Tuesday, April 14, 2015

We're Sliding into Spring!

Spring seems to mean tepid weather, at least here in Oregon.  Our weather is warm and sunny this year, except for a cold snap this past week.  Weather does enter into economic trends, especially when the average family has to spend less on heating.  This is the fist time economists have brought weather into the mix on why the economy grew slowly.

Most of the economic news stories trickling through, seem to equate the tepid growth with a strong dollar, a resolved stevedore strike and lower priced gas.  Here's a story from Reuters which states these elements as factors in a tepid economy.  

But wait, there's more! (this part makes me feel like a late night TV Huckster).  Foreign economies seem to be experiencing similar problems.  In some ways this makes sense, since the US is a prime trading partner, and the size of the US economy virtually means the rest of the world is affected by the US expansions or contractions.

China's growth diminished to 7% and slowing quickly.  This is a problematic trend for a variety of reasons. 

In 2009, our MBA class went to Shanghai.  China at that time was obviously an emerging economy.  Road construction was everywhere, and we watched Suzhou being built.  The statistics on Suzhou are surprising.  They were in the process of building a city for one million people, putting up 10 or 12 story apartment buildings everywhere, digging and filling an artificial lake, and creating neighborhoods.  The rural people were moving to the city, and Suzhou would become a world class China-Singapore industrial park.  At the time, China's growth was in the low double digits.  This type of construction is the forerunner to economic expansion.  At the same time, people in China were worried if the economic growth slowed to 7 or 8%, they would have social unrest and difficult circumstances.  Now, with China's growth so low, I wonder what effect this can have on the rest of the world.

The IMF thinks Europe and Japan are doing better by giving them upgrades, but the US got a downgrade for our slowing economy.  Interestingly, they predict China is under 7%, and slowing economies include Russia at -3.8%. 

Looking at these travails from an overview position, the world economy is slowing.  This is going to make it difficult for the Fed to raise interest rates, although fortunately they are being patient. US Retail sales also slowed during the first quarter.  All of these factors point to slowing economies, and perhaps super low inflation brought about by weak retail sales.  This is not good news.  These developments mean the financial crisis in 2008 is still with us.  Additionally, this means the Kondratiev wave low point is still alive and well.  Hopefully a new technology will emerge that will pull us out of the Kondratiev trough!

Wise investors should rig for stormy seas. 

Wednesday, April 8, 2015

Bubble Bubble Toil and Trouble

Lately, it seems as though everyone is writing about a financial bubble.  Here's a few of the latest stories on this:

Tech Crunch's view on Tech Bubble  
Concedes we are in the midst of a tech bubble, but praises the positive effects of a bubble.  Seems to miss the point everyone loses a lot of money.

Boston thinks they are experiencing another bubble
Boston thinks their property prices are escalating too fast.  They are not alone.  Portland OR might have a similar problem.

China's Tech Bubble
If our own tech bubble isn't enough, we can share in China's bubble too.   Proves teh tech bubble is worldwide.

Serious Questions on a Stock Bubble
This article questions the possibility of a stock bubble in the overall market.  Depends on if you believe in a rigged market or not. Even Warren Buffet is questioning the lack of under-priced equities. 

China's Long Discussed Property Bubble
China's real estate market is long ready for a correction; I've been hearing this one for years.  Seems like China's economy beats the odds regularly.

And then last, but not least, the new Treasury Bonds with the negative interest rate.   The latest nation to announce this practice is Switzerland.Negative interest is wrong on a variety of levels.  The best way I can get my head around the concept is to compare negative interest to playing slot machines on Las Vegas' strip. One casino offered 'loose slots' where they advertised the fact they paid out 99.5% of the money spent on slots.  This means, if you invest a large enough amount of money in slot machines, that overall, you will get 99.5% of your money back.  Of course, everyone in the casino is hoping they are special and will win the jack pot. I wouldn't invest in something htat took a bit of my money and assured me of a loss.

Seems like everyone is getting jittery, a sure symptom of a bull market about to run out of steam.  Once market values start sliding, then the sell off will begin.  Which industry will trigger the slide this time?  Anyone's guess, but most likely stocks or tech.