David White

Today's Closing Update: Slim Losses Barely Dent Week's Gains

Bill L.: I started thinking the market should be retracing in June. I agree TLT rising should be a sign that there is fear in the equities markets. Ditto gold and silver rising. Evenutally that fear will turn into downward action. Some are speculating that the first 2-3 days of next week will be down days as a minor correction for the recent run up of the last 7 days. They may be correct.

The Deflation and the correction downward in GDP from Japan would have to be viewed as negative. Plus the news from China was worrisome at best. The industrial production increased by 12.3% year over year. However, exports were down 23%, and the trade surplus was down 45% year over year. This means China has ramped up to making much more, but it is selling much less externally. The Chinese stimulus package has helped supply internal demand temporarily. However, Roubini contends that the long term behavior of the Chinese consumer is unchanged. This means that China will soon have much increased production without anywhere to sell the products. This is a scenario for Chinese deflation. It means the Chinese may need more stimulus if Japan, Europe, the US, and India do not recover quickly. It means the Chinese will not have enough demand for their new production capability. They may try dumping their products in the US and Europe. This will be bad for US and European businesses. Alternatively , the Chinese industrial complex may have to slow or stop its growth, if their export market is shrinking (or stagnant) instead of growing. This would hardly be leading the world out of a recession.

The Chinese are now starting to open up China to outside investment. Is this because they know the investments will be a lot riskier than they have been in the past? Do they want outside banks taking these higher risks? If the Chinese keep growing at 10+% per year, what will happen when the US, Europe, and Japan are hardly growing at all? Where will all of the extra production go? The US is only supposed to grow at about a 1% rate in 2010 and 2011 according to Roubini. Meredith Whitney was actually painting a bleaker picture recently. Something has to give. It's a good thing the US is a good food manufacturer. At least we can still eat reasonably well.

Replacement Candidates for David Merkel's Portfolio: From AA to ZZ

NM is a good bet. It has excellent value. It has an extremely low PE and FPE. It also has an excellent Price to Book value ratio. Further it has both a new fleet in South America (for the river traffic mostly) which is supposed to begin adding 35% to EBITDA beginning in the 4th quarter of this year. It got pushed further downward in the recent market move in that direction, so it is an excellent buy now.