One of the games my son enjoyed when he was a little younger was completing connect-the-dots drawings.

It was always a pleasure to watch as he filled in those seemingly random series of ink spots splattered across a sheet of paper. Connecting them point by point, the eye at first struggles to find a pattern.

US National Debt Load

And then, as more and more points were connected, at last a delightful little smile crossed his face. It was the “aha” moment from a child’s perspective, as the hidden image slowly revealed itself.

It’s not a bad way to think of investing either, come to think of it. Each day we’re bombarded by a series of data points — news, economic reports and blather from the Federal Reserve. We struggle to see the pattern.

These days, that pattern says we’re approaching an important juncture for investors and the global economy…

What caught my eye lately were the gains in cyclical stocks in Europe and elsewhere around the globe.

The Economy: Changing of the Seasons

Europe is supposed to be wracked by doubt and fractious anxiety over negative interest rates, Brexit, terror attacks, weak banks and (gasp) worries about fresh-baked croissants “dying out” as France’s breakfast pastry of choice.

So amid all the bad news, where do investors get off buying the shares of companies most sensitive to an upswing in Europe’s economy?

Our own Jeff Opdyke connected one of those dots in an article earlier this year about Spain. Imports are on the rebound, gasoline demand is on the rise and so are the number of border crossings by freight-hauling trucks into the rest of the EU.

As Jeff pointed out, Spain is not “the poster child of economic perfection.” But then again, “the economy doesn’t have to be great to be an investment opportunity.”

Could the rest of the world’s markets soon follow a similar path?

As Bloomberg recently noted, companies and nations that depend on a rising global economic tide are feeling the love from investors this summer, such as:

  1. Japan’s Toyota: +20%
  2. Germany’s SAP (enterprise software): +21% (and new all-time highs)
  3. ABB, the big Swiss-based multinational that’s all about automation and robotics: +14%
  4. iShares MSCI Brazil: +32%
  5. iShares MSCI South Korea: +16%

New Central Bank Prescription

What’s changed? The fears and worries over the global economy are still there, but central bankers’ attitudes are changing. Austerity is out. Spending … lots and lots of spending (and borrowing — and spending some more) … is the new prescriptive for the world’s economic ills. (Never mind whether it works or not.)

So what does that mean for us? Well, in case it doesn’t work (or it works all too well with a revival of rapid price inflation), it’s nice to have some gold for the long run … as we’ve long advocated.

It also likely means lots of government projects in the way of infrastructure, as Paul Mampilly pointed out recently. That’s going to create some tremendous investing opportunities as it comes to pass. The gains we’ve seen in cyclicals is just the start.

And, ultimately, it means we’re going to see some of the money — currently pushing the U.S. stock market to new all-time highs — “leak out” in search of cheaper asset prices in Europe and emerging markets, as Jeff Opdyke has been mentioning for some time now.

Will that “leak” be a trickle or a gusher? That depends on how quickly the rest of the world’s investors connect the dots.