.
There's a time and place for everything -- but today's neither the time nor place for cyclicals.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.
