I was so busy yesterday, I didn’t get a chance to report that having put funds into the long Japanese yen trade just two days earlier with FXY, I closed the trade out with the tiniest of profits when the U.S. stock market continued to look unstoppable for the nonce, and the correlation between U.S. stocks and a weak yen made the trade pointless. Instead, I went with the themes I’d been talking about that have, per Grantham and GMO, the greatest prospective returns for the rest of this decade. This would include emerging and small country stocks via ETFs, and “high quality” U.S. stocks, defined as I wish. In this case, these would be shares of companies that have languished for a while, perhaps years, but just reported strong quarters and have sound propositions both for growth and value.
The U.S. economy is difficult to read now. First, January has generally been warm. However, all four regional Fed manufacturing surveys have been negative, which “should” predict a below-50 result for various PMIs. Yet the MarkIt U.S. PMI yesterday was up-trending, around 56, and new orders were a bit stronger than that. Note please that these are diffusion surveys, and 56 is not boom-times.
Surveys of consumers are also mixed. ChangeWave Research yesterday reported a great lessening of pessimism about the economy. Bloomberg Consumer Comfort, however, was also out yesterday. This survey averages the results of the past four weeks. Their results have moved down lately; my guess is that the latest week’s results were around the recession level of 40. Consumer Metrics continues to show doldrums-like economic activity, based on their monitoring on online buying activity. Further confusing matters was the improvement in unemployment claims, but there were doubts about the relevance of that for two reasons. One is that California and some other states had not reported; the other is that the not-seasonally adjusted data were actually worse than they were in the corresponding weak the prior year.
In any case, corporate earnings growth so far this earnings season has been nil except for the financials (which have been my favorite sector for some time now that AAPL is a tiny part of the portfolio).
This roaring stock market action in the U.S. is a classic response to easy money and fiscal looseness. The markets are discounting the inflation that is coming as Congress and the President get together to extend the deficit spending even more.
If the market is at all predictive, gold and silver have a good chance of joining the party, with silver outperforming if the global economy in fact expands faster than expected.