Trade Deficit

The May trade deficit dropped 10% from April, surprising "economists" according to Yahoo! This shows that the US consumer is still extremely weak. So is business spending. Unfortunately, this data is two months old, but it confirms what Japan's export data told us last month. Exporting countries cannot look to the US to pull them out of recession as happened in the late nineties with the Asian crash.

In other news, China has accused Rio Tinto employees of stealing state secrets. This is probably a tit for tat measure because RTP blocked Chinese investment in the company.

BEIJING (AP) -- Four detained Rio Tinto Ltd. employees are accused of paying bribes for secret information about China's stance in iron ore price talks, state media said Friday in a case that highlights the volatile Chinese mix of business and politics.

This is also a trade war measure. That China is willing to engage in a trade war when it's an exporting country that needs free trade tells me that they are desperate about the state of their economy.

China looks more and more to me to be an over-inflated bubble ripe for collapse. Small cap stocks have PE's over 100. Here's some telling info from SeekingAlpha:

At the end of June, a parcel of land in Beijing was auctioned for the single highest price ever, and China Daily reports that the same parcel had been pulled 15 months ago “due to a lack of bidders.” That article cites a property broker, Homelink, which claimed that residential property in Beijing’s Central Business District appreciated 6.5 percent in the last week of June. A Homelink broker went on to say, “We used to talk about monthly price growth, but recently, it’s more about daily change.” To further quote the article, jam-packed as it is with great anecdotes: “‘Unlike the previous growth, mainly driven by first-time homebuyers, the recent transaction growth is largely buoyed by rising investment sentiment,’ said Chen Weiye, a researcher at Shanghai Centaline Property Consultants.”

Translation: China's inflationary credit policy is pumping up asset prices. Weekly growth in property prices is unsustainable and will collapse, taking lenders with it. Particulary clear is the admission that this is not driven by first-time homebuyers, but

by "investment sentiment." This really means that there is no fundamental demand. Instead, prices are being bid up by easy borrowing, herd behavior, greed, and speculation that prices will continue up. In fact, credit restrictions have been placed on first time buyers.

And a last word about unemployment. Mish digs through BLS data to find out that unemployment claims are understated by 2.5 million. The BS numbers don't include anyone on extended unemployment. The numbers are a blatant lie, a sham. No one is paying attention to this, so it's got to be an opportunity. People are now dropping off extended unemployment without finding jobs.

I need to do an allocation analysis and buy something according to this data. It all points in one direction.