Posts Tagged The Global Economic Recovery

I am posting less these days. I feel like a movie reviewer who has to write about the same movie every day. Every government on earth took debt to spend out of the financial crisis of 2008 and interest rates in the developed world haven’t left zero. Emerging markets have experienced an aggressive rebound while interest rates have risen to tame the growth yet the two great fears (drum roll…..Europe debt cris/ drum roll…China tightening fears have caused sell off in EM equity prices, twice!

Some of our China stocks, like China Life are trading at three year lows? Go figure? We watched Geely Auto go from 2 to 5 back to 2 again? Go figure. The boring and highly profitable mining business of iron ore, dominated by Vale has been a gripping soap opera. Go figure?

Even Brazil has been a rollercoaster and the “Brasil story” never changed. Yesterday the Brasil central made a daring and enviable move to lower interest rates after having raised them all year. They manage their economy with the same grace and style as they samba.

They can’t get the job machine in the USA going and Merkel is struggling to keep the momentum politically to defend the most basic vision of the EU, monetary union.

I am still an optimist but many have good reason not to be. Two years ago I posted that these would be tricky years for investors. The risk free rate would disappear as it has and equities would be the domain in a world of low interest rates. Even I didn’t imagine the intensity of the volatility but I have always said that it isn’t hard to pick good assets. The key is your average price.

…but don’t let it rattle you. I often discuss with clients how important it is that we become detached from the daily Worries vs Hopes debate. World Equity markets are constantly trying to price in potential fears or hopes, but with old information. It’s like driving a car through the rear view mirror which explaines the maddeningly capricious nature of markets. This is why,especially in times as volatile as these, that we have to become every day more distanced from the short term noise. If you believe that world economy is literrally going to collapse into a death spiral into a depression than, buy gold coins and store them in a vault buried in your back yard. If you believe that the world economy is in a very awkward transition from a Western dominated corporate, political and economic leadership model to a far more balanced global economy then we are on track. Change is awkward because it forces new models and conflicts where before there was none. It also generates fear of the unknown.  Thus, the daily manic depressive insecurity of markets.  Keep your eyes on the big picture: We are investing in the industry leaders in Financial, Materials and Energy Sectors within the fastest growing and fiscally fit economies, namely, China and Brazil, to a lesser extent, India.  We are overweighted in cash and prepared to meticulously build positions while lowering the average price per share every chance we get in order to assure long term capital appreciation returns.  It’s simple and common sensical but takes discipline to keep focused when the news is screaming bloody murder one minute and the coming of the messiah the next.

The Short Term Investors World View

www.crinvestmentadvisors.com

Private Banking

A batch of positive economic news is out of Asia this week, notably the Chinese export numbers and even surprisingly good import numbers. Japan´s first quarter growth is strong, Australian unemployment dropping and a New Zealand interest rate rise all point to the continuing strength of the economic recovery. My money is on growth hopes but that still means we have to cost average into our basket of securities with caution and discipline. I´ve placed a lot of low ball limit orders for clients to lower their average prices per share if we see more volatility. The key is that the global economic recover continues to awkwardly find its footing, but find it´s footing it will.

This reminds me of the childhood game plucking the petals of a daisy while counting with a mischevious and questioning tone, “YOU love me?  YOU love me not?”  Fear regarding eurozone sovereign debt is the protagonist, again. The markets are serving us the same warmed over leftovers again and the closest thing to interesting I read this morning about why is this…“I don’t think things have worsened in Europe in the past few days, but the reason we haven’t seen any significant rallies in the market is that the uncertainty hasn’t dissipated,” Ben Westmore, a minerals and energy economist at National Australia Bank Ltd. in Melbourne, said in a telephone interview. “The one thing about the euro zone is that everyone has been revising down their demand outlook. The fundamentals there have no doubt become weaker in the last month.”

The question is how long this downward volatility keeps up, and whether jitters in equity, commodity and currency markets feed through to credit markets and again make it difficult for companies to raise capital.  But spreads havent blown out, IPO s are moving forward and global macro economic data is still positive, not to mention corporate earnings.  The storm is still just a storm.  But PIMCo´s (world´s largest bond fund) boss, El Erian basically predicted a bigger storm and more selling to come, just last night.  His view is that the seizure of CajaSur in Spain means the whole European banking system is under pressure and that “Markets are starting to recognize the reality of how difficult the European issue is and how it can contaminate us,” he said. “What you want to do right now is you want to be careful and you want to retain options now because there’s going to be a lot of value down the road.”  Retain options means to retain cash.  Investors, just remember that money managers get criticized for screaming “buy” before prices fall  but less so for being neutral when prices are cheap or rising.  Thus, the tendency of pundits, journalists and market movers is to err onthe side of caution.  I think the best way is to carefully follow the big picture macro debate while buying with a conservative system with a close eye on your cash positions.  When prices fall 15 to 20 percent or more below your average price per share, start nibbling on more shares.

www.crinvestmentadvisors.com

Private Banking

I rarely even make a comment about politics on this blog. In my younger years I was very passionate about politics. Now, I´m simply practical and critical. I must admit though that I was pleased to see the Tories back in Downing street and here is why: Labour had been in power for 13 years. That´s a long time. In Western societies, including Latin America, power should change hands more frequently than not. It´s a practical reality. Extremes are bad for business and so is political stagnacy. I don´t know how a Conservative Tory and a Liberal Democrat are going to share power but heck why not. They seem like two thoughtful guys, Dave and Nick. The cabinet mix will provide all kinds of opportunities for creative tension. Give em a chance! Plus, maybe the big budget cutting package they are proposing will inspire other European leaders to bite the bullet with austerity measures. That will stabilize the Eurozone and EMU and prevent the usage of some of the more concerning emergency measures in the recent package. That is good for the global recovery.

www.crinvestmentadvisors.com

"If you're not a liberal when you're 25, you have no heart. If you're not a conservative by the time you're 35, you have no brain." Now, England Has Both.