Almost 300k more jobs in December and both October and November revised up by 50k…….recession calls are nonsense. The stock market is NOT the economy. It gyrates for reasons wholly unrelated to the economy daily, weekly and monthly.
Value Partners Asia ex-Japan Equity Fund has delivered a 60.7% return since its inception three years ago. In comparison, the MSCI All Counties Asia (ex-Japan) index has returned just 34% over the same period. The fund, which targets what it calls the best-in-class companies in "growth-like" areas of the market, such as information technology and Read More
Household Survey reports employment reaches 149,929,000, a new all time record-see chart. The Establishment Survey rose by 292,000 in Dec 2015 and raised the Oct and Nov reports by 50,000. Light Weight Vehicle sales SAAR(Seasonally Adjusted Annual Rate) for Dec 2015 was reported at 17.34mil. It was interesting to hear the arguments on CNBC how these reports did not explain ‘why the economy was weak’. As for China, it is the US which drives global economic trends. This has been the case since WWII and remains so. As the US goes, so does the world!
In my opinion, the consensus completely misses the impact that low inflation (as discussed in previous notes) has on economic measures. Taking low inflation into consideration requires that one adjust GDP and even examine the Private Economy separately from Government Expenditure&Investment’s impact on Gross Domestic Production. Historically, when government reduces expenditures especially in government determined programs such as military spending, inflation falls. This lowers reported GDP. Separating out the Private Economy from reported GDP reveals a decent economic recovery is in place and has been so since 2009. In my opinion low inflation is a good thing!
Low inflation is also a factor of low Hourly Wage growth. The consensus has pointed to low Hourly Wage growth as a major impediment to a growing economy, but as in the perception of lower GDP this is incorrect. Hourly Wage growth has historically grown faster than inflation and does so today. (Contact me for previous notes concerning Hourly Wage growth) Rising employment, retail sales, real personal income and other economic measures do not get the credit with consensus perception they should.
Misreading economic data has been with us through all previous economic cycles. We are in the 3rd economic cycle to suffer with the rise of Momentum Investor Hedge Funds. The belief that price trends carry all the information one needs to know, i.e. ‘Efficient Market Theory’ (a major teaching theme of finance schools 1950s), coupled to low cost computerized trading has impacted market volatility since 1995. Even though volatility has risen substantially since 1995, it shows little impact on the fundamental economic cycle. History supports the expectation that economic activity eventually drives market prices.
With economic activity remaining in a strong uptrend, we should expect market prices to adjust higher at some point to reflect economic strength. There is no investor alive today who is not looking to ‘out-game’ his/her peers. It is important to stress that economics leads market prices and not the reverse. Once a turn occurs, all trend followers do the same. When, at what price or with which headline this turn occurs is impossible to predict. The current pessimistic environment is about as opposite one could be in the face of record employment, record retail sales and record real personal income. If there is a shift to optimism by trend followers, it could be as rapid a shift as ‘turning on a dime’.
I continue to recommend equities over debt investments.