FYI | Jul 05 2017
By Peter Switzer, Switzer Super Report
A 40% or a 25% slump in stocks — time to bail?
The bears are coming out of hibernation with Dr. Marc Faber tipping a 40% slump in shares last week. Now Ron Paul, the former Republican congressman and presidential hopeful, says a 25% sell-off and a 50% spike in gold is on the cards!
Paul is a Trump-hater while Faber is a bull-hater and it has to be remembered that the latter has been calling Armageddon for some time and he knows one day he will be right. Luckily for him the media has a short memory or their addiction to scary headlines keeps him credible for too many news agencies.
But my problem is I can’t rely on gut feeling and simply say “sell everything” because there are a lot of objective reasons why you’d doubt Ron Paul and Dr. Marc of the Gloom, Boom & Doom Report.
I guess if you were nervous and you had made good money over the past years, selling now could be an option, especially if you were in the capital gains tax free stage of your life. You could say I will play a wait and see game and if the uptrend reasserts itself on good reasons, I will get back in and ride the new trend higher.
But of course you could miss the first part of the next leg up, which might be the biggest part of any future uptrend.
You could also take an option to insure against Ron and Marc being right to protect against any downside risk, or could you simply gamble that they are wrong and do nothing.
Paul’s argument is similar to the same one he made a year ago and of course he was wrong. I guess he too is in the “one day he will be right” category! However, as CNBC points out, since last year’s call the S&P 500 is up 21% and the Nasdaq has whacked on 34%!
He thinks too much debt and bad investments will come back to bite us but Ron will only be right if the debt does not bring economic growth and that’s why I remain cautiously positive — the growth outlook, even without Donald Trump’s tax cuts, looks good but it would be even better if he eventually stops tweeting and gets on with getting his tax bill passed.
Let me list the growth reasons why you might bet against the doomsday merchants, so here goes:
- The US economy is likely to grow faster than the 1.4% rate of the first quarter. On Friday we learnt that the ISM Chicago Purchasing Managers Index jumped 6.3 points to 65.7 for June – a 3-year high. Meanwhile US personal income rose 0.4% in May. Also, the final June reading of the University of Michigan consumer sentiment index came in at 95.1, which was more than the expected 94.5 reading. This measure of the American consumer is nicely elevated.
- The Chinese National Bureau of Statistics manufacturing purchasing managers’ index rose from 51.2 to 51.7 in June (51.0 forecast) with the services sector result up from 54.5 to 54.9. Any reading above 50 signifies expansion or growth of activity. This is how CommSec’s Craig James saw it: “The stronger Chinese manufacturing and services data bodes well for the broader global economy. And given the strong trade links between Australia and China, policymakers would be encouraged by a strengthening Chinese economy.”
- On Europe, focus-economics.com sees the region this way: “The Eurozone economy has emerged as a bright spot in global growth this year, as incoming data outperforms expectations and earlier concerns over politics in the bloc appear to have been overblown.”
They went further to say that “Data for the second quarter suggests that the economy remains in a path of strong growth,” and the Composite PMI is suggesting the second quarter will be the best in six years!
My time in Italy over June certainly surprised me as the place seemed on an economic high. - To Japan and this is what Bloomberg reported in late May: “While Japan’s failure to spur inflation continues to generate angst about the nation’s future, gross domestic product data this week is likely to show that the economy has still managed to eke out five straight quarters of expansion.
“That would be the best run since 2006, during Japan’s last period of political stability under the leadership of then-Prime Minister Junichiro Koizumi.”
I guess the heading says it all: “Japan Is Set for Its Longest Run of Economic Growth in a Decade.” - To Australia and despite all of the negative stuff out there, the RBA still has us growing at 3% plus over the next two years with interest rates at historical lows and unlikely to move up for some time, it’s keeping me positive.
Look I’m not suggesting that there could not be a catalyst for a sell-off, but I would call it a buying opportunity. I would only turn negative if these growth numbers for virtually the entire global economy start to go south.
At the moment they are all pointing strongly north and that’s why I can’t buy the crash scenarios out there right now. Sure the angst of waiting for Donald Trump to get his economic measures passed and hoping that he will stop tweeting ASAP makes me a little nervous but the current growth stories and the future ones are not Trump-related. So, if he can pull off his plans they will be icing on an already pretty attractive global economic cake.
Peter Switzer is the founder and publisher of the Switzer Super Report, a newsletter and website that offers advice, information and education to help you grow your DIY super.
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