Frequent readers will recall that we have been out of the markets for awhile now. In order to reduce exposure, we’ve been sitting in money market funds waiting for investment opportunities to look more attractive. With everything going on in the world, we’ve wanted to wait to refine our outlook for global economies and the financial markets.
Now, after several months of waiting and watching, a lot of the things that we’ve expected to develop – and written about – have been coming to fruition; and we plan to take advantage.
First, things don’t seem to be getting any better in Europe. The likelihood of a default in several European sovereign nations has been growing, with Greece being particularly fragile.
However, given how long the problems in Europe have been fermenting, and how long investors have had to worry about the fall-out, the default that is coming is mostly priced into the market at this point. Most investors recognize it as a foregone conclusion, so the damage to prices and confidence is probably done already.
Meanwhile in the Far East, many Asian nations have been becoming increasingly isolationist. This is just the beginning of what we’ve been forecasting for some time now. With China imposing duties on imported cars, and refusing to help businesses set up factories to produce for export, it’s clear that the world’s second largest economy is planning to be far more self-sustaining.
This has not translated into bad news for the US economy, which has continued to recover – despite a few minor setbacks. With foreign trade on the decline, Americans have had to produce more of what we want to consume – a trend that is likely to continue. In the next decade, the US will have to produce almost all of what it wants to consume.
What this means – and what we have already started to see – is that more production is shifting to the United States to meet growing demand. Since the economy turned south in 2007, many people have put off replacing cars and other goods.
Now people are tired of putting off purchases; and with the lack of quality control abroad, along with higher shipping costs and rising labor costs, American manufacturing is back on the rise.
The proof of this growing economic activity is in the pudding: money is finally starting to turn over. While many banks have reported losses this earnings season, lending has been up across the board.
In fact, this poor earnings season has been a touch of good news in itself. Despite lackluster earnings and an uptick in unemployment, the market has held its own. This lack of response to bad news is usually one sign of growing market strength.
The last bit of good news likely to send markets higher is that this is an election year, and the fourth year in any presidential cycle is typically good for the markets. The reasons for this are simple: politicians like to stay in office – and the Fed likes to help them. In other words, officials in Washington will do almost anything they can to send the markets higher, and the Fed is happy to oblige.
What this also means is that the investors can forget whatever remaining confidence they have in the government – or the Fed – to release reliable economic data. Over the coming months data is likely to be spun every which way – and some figures will be outright lies.
Nevertheless, after identifying several sectors that we consider especially beaten down despite real upside potential, we’ve started buying – though what and when are strictly proprietary. While we try to help readers who want to be educated about the markets and know about current developments, we never publish specific investments.
In the course of managing money, we conduct substantial research to get a clear picture of what’s going on in the world, how circumstances are likely to develop, and what investments will benefit as a result. Having done all our research, we have no problem sharing some insight with a concerned investing public.
However, readers will never know what we’re doing or in what sectors – and that’s no accident. Our clients pay us for that information, and we have no intention of giving away what has proven over decades to be valuable information.
