China had a major announcement today. An announcement that should have had a major impact on the markets. Consumer inflation is rising at a 4.5% annual rate. If China was growing at 10% per year, a 4 to 5 % rate of inflation would be fine and be seen as a by-product of growth. Unfortunately, China is not growing at these levels. Rather, the inflation may reflect the tons of cash the government has forced its bank to give out (sorry, umm I mean loan) to companies creating an asset bubble.
We really don’t know what the real inflation rate is in China. The number is widely viewed as political. They decide on the economic policy, then they produce economic data to support their opinion. It appears that the economic policy is now to slow down increasing the money supply and get inflation under control.
Yet, I have not seen much about China in the business press lately. I would like to remind everyone that China’s economy (GDP) is over 30 times the size of Greece. And what China does in the long-term will have more effect than any outcome in Greece.
All three major US stock indexes finished the day a little higher, turning in gains of 0.39% or less. The bond market as represented by the two most widely held bond ETFs, closed slightly lower, less than 0.18% down.
The S&P 500 (SPY) closed 2 points higher than yesterday at 1,351.95, up 0.15%. The bond market was almost flat as the Vanguard Total Bond Market ETF (BND) finished 18 cents down at $110.26, 0.16% lower than the previous day. (note as bond prices fall, yields increase).
The Dow Jones industrial Average (ETF: DIA) rose 7 points closing at 12,8890, up 0.05%. In terms of individual Stocks, Apple (AAPL) rose on a report that the company would be releasing the next version of iPad next month. Diamond Snack (DMND) shares cratered 40% as the company announced it would be re-stating 2 years of earnings. Prior to concerns about the honesty of the company’s books, there was takeover offer on the table from a major packaged goods company.
In terms of the treasury bond market, the iShares Barclays 20 Year Treasury Bond Fund (TLT) fell 87 cents to $115.49. Junk bonds rose slightly as represented by the iShares iBoxx $ High Yield Corporate Bond Fund (HYG) ending higher 4 cents at $91.04. The big news of the day for bonds was legendary investor Warren Buffett telling his shareholders to avoid them given there very low returns.