Lewis Turning Point…
It would be nice to have stock market gains in triple digits and Fahrenheit temperatures in double ones rather than the reverse. My computer gave trouble all weekend and this morning a technician replaced the modem and things are running smoothly again. We still await the new air conditioner unit for the (yech hot) master bedroom.
If there is no such thing as beta, as reported yesterday in an EDHEC study from France, then there is probably no such thing as alpha either. That’s a shame because today I got a Seeking Alpha article headlined “Lewis Turning Point in PRC.”
It was not about me. It was about William Arthur Lewis, the Nobel Prize economist who posited that at some point an emerging market will run out of cheap labor. The Seeking Alpha article was by Aoyu Bai, a Canadian. Lewis was from Saint Lucia and no relative of my husband’s family more of which is reported for paid subscribers below.
Hon Hai, the Taiwanese company first hit by a wave of suicides in Shenzhen, employs 400,000 workers in that city alone.
Here is the latest from Adam Carr of ICAP, the brokers in Australia whose overnight ponderings are often timely and precise:
The key take out of price action last night, more than anything, is that markets are confused. Following a very strong lead out of Europe (major indices up 2.2-2.9%) US equities were bid up shortly after the open. Gains were slashed in subsequent trading and the index fell 2.3%. The last hour was remarkable. The index bounced in and out of positive territory quite sharply. In the end, the S&P500 was up 0.5%, but it could just as easily have finished lower. Confusion. The bizarre thing is that analysts are apparently raising earnings forecasts at the fastest pace since 2004. A survey of 8000 analysts suggests earnings will rise 34% in 2010 compared to estimates of 27% in March.
The problem comes from the interpretation, or rather the misinterpretation of recent data. Much of this stems from the tendency bears have to use the words ‘slowing’ and ‘double dip’ interchangeably. Consequently they view the slowing in the ISM surveys as proof that the US economy is going to roll over. This is blatantly incorrect. Data is volatile, it bounces around and seeing the non-manufacturing ISM fall to 53.8 in June from 55.4 is consistent with usual patterns of volatility– especially for an economy that only recently has come out of a recession.
Note how rapidly the bearish focus is changing. Recent financial market turmoil began with concerns over sovereign debt in Europe.
The US was a safe haven. Fast forward a few weeks and that issue seems to have died down. In the end, Greece didn’t default and countries like Spain are having no trouble raising money. Indeed they tapped the market for an additional €6bn last night and received €13bn in bids (in addition to strong interest from non-residents). So now we’ve seen concerns over European debt morph into fear of a US double dip. As a result, the Dollar no longer seems to be enjoying safe-haven status and Greenbacks have been sold off. There was a time that was viewed as a bullish signal.
The economic landscape just doesn’t change that rapidly. Only sentiment does. So the trick for investors is to determine the true underlying economic trend – the trend behind these violent swings in sentiment. Unfortunately, given these extreme swings in pricing and sentiment, markets aren’t providing much of a guide now.
I was credited by John Thomas of The Mad Hedge Fund Trader with tipping Thailand and Poland on its pages. Merci. I also warned that gold was going to retreat. TMHFT is great fun and free but its portfolio advice is tough to act on. I also misspelled the name of the new Polish president yesterday. I corrected on the site but the email was wrong. Apologies to all the Polonian-Americans out there. (The term was invented by my old boss, Sen. Clifford P. Case, R.-NJ after he got into trouble for using the Shakespearean word from Hamlet, Pollacks.)
