Things are sure coming up roses today. Good vibes continue to flow from the U.S./China trade talks. But what happened Monday might have been even more significant. China’s manufacturing PMI — a survey of purchasing managers — rose to over 50 (50.5, to be exact).
Now, these PMI surveys are kinda weird. Above 50 means manufacturing activity is rising; under means it’s contracting. So 50.5 means China’s manufacturing sector is growing, a little. It may not sound like much, but it’s way better than the 49.2 this survey posted in February.
Yep, going from contracting to expanding is actually a pretty big deal.
And if you are a regular Wealth Daily reader — and I can’t think of a reason why you wouldn’t want such high-quality insight — then you knew this economic rebound was coming. I told you on January 2:
…here are a couple tips.
One, it takes six months to a year for interest rate adjustments to really kick in. China stopped cutting rates in August. It will be six months in February.
Two, China has already relaxed some loan reserve requirements, which means more lending and more spending.
Three, an income tax cut for China’s middle class went into effect yesterday.
Four, trade war negotiations start on January 7 (and the wingnuts Navarro and Lighthizer are reportedly not part of the U.S. delegation).
Clearly, #4 has the biggest impact on sentiment. And China has actually taken a number of pretty big steps over the last couple months. They’ve ditched some tariffs on cars and have introduced rules to end the intellectual property sharing requirements for U.S. companies that do business in China.
The one to watch for is rules that allow foreign banks to invest in Chinese banks. I don’t know if that’s actually on the table right now. But I hear it’s been discussed, and it would be a huge step forward for the global economy.
Number one on this list is the one I’m referring to. China aggressively cut rates last year. And that stimulus appears to be hitting the economy pretty much right on schedule.
A Star to Steer By
A couple things: I know it’s probably hard to tell, but I am not always right (that’s supposed to be funny — I miss plenty, like any other human). Like, I called Navarro and Lighthizer wingnuts. I still think that’s true. But Lighthizer is part of the current U.S. trade delegation that seems to be making real progress with China.
Two, I have put a lot of my own eggs in the “China rate cut” basket.
Global economic data has been weakening all year. Germany’s GDP forecast started the year at 1.7%. Today, I think it’s 0.08%. Yes, some of that is related to Brexit. But still, the double whammy of China’s weak growth and the trade war has been doing damage…
I’ve stayed bullish largely due to my expectation that China’s rate cuts would turn that economy around (and the likelihood that a trade deal would get done).
Look, you can complain about government debt, inflation, and artificial stimulus all you want. The simple fact is, if money is readily available, it will get put to work. Period.
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Bank of America Calls!
Yesterday, I sent my Real Income Trader subscribers the following note:
Sweet Providence! Is there anything better than seeing the headline, “Stocks Surge, Led By Financials,” right after you’ve bought BAC calls? You probably wish I’d go wingnut more often…
But that’s the thing about going wingnut: It’s only an effective superpower if you use it sparingly.
Anyway, BAC is up again today, even though the S&P 500 is down. ZUO is working on resistance at $20. AMD calls expire this week, and it looks like we need a stick save there.
As I write, the S&P 500 is down 3, the Nasdaq is up 5, and the Dow is down 100. The Dow is being driven by Walgreen’s, which is down 12%. So, as I see it, the action today does not nullify yesterday’s rally. I call that a win, and we should hold all positions. Plus, if you check a BAC chart, a strong gap higher is pretty much never a one-day event. Usually it’s at least three days…
Bank of America has been trading terribly pretty much all year. The chart looks like crap. I love trading options on the stock because they are always cheap. But the calls I recommended Monday were the first BofA trade I’ve gone with in a couple months…
The calls we bought Monday are up 275%. And yes, we will likely take are those gains today.
But first things first…
We got the stick save on the AMD calls (the stock is up, and we just took a sweet 270% gain there). Like I said, sweet providence.
Until next time,
Briton Ryle
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A 21-year veteran of the newsletter business, Briton Ryle is the editor of The Wealth Advisory income stock newsletter, with a focus on top-quality dividend growth stocks and REITs. Briton also manages the Real Income Trader advisory service, where his readers take regular cash payouts using a low-risk covered call option strategy. He is also the managing editor of the Wealth Daily e-letter. To learn more about Briton, click here.
