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Economic Health

August 27, 2012 – 5:05 pm

We have seen deteriorating economic numbers coming out of China for a number of months. The most recent was another fall in their PMI (Producer Price Index) showing weakness in their manufacturing sector. Meanwhile, here in the U.S. our PMI rose. These are the estimated flash numbers not the official stats that will be released later.

Looking at the two economies it is easy to understand. China struggled with inflation and all last year tightened their money supply deflating a property bubble while we kept money loose not having any inflation to speak of to fight. Inflation in many parts of the world spiked after the world wide recession. Now that Asia has conquered inflation they are once again loosening the money strings to reflate their economies.

Stock markets look forward. If Asia’s reflation efforts work economies will grow and so will corporate earnings. Add that to our FED maintaining their easy money policy and you have a situation that should produce sustainable growth into 2013.

Then again Europe continues to be the worldwide drag on economies, but even there we saw Germany’s economic numbers show a little life last week.

Good Trading
Steve Peasley

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