One Eye on China: Are the Wheels Wobbling?

Here is a CNBC video clip showing Jing Ulrich talking about business conditions in China. Her perspective is one of promoting China's investment opportunities to foreign investors for Morgan Stanley. Never-the-less, she provides some interesting observations. For example, she talks about the tier one cities like Shanghai and Beijing compared with the tier two, three and four cities that would all be names I have not heard of. These cities will need development that represent needs of the population and potential asset growth in the China economic story. She points to the coming expansion of a high speed rail system as an integral piece of the rapidly developing emerging economy, creating employment now and part of the transportation infrastructure for further growth in the future.

2010 is going to be one miserable year for nearly everyone

Today, Mish is writing about the steepening yield curve . He points out it has reached its steepest slope since 1980! He does not stop there and by the end, Mish has made a sweeping prediction for investors in 2010. Please be seated.

"In the absence of a war outbreak in the Middle East or Pakistan -- and/or Congress going completely insane with more stimulus efforts -- I think oil prices are likely to drop, the dollar will strengthen or at least hold its own, and the best opportunities are likely to be on the short side," he writes. "2010 is highly likely to retrace most if not all of the ‘reflation' efforts of 2009. If things play out as I suspect, 2010 will be the year of the great retrace as the economic recovery disappoints."

If his outlook plays out, I expect to use short equity strategies and high grade corporate bonds with durations on the 1-2 year range. Commodities will get some time off, and gold may take on a new purpose. Jurrien Timmer, a market strategist and portfolio manager at Fidelity has said that if we are in a deflationary market environment, he would move to just money markets, treasuries and gold. Might it come to that? Stay tuned, it's not time to rest. Scanner

The Fed and free markets

Michael Shedlock (Mish) is posting an article on his blog this morning that includes an excerpt from one of his posts from April of 2008. In the earlier post, he creates an interesting question, can the usefullness of the Fed be determined using objective means? I know this is more of his campaign to end the Fed, at least as we know it today, if not completely. Some of his contentions revolve around the notion of free markets and that the Fed is the big disruptor of free markets. So what exactly is a free market? I found an answer that I think Mish will agree with, in an essay on the topic by Murray Rothbard, noted author, economist and proponent of Austrian economic theory.

The Free market is a summary term for an array of exchanges that take place in society. Each exchange is undertaken as a voluntary agreement between two people or between groups of people represented by agents. These two individuals (or agents) exchange two economic goods, either tangible commodities or nontangible services. Thus, when I buy a newspaper from a news dealer for fifty cents, the news dealer and I exchange two commodities: I give up fifty cents, and the news dealer gives up the newspaper. Or if I work for a corporation, I exchange my labor services, in a mutually agreed way, for a monetary salary; here the corporation is represented by a manager (an agent) with the authority to hire.

 Both parties undertake the exchange because each expects to gain from it. Also, each will repeat the exchange next time (or refuse to) because his expectation has proved correct (or incorrect) in the recent past. Trade, or exchange, is engaged in precisely because both parties benefit; if they did not expect to gain, they would not agree to the exchange.

This definition creates a very friendly concept. Here every participant is thoughtful, honest and a responsible participant in the free market society. Where is this place? As I continue to research the information I need for this article, it is becoming more political. I apologize. That is not what I want out this blog. However, I am the primary beneficiary of the writing here and so please consider this article as a message to myself and you are free to read.

Rothbard continues in his essay to describe in more depth how he envisions a free market society.