Awash With Bad Data

Stocks are in the dumps today. As we write, the major US indexes have all but erased the hard-fought/delusional gains of the previous two sessions. The Dow, S&P 500 and the NASDAQ are all nursing losses of around 2%.

The panicky mood on Wall Street comes thanks to a “trifecta of bad reports,” as one news site put it.

First off, a manufacturing activity report in the Philadelphia region revealed a whole lot of inactivity. The Philadelphia Federal Reserve’s economic index slumped to negative 7.7 for the month of August. Analysts had expected a reading of about the same figure…but in the positive. A reading below zero represents a slowdown; the kind of slowdown any non-analyst might have seen coming.

Meanwhile, the index of leading economic indicators – a measure of what the economy has not yet achieved – increased a puny 0.1% in July (pending future revisions, no doubt). Again, analysts had been expecting a 0.2% increase for the month.

And last, but by no means least, we have the initial jobless claims report. Once again, the “teleconomist” sages had anticipated a small drop in the number of claimants. Instead, the number “unexpectedly” jumped 12,000 to 500,000 last week from an upwardly revised 488,000 the previous week.

“If claims [go] back up above 500k, for at least a few weeks, double-dip risks will rise materially…” The Daily Reckoning’s favorite economist, David Rosenberg, wrote (somewhat prophetically, it turns out) in a note after last week’s figures were released.

“…98% of the time when Household employment contracts three months in a row,” Rosenberg warned, “we are already in a recession or about to head into one. Who knows? Maybe we’ll be lucky and this will be the other 2% this time around.”

Maybe…but probably not.

All in all, things appear to be unraveling more or less as they should be.

But this week is not about the Great Correction underway in the United States. At least not entirely. Readers will note that their “perennially pessimistic” editors have spent the past few days exploring opportunities in markets with low debt and high growth; with job prospects instead of job rejects; entrepreneur-driven capital formation, as opposed to government-sponsored capital destruction. We’ve been looking, in other words, at markets not shouldering the burden that too often accompanies the dubious moniker, “Developed.”

For instance, Doug Casey, founder of Casey Research, shared with us some thoughts on various South American climes (Protecting Your Cash Part I and Protecting Your Cash Part II). Chris Mayer uncovered a couple of incredibly cheap opportunities in the Middle East and Russia (Two of the Cheapest Stock Markets in the World). And earlier in the week, Eric Fry brought us his sandals-in-sand thoughts from Nicaragua (Shaking Off the Fears of Emerging Market Investing).

Why the sudden interest in Emerging Markets, you ask? First of all, it’s not a sudden interest. And secondly…

“…the time has come to carefully evaluate the measure of risk one is taking for each measure of return,” Eric explained from his perch down in Rancho Santana during the week. “Now is the moment…to insist on an honest day’s pay, or to saddle up and ride out to a place that treats capital more hospitably.

“To underscore this imperative,” Eric continued, “lots of investors carry massively ‘overweight’ positions in US stocks without ever examining and assessing the risks they are taking relative to competing investment opportunities, like Emerging Market stocks. That’s a potentially grave mistake, especially when one considers that the investment world is becoming increasingly bi-polar, to the benefit of the Emerging Markets.”

Where to today, then? What exotic locale will suffer the flattering scrutiny of this installment of your Daily Reckoning?

Think cold, inhospitable winters, accompanied by a severe lack of natural resources and an aesthetically challenged local population…then, disregard those thoughts. Today, we venture to Brazil.

Now, don’t worry; we’re not going to bore our male audience with endless descriptions of bikini-clad beach volleyball players, like the unrelenting intellectual tedium exhibited in the picture below:

Brazilian Volleyball Player

Nor do we aim to fatigue or offend the refined sensibilities of our female Reckoners by fawning over the chiseled bods of the local volleyball spectators, seen here:

Brazilian Volleyball Spectators

No. That would be lame. Instead, we’ll direct you to a truly sexy column today; one that fuses the sensual allure of making money in an exotic land with the tactile pleasures that arise from investing in an infrastructure sector in desperate need of care and attention. So do yourself a favor and check out Chris Mayer’s “The Land of the Future… Today.” You’ll be glad you did.

Joel Bowman
for The Daily Reckoning

The Daily Reckoning