Remember this theme from April?
It’s the simplest, clearest way to understand why markets are trading the way they are. And if you keep it in mind, I believe you’ll make serious money!
See, throughout last year and the start of 2015, the economic news coming out of Europe stunk up the joint. GDP. Job growth. Inflation. Didn’t matter what you were talking about. All the numbers told the story of an economy in crisis.
Other foreign countries were in even worse shape! Russia’s economy was contracting at a rate of almost 3 percent, the worst recession there in six years. Standard & Poor’s slashed its sovereign debt rating to “BB+,” or “junk.”
For its part, Brazil was shrinking at the fastest rate in a quarter century, while inflation was accelerating rapidly due to a plunging current. And in China, manufacturing activity sank to its lowest in a year, while employment dropped for the 18th month in a row. The economy was growing at its slowest rate in six years.
|European bank lending rose 0.1 percent in March — the first year-over-year increase in almost three years.|
The U.S. was a veritable shining star by comparison! Job growth was consistently topping 200,000 a month, while unemployment was sinking to the lowest levels in years. Manufacturing activity was picking up nicely, as were retail and auto sales. Deflation was the last thing on anyone’s mind.
But then two things happened here: Energy prices collapsed and the U.S. dollar soared! They were the biggest, fastest, most intense moves in both markets in decades. And now, the fallout is being felt throughout the U.S. economy.
Just look at the lousy first-quarter GDP report we got on Wednesday. GDP grew just 0.2 percent, much worse than the 1 percent forecast of economists and less than one-tenth the 2.2 percent growth rate in last year’s fourth quarter.
Corporate fixed investment plunged 2.5 percent, a huge reversal from the 4.5 percent growth in Q4 2014 and the worst reading since late-2009. Nonresidential structure investment plunged 23.1 percent. That was the worst drop in four years, dragged down by a massive 49 percent implosion in energy and mining expenditures.
Exports also tanked at a 7.2 percent rate, courtesy of the strong dollar. Finally, core inflation slowed to a 0.9 percent annualized rate — the slowest in more than four years.
But in Europe, German investor confidence just surged to a 10-month high. Unemployment is topping out, while deflationary pressures are bottoming out. European bank lending actually rose 0.1 percent in March — the first year-over-year increase in almost three years!
As for Russia, Brazil, China and other emerging markets, just remember what I told you last week! They’re going from zero to hero, suggesting confidence in a turnaround is growing rapidly.
So remember that mantra: “Less good here, less bad there.” It should guide every investment decision you make.
Consider: If growth picks up overseas, while stagnating here, foreign currencies should outperform the dollar. So should foreign stocks and higher-yielding debt. Long-term interest rates should start to rise, and commodities like oil should do well.
Indeed, all these trends are already playing out. That’s exactly what I predicted a few months ago when I talked about a “Big Reversal” in many markets, and I trust you’re profiting as they do.
I’ll continue to guide you to the best opportunities I see as 2015 unfolds in my columns in Money and Markets. (You can also give my Safe Money Report a try by clicking here or calling 800-291-8545. I get more specific there — naming names, giving “buy” and “sell” recommendations, and more.)
Until next time,