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Monday, June 25, 2012

Market Thought... walking contradiction

The German economy has started to slow down. China's official PMI is entering levels I thought their central government would not allow. The recent flash PMI was crappy enough to support the downward trend.

The obvious question is itching to be answered, when will the almost $4 trillion in excess reserves be put to use?

Will china wait until Europe has their shit together?

Once the catalyst kicks in, it will most certainly help one of China's largest trading partners (Germany), which should keep an anchor on Europe.

Although the recent economic data is crappy for Germany, they seem to be in a win-win situation. If/when the Euro is saved via Euro Bonds or a true financial unification, its good for Germany. Then China stimulates, its good for Europe, primarily Germany. (The whole thought process is making me interested in the German ETF, EWG.)

We started getting confirming slow down data, which would lead to the logical expectation of a lower treasury yields. But the the opposite looks to be taking place.

One day certainly does not make a trend, but the treasury yield looks to be bottoming. (Since I try to be an optimist, and a believer in a world continuing to function in the foresee able future, I hope the yield has bottomed.)

To be my own devil's advocate, the treasury yield looked like it bottomed in March, and yet, here we are, with a lower yield. The difference between March and now is that valuations (trailing multiples) have already severely contracted. (With the exception of DIS. That sucker just doesn't stop.)

It has been two months since the US job market triggered the decline in the 10yr treasury yield. Now, with Germany and China, we are seeing confirmation of the slower global GDP. Yet, the treasury looks to be bottoming.

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