Signs of recovery in the global economy are getting stronger. The U.S. manufacturing sector grew in August for the first time in 19 months. Home sales surged in July to their highest point in more than two years. Auto sales — boosted by the “Cash for Clunkers” program — marked their first year-over-year monthly gain since October 2007. Today, government data is expected to show that orders to U.S. factories likely posted another increase in July. Finally, productivity is expected to have surged to an annual rate of 6.4% in the April-June quarter. That would make it the biggest quarterly increase in almost six years.
A month ago, economic forecasters were predicting 1.5% growth in the U.S. economy in Q3. By last week, that estimate of economic growth had almost doubled to 2.9%. As the economist John Kenneth Galbraith noted, “The purpose of astrology is to make economic forecasters look good.” The weak link in the chain is U.S. consumer spending, which fuels about 70% of U.S. economic activity. To put that in perspective, the entire economies of China and India, with a combined population of 2.4 billion, amount to about 40% of the consumption of 307 million U.S. consumers.
After last week’s “dash for trash” with AIG, Fannie Mae and Freddie Mac dominating trading in the United States, both U.S. and global markets have sold off sharply in the past two days. Asian markets continued the sell-off overnight and European markets have fallen in early trade. Surprisingly, Chinese stocks have rebounded after their sharp sell-off in the last few weeks, as manufacturing expanded for the sixth straight month in August.
None of this good news has done much good for your Global Stock Investor portfolio. With the exception of iShares MSCI Taiwan Index Fund (EWT), most of your positions sold off this past week in sympathy with the general pullback in global markets.
Overall, I expect the next few weeks to be challenging, with some of your positions selling off further in the midst of a “September Swoon.” Once we get beyond this traditionally difficult time of year, I expect your positions to post a very strong Q4, as risk-averse institutions that missed out on the recent rally re-enter foreign markets ahead of the new year.
The WisdomTree Dreyfus Chinese Yuan Fund (CYB) will likely rise today as the Chinese yuan rose to a three-month high against the U.S. dollar following a report that China’s manufacturing activity expanded more than expected in August. The Central Bank has set the yuan at 6.8314, its highest point since June 3, 2009. CYB remains a defensive BUY.
iShares MSCI Taiwan Index Fund (EWT) was one of the few global markets that actually rose this week, on the back of a robust performance of the global technology sector. EWT remains a long-term BUY.
iShares MSCI South Korea Index Fund (EWY) fell back under the $42 level after the global sell-off. With the pullback in the Chinese stock market affecting global sentiment toward emerging markets, this position may be in for a bumpy ride. But EWY remains a long-term BUY.
Freeport-McMoRan Copper & Gold Inc. (FCX) is always a volatile stock, and fell sharply this week. That said, I believe that FCX will recover along with the copper price. Your bet on “Dr. Copper” remains a BUY.
ICICI Bank Ltd. (IBN) fell back below the $30 level this week. Chanda Kochhar, managing director of ICICI Bank, was been voted by Forbes magazine as one of the 100 most powerful women in the world, above both Queen Elizabeth and Hillary Clinton. IBN remains a BUY.
Market Vectors Indonesia ETF (IDX) dropped back slightly this week. As a sign of economic recovery, the Bank Indonesia — the nation’s central bank — is expected to keep its benchmark rate at 6.5% during a meeting tomorrow after lowering it three percentage points since December. The “new BRIC” remains a BUY.
Market Vectors Gold Miners ETF (GDX) popped above the $40 mark on Friday before pulling back. Although it still is locked in a narrow trading range, GDX remains a long-term BUY.
Chemical & Mining Co. of Chile Inc. (SQM) fell back sharply yesterday as Chile’s blue-chip Ipsa index slipped in response to a 2% drop in the Dow Jones Industrial Average and a near 4% decrease in London copper prices. SQM’s lithium edge still makes it a BUY.
UltraShort 20+ Year Treasury ProShares (TBT) dropped below the $46 level as risk-averse investors poured into Treasuries. Strong fundamentals behind this trade notwithstanding, I just don’t like the technicals on this highly oversold position. Either this is going to bounce very strongly or you will hit your stop on this pick relatively soon. Your bet against U.S. Treasuries is a HOLD.
P.S. The constantly changing market environment continues to present investors with some of the most challenging times in recent history. Mark your calendar for Thursday, September 10, 2009, at 2 p.m. EDT for my first-ever LIVE teleconference when I will discuss “How to Profit in Global Markets During the 4th Quarter.” This is your chance to hear my predictions and learn how to profit in the next three months. This special, FREE event is for subscribers only. I hope you will join your fellow subscribers and me on this call. Expect to receive a phone call from me at roughly 2 p.m. on Thursday, Sept. 10, and I encourage you to pick up the phone and join the call. Please click here to verify or update your phone number to ensure that I can reach you.