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Farrell: Who Will Lead Now?

It has been so easy to say the Asian economies, especially China, will take the lead in lifting the world from its morass. Kind of takes the heat off the rest of us. But since China officially passed Germany as the leading exporter of goods it makes you wonder how that could happen.

If China's economy is dependent on exports then isn't it dependent upon us for its livelihood?

The Chinese government knows that, at least to some extent. There is an interesting article in Thursday's Wall Street Journal on the government's efforts to transform its nation from savers to spenders. Hello - let your currency trade freely and it will rise in value and increase the purchasing power of your citizens. But since that won't happen, at least anytime soon, the Financial Times (thanks Art Cashin for pointing it out) had an article about land and housing values in China. Without a property tax, a lot of condos are bought for investment since the carrying cost is so low. That has made the prices rise exponentially. Reminds you of Dubai says the article. The paper opines "China needs not only to rebalance its economy, it also need to rebalance its housing market - changing the incentives so that the investment goes into much needed low income housing and not to high end flats."

China has real estate inflation and a low income housing issue.

Yesterday the government surprised the markets by raising a short term interest rate which indicates a growing willingness to fight inflation and not focus exclusively on growth. In fact, the Chinese have been draining liquidity for the past 13 weeks in a effort to curb inflation. Maybe they will be an engine of growth. Actually, for sure they will be, but to what extent is another question when they are export dependent and seem to have growing awareness of their inflationary potentialities.

Europe is a bag of mixed news.

A thing called the Euro zone confidence index rose sharply last month to 91.3. That is up almost 23 points in the last 12 months (but still below its longer term average of 100.) The monthly rise of 2.5 points is the largest one month move since 1994 and is the ninth month in a row of gains. But German retail sales were very disappointing (Germany is the largest economy in the Euro zone) and overall Euro retail sales also plunged. Factory orders for the 16 nations that make up the Confederation were also punk. Confidence and action are often at odds with each other. Meanwhile, retail sales in the US are most definitely showing signs of life.

TJX Companies (TJX: buy rated; recent price $39), for example, reported a 14% comp store sales gain for December. It's apparent to Jeff Stein, Soleil's retail analyst, that the demographic TJX attracts is widening. The MarMaxx division showed a solid gain of 15%. Value based offerings are clearly in vogue. The company raised its guidance to a range of $2.72 to $2.74. Jeff had been at $2.60 for FY 2010 and is raising that to $2.74. His fiscal year 2011 estimate goes from $2.90 to $3.10. The current price objective is now $48, raised from the prior objective of $45. TJX also said that it intends to buy between $900 million to $1 billion of its stock this year.

Thursday saw initial unemployment claims drop 1,000 from last week. The good news in the report was the decline in the four week moving average. It fell 10,250 to 450,250. This is the 17th week in a row the four week has declined and is the lowest level since September of 2008. Continuing claims saw a dramatic move down to 4.8 million from 4.98 million. It is hard to tell if this move is because of people getting jobs or because they have exhausted benefits. Looking at the numbers for those applying for extended benefits reveals there is some job creation. Whether that job creation is enough to give us a positive report for Friday's jobs number is a close call. But it is close and we could see the first positive report in a long while. The range of estimates on the Street is from +50K to -50K, so let's call the over/under bet right at zero.

Vincent Farrell, Jr. is chief investment officer at Soleil Securities Group and a regular contributor to CNBC. 

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