Is China No Longer a Concern?

How much closer are we to a sustainable rally? We’re one-sixth of the way there, Cramer said during Wednesday’s Mad Money.

Last night, he revisited his six-point plan for turning this market from bearish to bullish. We need to see the fine print on financial-reform bill, he said, and the Spanish banks need to stabilize. Also, unemployment has to come down, BP has to plug its leaking well in the Gulf of Mexico, the euro has to hold up in value, and China’s has to pull off a soft landing for its economy. Well, economic data coming out this week has Cramer thinking he can check China off the list.

The Middle Kingdom is showing signs of robust growth and a modest amount of inflation, thanks to a cooling real estate market. According to J.P. Morgan, Beijing’s residential property sales are down 80% from the December 2009 high and 50% from just a month ago. Because this asset bubble was at the heart of the problem, Cramer thinks China now is less of a worry.

J.P. Morgan also noted that manufacturing order and purchase prices paid are declining as well. So the government should be able to ease up on its tightening policy of the past three months.

“That’s exactly what we’ve been waiting for,” Cramer said.

China is crucial because when the market bottomed in early 2009 it was that country that turned first. That led to commodity stabilization and, perhaps to some degree, even financial stabilization because China is powerful enough to generate legitimate positivity about worldwide economic development. Cramer thinks that can happen again with a soft landing that still allows for the growth of China’s booming middle class.

There’s even the chance that China could solve some of Europe’s problems. If the Chinese were able to take stakes in the Continent’s troubled banks, Cramer thinks that would ease a lot of investors – and the EU’s – concerns. But even if that doesn’t happen, he said, the increasing likelihood of a soft landing “puts us in a place where good news could eventually matter again.”

There were a few other minor positives worth noting, though they weren’t good enough to warrant being checked off Cramer’s list. Banco Santander is buying back the 25% stake in its Mexican arm from Bank of America for $2.5 billion. Cramer doubted that would happen if STD wasn’t at least doing better.

Also, Portugal held a successful bond offering today, meaning the country is better able to raise capital. At the same time, Rep. Barney Frank, the Democratic chairman of the House Financial Services Committee, ex-Federal Reserve Chairman Paul Volcker, Treasury Secretary Geithner and even President Obama have come out against Senator Blanche Lincoln’s amendment to force banks out of the swaps business. Cramer thinks this means that the “monstrous amount of fear” about the related stocks could soon vanish with that amendment.

Granted the euro has held up for a few days, though it’s too early for judgment, Cramer said. And BP’s well is still gushing oil and there’s no improvement in hiring just yet. But there is now one check on the board, so to speak, and some signs that other checks might still be coming.

“We aren’t ready yet” to declare victory, Cramer said, “but we like what we see.”

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