China Miracle Continues
Research for Online Investors

by John Dalt

7/23/09

In the midst of one of the most severe economic downturns of the past century, China's economy managed to grow by 7.9% in 2009. For some perspective, today's chart focuses on Chinese stocks and presents the current trend of the iShares FTSE/Xinhua China 25 Index (FXI).

As today's chart illustrates, Chinese stocks have endured a wild ride since 2005. The FXI trended upward at an ever-accelerating rate (i.e. parabolic) from 2005 to Q4 2007. As the credit bubble began to unravel, the FXI trended downward at an ever-accelerating rate from Q4 2007 to Q4 2008. Chinese stocks found their footing and have surged over 100% since their 2008 trough (8% GDP growth will do that for you) and are currently trading near the upper end of a nine-month trend channel.

Subscriber Greg L. alerted us to the changes for Roth IRAs.  My accountant had mentioned this in a note last week.  My wife and I converted our IRA’s to Roth’s a few years ago, when I had a down year on income.  I hate to pay taxes now rather than later, but the chance to pay taxes and never again was too good to pass up.

The first question you have to ask yourself, “Do you trust the government to honor their promise?”  I don’t know.  The other danger of paying taxes early is, “What if they income tax is replaced by a VAT, or fair tax?”  I don’t see the Feds ever giving up the income tax, but should ask these questions and more concerning your money.  Charles Schwab has a great article that will either muddle or illuminate Roth IRAs.  I thought it was worthwhile to share it with you.

The market took off this morning and never looked back.  The initial jobless claims were up 30,000 over last week at 554,000  Who knows what makes traders and investors act like lemmings? We ignore bad news and buy, buy, buy.  We will know the rally is over when the market falls on good news.

I still think we have a chance to reach 1000 on the S&P 500.  Today as the market crossed 9,000 on the Dow it just seemed like a green light on a racetrack.  The market was tentative but once we crossed the barrier, “Let’s race, higher.”  We closed on the Dow up 188 at 9069!  The S&P 500 sits at 976, there is still room to go, but I expect a pullback on Friday.  Strong resistance on the S&P is 1007; let ‘er roll.

Ford (F) reported earnings this morning.  They lost less than expected, sales were up, but the big news is they are not burning through cash like a coke addict with $100 bills.  Ford is up over 9%, setting 52-week highs!  All hail the surviving American Car company.

We lost our internet connection this morning for over 45 minutes, which led me to bring you this quote.

“Every normal man must be tempted, at times, to spit on his hands, hoist the black flag, and begin slitting throats.”

--- --H. L. Mencken

The information presented in this newsletter is based on generally available news releases, corporate filings, current events, interviews and the editor’s opinions.  It may contain errors and you should not make investment decisions based solely on what you believe you have read here.  Do your own research, it is your money.  If you lose it, it is your responsibility, not ours or your grandmothers!  The editor may or may not have a position in any securities discussed.  The editor may have held a position in a security earlier, or in the future.

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