Investment Contrarians

Global Recession

There are several definitions of global recession, but the most common definition used by many, including the International Monetary Fund (IMF), considers it global recession to occur when global growth is less than three percent per year. Generally speaking, a global recession is one in which many, if not most, parts of the world are in decline. While developed nations might be considered to be in recession with two quarters of declines in gross domestic product (GDP), a global recession cannot be measured in the same fashion, because emerging markets need higher growth rates.

Media Hype Could Cause Investors to Be Blindsided by a Global Recession

By for Investment Contrarians | Jul 23, 2013

Blindsided by a Global RecessionComplacency is always dangerous when it comes to investing. Over the past few months, many investors globally have begun to let their guards down, as the episodes of severe financial crisis appear long gone.

However, there are many signs that a global recession is still possible once again. For many parts of the world, including the U.S., the unemployment rate is still stubbornly high.

This high unemployment rate is not the only sign that a global recession could occur, but it is worrisome considering the trillions of dollars that central banks have pumped into the financial system over the past few years.

As I have previously stated several times, the direction of the trend is very important. With the world teetering on the brink of another global recession, there’s one key question to ask: is the world economy improving or deteriorating?

While the U.S. appears to be stabilizing, and even improving in some areas—such as housing and vehicle sales—we can’t be myopic and ignore the rest of the world. If a global recession were to occur, make no mistake about it, the U.S. would feel the effects. Certainly, a global recession would not improve our unemployment rate.

Over the last few weeks, one area of concern to me has been the inability of the eurozone to make any improvements in its economic growth levels. Don’t forget: a couple of years ago, the financial crisis within the eurozone created extreme volatility in our markets.

Germany has been the foundation and strength of the eurozone, holding up its weaker members. However, the possibility of a global recession would increase in terms of … Read More

More Signs of Economic Weakness: Where to Place Your Money

By for Investment Contrarians | Apr 25, 2013

More Signs of Economic WeaknessWith the stock market at all-time highs, the momentum has been built on the belief that an economic recovery is close at hand and the world will avoid a global recession. However, new data show that perhaps this belief might be too optimistic.

Markit Economics has just released the Purchasing Managers’ Indexes (PMIs) for many nations and economic zones around the world. Frankly, the data are quite bleak, showing that an economic recovery is certainly not occurring anytime soon, and that a global recession is becoming a distinct possibility.

For April, the U.S. Flash Manufacturing PMI (early reading) came in at 52, versus expectations of 53.8, and last month’s data point of 54.6. Just a reminder: a PMI number above 50 is a sign of growth; below 50 is a sign of contraction. (Source: “Markit Flash U.S. Manufacturing PMI,” Markit Economics web site, April 23, 2013.)

While the U.S. manufacturing PMI data still show expansion, the decline was significant, as was the degree by which it missed expectations. This April PMI reading for the U.S. was the lowest in six months, and is an indication that the economic recovery in the manufacturing sector is starting to slow.

The PMI composite for the entire eurozone was a very poor 46.5 in April, down slightly from expectations of 46.8. While the reading was unchanged from March, it is worrisome that there were no improvements at all. There is no current economic recovery in Europe; in fact, this reading indicates that economic activity has declined for 19 of the last 20 months.

Is a global recession very far away? Obviously, predicting the future … Read More

Caterpillar’s Warning: What It Means for Your Stocks

By for Investment Contrarians | Apr 24, 2013

What It Means for Your StocksOne of the most worrying signs from the latest batch of economic data is that the global recession might be reappearing. Central banks around the world have been attempting to fuel their economies through massive stimulus, yet these efforts appear to be failing.

Increasingly, the earnings outlook for a number of companies continues to be quite poor for the remainder of the year. This is giving me pause for thought, because these poor outlooks raise the chances that another global recession will occur.

Last week’s data from the Conference Board Leading Economic Index for the U.S. indicated a drop in March. This was the first drop in seven months—certainly a negative move away from the chance of averting another global recession.

More importantly, the Conference Board’s outlook for the next three to six months dropped 0.1% in March, below the median forecast by a survey conducted by Bloomberg. (Source: Smialek, J., et al., “Leading Index’s Drop Points to Slower U.S. Growth: Economy,” Bloomberg, April 18, 2013.)

