During the current commodity supercycle, there have been occasions—too many to count—when investor psyche has been damaged by reports about slowing U.S. growth, a hard landing in China or a debt crisis in Europe. Yet just behind the gloom, significant and positive trends are taking hold, causing the storms to start dissipating.
I often say that government policies are precursors to change, which is why we follow the monetary and fiscal actions closely as they can have a significant impact on asset prices. You have to go back about 16 months when Brazil kicked off the latest global easing cycle by cutting interest rates by 50 basis points. Since then many developing countries such as the Philippines, China and Colombia, as well as developed nations of Japan, the European Central Bank, the U.S. and the U.K. have joined forces in a world-wide synchronized stimulation of the economy.
Last summer, Mario Draghi indicated that the ECB would do “whatever it takes” to save the euro. In the fall, the Federal Reserve agreed to buy $85 billion a month in Treasuries and mortgages, amounting to $1 trillion a year. And just recently, Japan announced that, in addition to pumping $1.1 trillion into the markets through 2013, the central bank will keep an open-ended approach to buying assets through 2014.
Historically, central banks’ policy actions occur after there’s been some economic deterioration. Several months later, the stimulative measures work their way through the global economy.
This has been the case with China, which has been showing remarkable improvement in its export-oriented HSBC Purchasing Managers Index. The PMI is a measure of health of companies in China, as it includes output, new orders, employment and prices across numerous sectors.
This month, the Flash PMI came in at 51.9, beating market consensus, which was at 51.7. The PMI stands at a two-year high, as you can see in the chart below.
A few months ago, when China’s improving PMI was just beginning to attract attention, I talked with Peter Gibson and Randy Cass from Canada’s Business News Network, who were skeptical of the data because of the slowdown in Europe, China’s largest trading partner. I indicated that although Europe’s deceleration negatively affected China, there were other underlying positive factors taking place. In addition to the continuous stimulus program happening in the countries, China’s new leadership had been solidified. I believed that these dynamics would help PMI accelerate and exports to pick up.
PMIs are leading indicators for global resources stocks, which have lagged over the past year. In 2012, the Morgan Stanley Commodity Related Index only increased 1.4 percent. However, this year, the index is off to an incredible start, rising 6 percent in only four weeks.
Stocks across a number of cyclical areas of the market have benefited from this global improvement, including industrial companies such as trucking, rail and airlines. Take a look below at a classic cyclical measure of the market, the Dow Jones Transportation Average, or Dow Jones Transports. The index, an average of 20 transportation companies in the U.S., reached an all-time high last week.
In addition to the synchronized stimulus driving resources, we are entering the time of year that has historically been good for energy equities. Looking at two decades of seasonal patterns of companies in the S&P 500 Energy Index, the next six months have historically been the best of the year. While energy stocks typically decline in January, they have seen positive results in February, March, April and May. July has historically been the best month for energy stocks, climbing more than 3 percent on a median return basis.
It seems clear that there are a number of investors who have gained confidence in the global economy and are seeking to capture the growth opportunities taking place around the world. With the European crisis comfortably in the rear view mirror and global central banks taking the position that they will continue their easing policies, investors have taken their foot off the brake and have begun to accelerate.
As we’ve been consistently communicating in presentations lately, we see more sunshine and less stormy weather ahead. Take advantage of these momentous and seasonal shifts and make sure you have an appropriate allocation to equities poised to benefit, such as global natural resources stocks. As a benchmark weighting for investors, the energy and materials sectors make up 15 percent of the S&P 500 Index.
A caveat to these sunnier days is the U.S. debt ceiling issue. In managing expectations going forward, we likely will see volatility not unlike the ups and downs of the last four years.
However, every dip has historically been a buying opportunity. With many investors now considering equities today, future dips are likely to be opportunities to buy as well.
Original article posted on Daily Resource Hunter
Frank Holmes is chief executive officer and chief investment officer of U.S. Global Investors Inc. The company is a registered investment adviser that manages approximately $2.08 billion in 13 no-load mutual funds and for other advisory clients. A Toronto native, he bought a controlling interest in U.S. Global Investors in 1989, after an accomplished career in Canada's capital markets. His specialized knowledge gives him expertise in resource-based industries and money management. The Global Resources Fund was also Morningstar's top performer among all domestic stock funds in the five-year period ending Dec. 31, 2006.
Pingback: human barbie
Pingback: home remedies
Pingback: paintless dent repair training for pdr
Pingback: best wart remover
Pingback: como dormir sin roncar
Pingback: kasyno bez depozytu
Pingback: ups aereo accidente
Pingback: ceny zlota
Pingback: el metodo gabriel
Pingback: temperatures in mexico
Pingback: blake lively plastic surgery
Pingback: Joshua A. Jacobi
Pingback: Joshua A Jacobi
Pingback: paintless dent repair
Pingback: buy real estate europe
Pingback: garcinia cambogia side effects
Pingback: 2 port 2e ethernet serial bridge
Pingback: business ideas for beginners
Pingback: danica patrick fotos
Pingback: scarsdale diet customer reviews
Pingback: teaching in Italy
Pingback: buy phen375
Pingback: tao system
Pingback: joshua a jacobi
Pingback: the glades condo
Banks sure have turned things around, eh? Since 2009 (in the years following the financial crisis it helped create) global stock prices have rallied significantly. And financial stocks, in particular, have done considerably well - with US banks up by over 200%. But as Satyajit Das points out, these gains are just part of an elaborate fiction...
Every now and then, a piece of technology comes along that completely shocks the world, changing everything people once held true. Electricity, the telephone and the Internet are just a few examples. But there is a new piece of technology that's about to do the same thing for manufacturing. And the world will never be the same. Brad Hart explains...
Going to the grocery store can be a pain. Even on "off days" it can be crowded and unpleasant. But there is an alternative popping up right now that could make getting your groceries less of a chore, and the growth potential for this market is simply staggering. Greg Guenthner explains...
Warren Buffett is a great investor. Perhaps the greatest investor in history. But the most impressive thing about Warren Buffett isn't his portfolio... It's convincing mom and pop investors he's just like them. Chris Mayer explains why this couldn't be further from the truth, and offers a warning to those who are vulnerable to The Oracle's folksy charm...
Cancer research has come a long way in a very short amount of time. But it still has a long way to go. Today, Ray Blanco explains why cancer research could make leaps and bounds in the coming years, and how early investors could make a fortune because of it. Read on...