The word from Adam Carr of ICAP, the Australian brokerage, came today:
There is no doubt that market psychology is just fascinating at the moment. Look at the week just gone. We learned that US industrial production continues to power ahead, that China’s economy is surging and that of 23 companies that have reported so far (US), only three have failed to beat eps estimates and only 5 haven’t beat revenue estimates. I find it remarkable then that copper would be down 4%, stocks down 1% and that risk more generally has been taken off. A v-shaped recovery is underway and the data is showing us there cannot be any credible denial of that. Maybe that will change over coming quarters (maybe it won’t). But this is what we have seen so far.
I can’t say I’m surprised by market action though and as readers may recall, risk aversion was my fear this time last week. Misinterpretation is in vogue, it’s everywhere. US retail sales were expected to fall, they did and the market reacted, despite the fact that sales had been strong in the preceding 3 months – no double-dip here – sales are doing okay (up 8%y/y in the three months to May).
Friday’s session was pure overkill – in response to a volatile consumer sentiment survey and corporate earnings which were actually very good, US markets tanked. Truly bizarre.
Here is Peter Lynch’s take on the current market. “Don’t get scared out of your stocks” said the former Fidelity star manager who now is retired. “This truth cannot be over-emphasized” wrote Lynch. Keep on trucking. Keep on investing. Mr. Carr does not expect a better tone on Wall St. this week:
US data is actually expected to be woeful. Especially existing home sales (Friday) – forecast to fall 10% in June (which if they did, would only mean a 5% below average result). Housing starts out Tuesday are expected to drop a further 2.2% after a 10% drop in May. Note that a number of factors have conspired to bring the starts down here – the end of the homebuyer tax credits, difficulties in processing loans, BP’s oil spill. It is therefore impossible to detect the true underlying trend.
Now all the while, US consumer spending has been rising, industrial production and manufacturing accelerating and private sector jobs growth have increased (albeit modestly). The point is that despite these swings in confidence, nothing changed in the real economy–it still accelerated and thus far we’ve witnessed a v-shaped recovery.
With the US dollar weakening against the Yen, the Swiss Franc, and the Euro, I think we should be shifting out of these currencies into ones which have also lagged, notably Pounds Sterling.
Interest rates have been raised by Thailand, contrary to forecasts. Rates are likely to be raised again by Israel as soon as next weekend (Shabbat Nachemu). Governor Stanley Fischer will be coming to NYC to address the Israeli Investor Conference Dec. 1, by which time there may have been further rate increases.
Here is a dispatch from Frida Ghitis:
The new word is “CIVETS”, exotic felines. These cats, like “BRIC”, are the brainchild of Goldman Sachs’s Jim O’Neill. With his BRIC now a decade old, O’Neill says spectacular future growth lies in the smaller CIVETS: Colombia, Indonesia, Vietnam, Egypt, Turkey, and South Africa. The larger BRIC economies will grow, but now that everyone knows about them, the bargains are gone.
CIVETS make up a disparate collection. Colombia, where I was born, is slowly emerging from a drug-fueled war that lasted decades. I have some investing ideas there. The future looks bright. Dodging a regional trend, Colombia’s democratic institutions survived a hyper-popular president who could have held on to powerr. Its just-completed elections were won by a competent technocrat against a flashier charismatic challenger. Pres.-elect Juan Manuel Santos, who studied economics at Harvard and the London School of Economics (no guarantee of anything) will continueUribe’s business and security focused policies. Colombians are repatriating their cash. And foreign investment that might have gone next door to Venezuela, spooked by Chavez will head to Colombia. Santos will be good for the economy and investors.
Indonesia, the world’s largest Muslim country, and Egypt, the major Arab nation, both have great growth prospects. But corruption and infrastructure problems make me hesitate to invest. Egypt also faces succession uncertainty as Mubarak is old and ill. Turkey has a more developed economy and its markets are dearer, so the hunt for bargains is tougher. South Africa and Vietnam are works in progress, with mostly natural resources and cheap labor on offer respectively..
Of the CIVETS, the one that appeals the most is Colombia. If the new president can continue to win the war against drugs and guerrillas, not ended, I will return cash to my old homeland. It’s time to check out the opportunities. Stay tuned.
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