The Global Economy Continues to Outperform Dour Expectations
Bears have been confounded by the global economy’s resilience of late. No double-dips in 2011, and much of the world’s growth is currently accelerating.
As I said on Real Clear Markets in November, the global economy can weather turbulence and weakness in Europe better than most expect. And while many think of EU weakness “infecting” the rest of the world, actually the opposite seems more likely: a stronger rest of the world could drag the EU with it. Check out this headline from Bloomberg earlier this week:
Global Manufacturing Displays Resilience to Euro Crisis: Economy – Jennifer Ryan
Happy New Year everyone!
An Important Perspective from Andy Kessler
Andy Kessler’s Op-Ed in Tuesday’s WSJ is a must-read tied to the trends in overall standards of living and availability of products. He touches on income disparity—I’m not going there but you can make your own conclusions. Kessler’s perspective is most useful for putting into context capitalism and the boons it brings to wide swaths of the population over time. My favorite part:
“Just about every product or service that makes our lives better requires a mass market or it’s not economic to bother offering. Those who invent and produce for the mass market get rich. And the more these innovators better the rest of our lives, the richer they get but the less they can differentiate themselves from the masses whose wants they serve. It’s the Pages and Bransons and Zuckerbergs who have made the unequal equal: So, sure, income equality may widen, but consumption equality will become more the norm.” The Rise of Consumption Equality – Andy Kessler
And, check out the website to my class at Cal Berkeley here: http://www.fisherinvestments.org
Goodbye to Mr. Hitchens
Love him or hate him, there are few better intersections, in my mind, between political satire, intellectually demanding discourse, and entertaining prose than the work of Chris Hitchens, who recently died of cancer. He will unnerve you, enrage you, and force you to reconsider much – it’s never a waste to have spent some time with his work.
Trial of the Will– Christopher Hitchens
Derman’s Latest
There are things to quibble with, but I’m generally an Emanuel Derman fan. He’s one of the original physicists who became a “quant” for Goldman Sachs, and now has turned commentator about the virtues and perils of modeling. Specifically, he’s very good at explaining the role of math in forecasting capital markets.
Derman’s new book is pithy and well wrought—an easy one to knock out during the holidays.
I find folks in the finance field tend to treat data as “facts” sans the caveat that numbers are a kind of semiotics—representations; a step removed from reality and not reality as such. It’s one of the reasons, among many, I think it’s worth occasionally taking a look at current thinking in physics—which really starkly reveals what mathematics can and can’t do in terms of explaining the world. Physics is a place where imagination and creative thinking intersect with the rigid logic of math—it’s a style of thought much better suited to how to think about capital markets as opposed to rote statistics and engineering.
Said differently, how many times this year (or any year, really) have we seen some bulge bracket firm tell us how the world is going to work based on some ironclad multifactor regression model…only to see the world simply do something else? There’s a chasm of difference between math’s ability to quantify and categorize the world in order to better understand it, and the ability for math to say what happens next. One of the great next debates in financial theory will be about the prevalent illusion of validity tied to faith in numbers.
Don’t Forget. Markets Don’t.
If you haven’t yet perused Ken Fisher and Lara Hoffmans’ new book, Markets Never Forget, it’s a must read for any serious-minded stock investor (all their books are). So what if I’m biased (I work with both). Their work offers views you won’t read elsewhere, and no library of investing knowledge is complete without them.
Check it out here: www.marketsneverforget.com
Markets Never Forget But People Do by Ken Fisher with Lara Hoffmans
Et Tu, Santa?
The week ending December 2nd wound up being one of the best for the global stock market in years—and that’s saying something considering the rocket-ship takeoff in stocks back in ’09.
What’s amazing is, after a few bad weeks in November, there were all sorts of headlines declaring no chance of the fabled “Santa Rally.” Really? With all this volatility and a whole month to go?
Whether we get a nice rally to end the year or not, this is just another example in what’s been a year of manic, myopic sentiment—taking a few weeks (or even a few trading sessions) and extrapolating that trend out further into the future.
Despite all the teeth gnashing this year, global stocks are down a few percent on a total return basis, and the S&P 500 is up a little. It’s a year that’s confounded both bulls and bears.
The Deceleration Myth
A significant deceleration in the annualized GDP growth rate of the US or global GDP does not necessarily imply a recession. More often than not, decelerations prove to be temporary slowdowns within an expansion.
US:
US GDP Growth presented by Fisher Investments
Global GDP:
Global GDP Growth presented by Fisher Investments
Who Says Consumers Are Dead?
Initial Black Friday weekend sales reached historic highs. Are shoppers pulling forward some purchases to take advantage of the “doorbuster” deals? Sure. But the numbers are too big to ignore. Both traffic and spending were up significantly for shoppers online and in stores as total weekend spend reached a record $52B (+16.4% Y/Y).
- Surveys estimated that 226 million shoppers (+6.6% Y/Y) visited stores and websites over the Black Friday Weekend.
- The average shopper spent approximately $398.62 (+9% Y/Y).
- Online spending rose an estimated 26% to $19.8B.
It’s just another in a long line of strikes against reductive macroeconomic “logic” that mostly says this should never happen given high unemployment and stagnant real wage increases among middle and lower classes.
Source: National Retail Federation
European Recession? Look to Asia.
According to Fisher Investments analyst Brad Pyles (read more of his work here):
The European Union (27 countries including the UK ) represents roughly 26% of global GDP. This is similar to Asia at the end of 1997. As Asia went through its own solvency crisis (better known as the Asian Contagion), its GDP fell -0.6% in 1998 (see table below). While this caused Asia to underperform, it did not cause a global bear market. Furthermore, when you exclude China (whose GDP dropped near a two decade low but remained above 7% y/y), Asia’s GDP dropped -1.9% in 1998 while composing a slightly smaller percentage of global GDP than the current EU, but still a larger portion of global GDP than the current EMU.
This appears to show that a large portion of the global economy can modestly go negative for an extended period of time without causing a bear market, provided the global financial system remains intact and the rest of the world continues to grow. Consider that even the large 1998 correction did not occur until the Asian Contagion’s secondary effects took down Long Term Capital Management and threatened the global financial system.
Presented by Fisher Investments: Asia GDP vs. EU GDP from 1994-2010
