China Weakness? Not So Fast
November 2, 2015
Dennis Gartman has been directly involved in the capital markets since 1974 and has been publishing his daily commentary, The Gartman Letter, since 1987. Mr. Gartman is a strategic partner with the AdvisorShares Gartman Currency Hedged Gold ETFs (GEUR & GYEN) and lends his institutional insight to educate advisors and investors about trading gold in different currency terms.
The “world” is suddenly bearish of the Chinese economy and perhaps we would do well to join that throng, but we are of the mind-set that the “world” has China wrongly accused of continual economic weakness and have the perception that nothing can be done about that, whereas we are convinced that the monetary authorities have much left in their “stimulus quiver” that can be used, including enormous room on the reserve requirement front for material cuts and for their own experiment with QE that has not as yet been attempted.
Given the seriousness of the decision, finally, announced last week to end the One Child Policy that has been in effect for four decades and which had been Communist Party dogma… an indication that the officials in Beijing are prepared to take very material action even to the point of admitting past mistakes and rectifying those mistakes… we suspect that there are more such policy decisions that shall be rendered in order to turn the economy for the better.
We note that the PMI for Germany was really quite impressive, coming in at 52.3, up from 52.0 last month. This is well above expectations; however, the EUR’s response has been tepid at best, with the EUR bulls fully expecting a number this good to have put a strong bid into the currency. It has not and that we suspect shall make life for the EUR bulls a bit uncomfortable.
Finally, it does appear to us that the major trend is still in the favor of the US dollar; that the major trends for the EUR and for the Yen are downward and that we would do well to err bearishly of the former two currencies. “Par” is a reasonable target for the EUR vs. the dollar, and once “par” has been given then even lower values shall become the prevalent thesis. Too, we see the Yen’s trend as inexorably weaker relative to the US dollar, with 125 only a near-term target. Much lower Yen values lie ahead.