With the U.S. stock market valuations looking robust in the face of prospects for a step-down in economic activity in the near term, I’m searching for other opportunities elsewhere for subscribers to my investment newsletter PowerTrend Profits. While not robust, the vector — or direction — of the economic data coming out of both the euro zone and Asia is far better than that on the home front, where we continue to be plagued by tepid job creation and tight wages. Both the euro zone and China have emerged from contracting economies, and recent new-order and backlog data points to a pickup in several territories.
China’s non-manufacturing Purchasing Managers’ Index (PMI) for October rose to its highest level this year. The non-manufacturing PMI rose to 56.3 in October from 55.4 in September, according to the Beijing-based National Bureau of Statistics and China Federation of Logistics and Purchasing. That jump follows the October manufacturing Purchasing Managers’ Index from HSBC and Markit Economics that rose at the fastest pace since March. Driving that improving manufacturing picture was a rise in both new orders and new export orders.
A case in point is wholesale deliveries of cars, with multipurpose and sport utility vehicles rising 24% to 1.61 million units in October, according to the state-backed China Association of Automobile Manufacturers. Through the first 10 months of this year, 17.8 million vehicles were delivered and 14.5 million of them were automobiles. Sifting through the data, we find that Ford (F), General Motors (GM), Toyota (TM) and Honda Motor (HMC) all benefitted from the pickup in sales.
Recently, Spain, the euro zone’s fourth-largest economy, exited its two-year recession during the September quarter. Granted, the country’s economy grew modestly quarter over quarter, but the recovery from recession has come faster than expected. That led investment-rating firm Fitch to raise its outlook on Spain’s debt to stable from negative. Soon thereafter, Markit Economics released its October manufacturing PMI for Spain, which revealed the sharpest rise in new order activity since February 2011 — that’s more than two-and-a-half years! Taking a wider view, October PMI expanded for the fourth consecutive month.
Just like in China, one area that is helping with the economic rebound is the automotive market. October car sales marked the first two consecutive monthly increases in European car sales in two years. Much like here in the United States, pent-up demand in Europe should help fuel a continued rebound in car sales, but the lingering question is: how strong will that rebound be? We’ll need to see the next few months of data. But according to the European Automobile Manufacturers’ Association, there are more than 250 million vehicles on European roads with an average age of about eight years. Of course, eight years is only the average age, and looking more closely, we find about 34% of the cars on European Union (EU) roads are older than 10 years. That situation sounds very similar to the U.S. automotive market just a few quarters ago.
Rest assured, I am busy combing through a hefty pile of financial filings to identify those American depositary receipts (ADRs) — my preferred way of investing in foreign stocks — that are well positioned using my PowerTrend investing mosaic. We’ve already added two European-based companies to our holdings in PowerTrend Profits, and I can’t say that we won’t be adding another one or two positions before too long.
PowerTalk with John Allison of the Cato Institute
I had the pleasure of talking this week with John Allison, president & CEO of the Cato Institute. Unlike many other organizations located in Washington, D.C., Cato is neither Democratic nor Republican in nature, but rather, it is a public policy research organization — a think tank — dedicated to the principles of individual liberty, limited government, free markets and peace. That status alone is a great reason to talk with John Allison, but it gets even better.
Prior to becoming the president & CEO of the Cato Institute, John was chairman and CEO of BB&T Corporation (BBT), the 10th-largest financial services holding company headquartered in the United States. During his tenure as CEO from 1989 to 2008, BB&T grew from $4.5 billion to $152 billion in assets. John also has written a fantastic book — “The Financial Crisis and the Free Market Cure: Why Pure Capitalism is the World Economy’s Only Hope.” Not only did it receive a number of rave reviews, but it sat at the top of the Wall Street Journal’s best-seller list.
During the course of our conversation, John and I talk about a variety of topics, including why a sense and understanding of liberty is essential, why regulation is bad for the market and what we can do to promote a healthy free market and end unemployment in America. We’ll even touch on the Federal Reserve, an organization that some say is only helping fuel the problems we are experiencing today.
LISTEN TO MY ONE-ON-ONE POWERTALK WITH
JOHN ALLISON, PRESIDENT & CEO OF THE CATO INSTITUTE
Read my PowerTrend Brief from last week about emerging markets to watch. I also invite you to comment in the space provided below.