Manufacturing also declined, as indicated by the Federal Reserve Bank of Philadelphia reporting that its factory index dropped to 1.3 in April from 2.0 in March. (Source: “March’s Coincident Indexes Show Increased Economic Activity in 47 States,” Federal Reserve Bank of Philadelphia web site, last accessed April 23, 2013.) This was a significant reversal from the median forecast, in which expectations were for the index to rise to 3.0.

How does this affect the earnings outlook for corporations? Many companies have been expecting that the global recession could be averted, as each company’s revenue and earnings outlook last fall was fairly positive for 2013. … Read More

Hey Investor: Sotheby’s Is Going Once…Going Twice…

By for Investment Contrarians | Jan 8, 2013

Hey Investor: Sotheby’s Is Going Once…Going Twice…If you happen to be one of the few who subscribes to the “trickle down” school of economics, things aren’t looking good. Some well-heeled investors, tired of the volatility of stocks and bonds and the shrinking value of the greenback, have turned to hard assets, like art, to protect their assets.

The upper crust don’t necessarily collect art, so much as invest in it. Many even consider art to be another hard asset class like stocks, bonds, commodities, or precious metals. They may be onto something.

The Mei Moses All Art index, a leading indicator of art returns based mainly on paintings sold in New York and London, climbed 22% in 2010 and 10.2% in 2011, seriously outpacing the S&P 500’s total return. (Source: “S&P 500 Total Return,” YCharts, last accessed January 7, 2013.)

In spite of the global recession, 2012 looks like it was another banner year for art auction sales, with three of the major houses—Christie’s, Sotheby’s (NYSE/BID), and Phillips de Pury’s—beating previous records.

Sotheby’s and Christie’s auctions in New York City took in over $1.4 billion in combined sales. Almost $1.0 billion of it was raised in two evening sales of contemporary art alone. (Source: “Sotheby’s and Christie’s Break Auction Records,” ArtsEditor, December 15, 2012, last accessed January 7, 2013.)

That doesn’t mean investors in Sotheby’s—the lone, publicly traded art auction has been seeing the same kinds of returns.

Sotheby’s Commom Stock Chart

Copyright Lombardi Publishing, 2012;
Data source: Yahoo! Finance

After climbing steadily higher throughout the 1990s, Sotheby’s share price dropped in early 2000, after the tech boom fizzled and the wars in Iraq and Afghanistan commenced. It rallied again … Read More

Will the U.S. Economy Follow Brazil’s Rapid Drop in GDP Growth?

By for Investment Contrarians | Dec 4, 2012

U.S. Economy Follow Brazil’s Rapid Drop in GDP GrowthWith the world economy slowing, it is possible that we could see a global recession in 2013. Gross domestic product (GDP) growth for many countries has significantly declined in the third quarter of 2012. While some countries experienced an increase in GDP growth in the first part of the year, it’s quite apparent going into the third quarter that, for most nations, the estimates were far too high.

One recent example of the economic decline that’s occurring in various nations around the world is Brazil’s mere 0.6% GDP growth in the third quarter, compared to a survey conducted by Bloomberg of 54 economists that had estimated a 1.2% increase in GDP growth. (Source: “Brazil GDP Growth at Half Forecasted Pace as Investment Dives,” Bloomberg, November 30, 2012.)

Two interesting points are apparent. First, the significant decline in Brazilian GDP growth increases the possibility of a global recession in 2013; and second, the country’s economy has some similarities with America that we should be cognizant of.

In America, retail sales, including car sales, have remained somewhat resilient, even though the economy has been weak. In Brazil, the situation is quite similar, as retail sales increased 8.5% in September from the same time in 2011. Yet industrial production in Brazil fell 2.8% in the third quarter, as compared to the same quarter in 2011. (Source: “Brazil GDP Growth at Half Forecasted Pace as Investment Dives,” Bloomberg, November 30, 2012.)

While America certainly has larger issues, our third-quarter GDP growth was 2.7%, versus an annualized GDP growth rate for Brazil of only 2.4%. A big issue for both countries is not the willingness … Read More