Blame China, Wal-Mart for U.S. bond woes: Gartman

By Gertrude-Chavez-Dreyfuss

NEW YORK (Reuters) - China and Wal-Mart Stores Inc. (WMT.N: Quote, Profile, Research, Stock Buzz) should take the blame for the U.S. bond market's recent woes that pushed benchmark yields to their highest level since mid-2006, independent investor and author Dennis Gartman said on Tuesday.

Gartman, speaking at the Reuters Investment Outlook Summit in New York, said China's purchase in May of a 10 percent stake in private equity group Blackstone is a harbinger of other investments that will shift funds away from U.S. Treasuries.

Meanwhile, Wal-Mart's decision early this month to cut by as much as 30 percent the number of supercenters it plans to open this year could push U.S. consumer prices higher, he said. Gartman, who publishes "The Gartman Letter," a widely read investment advisory newsletter launched in 1987, viewed Wal-Mart's move as a turning point for U.S. inflation.

U.S. Treasury debt prices again fell on Tuesday, tracking other fixed-income markets, as investors fretted that strong global economic growth could fuel inflation and force central banks to raise interest rates. Losses pushed 10-year yields toward 5.25 percent, which they hit on Friday.

Gartman called China's purchase of the stake in Blackstone "a seminal event, a tidal shift."

In May, China said its new state investment agency was taking a $3 billion stake in U.S. private equity firm the Blackstone Group BG.UL , a sign Beijing was keen to get higher returns on its hoard of currency reserves.

China's $1.2 trillion in reserves have until now been invested mostly in U.S. Treasury notes, but its $3 billion investment in Blackstone suggests it will diversify part of those holdings in the future into other instruments such as U.S. stocks and corporate bonds. That should drive U.S. Treasury yields higher.

Analysts say the Blackstone agreement gives China a stake in the private equity bonanza sweeping the world and seals a key alliance for the U.S. private equity group.

"And that was just the first time. That's not the last time they're (China) going to do that," he said, adding other sovereign wealth funds will likely follow suit," Gartman said.

Sovereign wealth funds in countries with extensive foreign exchange reserves are designed to invest a portion of those funds in high-yielding assets in order to raise returns.

Meanwhile, Wal-Mart's decision early this month to scale back the opening of new supercenters this year could push U.S. consumer prices higher.

"Who has been the great deflationary force in the past United States? It's been Wal-Mart, which has been the progenitor of deflation," said Gartman.

Wal-Mart's low prices for its goods have boosted U.S. consumers' buying power, saving U.S. families more than $2,000 per year, according to a Global Insight study.

Meanwhile, Gartman, a long-time dollar bull, is encouraged by prospects of the euro. He cited the election of French President Nicolas Sarkozy as a welcome development for France.

He thinks Sarkozy will introduce reforms to the French government that could ultimately be beneficial for the economy such as lower taxes, more hours worked, and rising productivity.  Continued...