3. Japan reported a surprisingly strong second quarter: GDP increased by 4% annualized as consumer spending advanced by 3.7%; business investment rose by nearly 10% and public investment grew at a 22% clip. It is important to mention that trade was a net impediment to growth as imports rose faster than exports in the quarter. Even though economic growth accelerated, inflation did not so the BOJ remains on hold here too.
4. The big news out of China was the sharp slowdown in debt creation as the government cracks down on speculation and rising leverage ratios. The impact was a minor slowdown in growth in industrial output, retail and housing sales and fixed capital investment. Remember that this was a minor slowdown from near double digit rates. For instance retail sales rose 10.4% from a year earlier; fixed capital investment increased 8.3% while property investment slowed to only 7.9% gain. What country would not want this performance? China is well on its way to exceed its 6.5% growth targets for the year.
Let's wrap up.
The bottom line is that global economic growth remains much stronger than earlier forecasted; inflationary pressures are muted; interest rates will remain much lower than one would expect at this stage in the economic cycle; and S & P earnings remains stellar for the year, as the U.S based multinationals will get a boost from a weaker dollar. Not a bad recipe for higher stock prices.
So how do we factor in the political mess in DC into our view of the financial markets? I have to believe that sentiment is near a low point, which is ironic as the markets are so near all time highs. I got amused last week hearing the pundits taking credit for predicting the market decline when it was not caused at all for the reason that they feared which was North Korea. There is nothing in the market for the Trump agenda any longer which is a big positive as I feel that passing even some of his agenda, hopefully tax reform and an infrastructure program, is his only way to regain his own self image and stature. The worse thing that could happen to him is failure and embarrassment so he will do everything in his power to right the ship back to the center right from the far right. He may even reach out to the Democrats along the way to show that he is receptive to other points of views. Most people won't believe he is capable of change but let's see. There is nothing in the market for it anyway so there is only upside.
In the interim, we will continue to hold only the best in breed. We continue to own the financials; the multinational industrials; the best industrial commodity stocks; technology at a fair price to growth and several special situations including Dow merging with DuPont and Huntsman merging with Clariant. We have not altered our net exposure and continue to match purchases with sales.
Investing is a marathon and not a sprint. Some of the best entry points come as others panic.
So remember to review all the facts; step back, pause, reflect and consider mindset changes; constantly analyze your asset composition and risk controls; do independent in-depth research on each investable idea and...
Invest Accordingly!
William A. Ehrman is managing partner at Paix et Prosperite LLC. He served as head of the Investment committee at Century Capital Associates, followed by head of investments for Worldwide Equities and Private Equities at the Quantum Fund. He was George Soros’ first partner.