Help Me Emerging Markets; You’re My Only Hope
“The weakness in retail sales from December through February didn’t jibe with the strength in employment and consumer confidence. Another surprise was that the windfall from falling gasoline prices didn’t show up in better spending in other retail categories. Then March employment data turned weak, and the month’s 1.0% gain in retail sales excluding gasoline (to a new record high) wasn’t much of a spring rebound following the 0.8% decline from December through February. Even worse, on an inflation-adjusted basis, core retail sales (excluding autos, gasoline, and building materials) fell 1.3% saar during Q1.” “Saving, not shopping, is the hallmark of this expansion…Recent consumer data suggest households remain very focused on building a financial cushion to guard against the next crisis. To do that, they are being very cautious about their purchases…For global producers who have long depended on the American consumer…the frugality means a re-think about strategy. Emerging middle classes in developing economies may be the best hope for consumer-related manufacturers.” Meanwhile, a Bloomberg poll of money managers reveals some high optimism for Nigeria, Vietnam, Argentina and Saudi Arabia. “According to the United Nations, Nigeria has the potential to become the third most populous country in the world by 2050 and also boasts the highest percentage of people under the age of 15 today…growth could eventually rival China’s.” Meanwhile, the IMF would like you to know about the “super taper tantrum”: “higher US interest rates could expose particular vulnerabilities in emerging markets where companies have issued large amounts of debt in dollars, the IMF said, adding that between 2007 and 2014 debt had grown faster than GDP in all major emerging markets.” Meanwhile, Research Affiliates concur with Janet Yellen’s “gradual and lower than you expect” forecast for interest rates: “Looking toward retirement and still needing to repair their balance sheets in the aftermath of the housing recession, Main Street Americans are reluctant to borrow at any price. To reach significantly higher real interest rates, we need not only more optimistic GDP forecasts but rectified balance sheets and greater willingness to spend rather than save and invest…The demand just isn’t there. After seven years of trying to bring the punchbowl back to the party, the Fed may be realizing that this time nobody seems interested in drinking off the hangover. Don’t expect the party to ramp up anytime soon.” Meanwhile, the party got turnt up in Europe this morning!
Fear Leads To Anger
“According to Bank of America Merrill Lynch’s monthly Fund Manager Survey, 13% of global investors believe equity bubbles are the biggest risks facing stocks. That number is up from just 2% in February. Among the panel surveyed, 25% believe global stocks are overvalued and 68% think the U.S. is the most expensive region.” Meanwhile, “your appetite for risk will likely ebb and flow with the markets even if your ability to take risk based on your financial situation hasn’t changed much.” Also, “the more confident investors are in a risk model’s saving power the more useless they become…The best a risk model can do for the investor is point out where potential areas of risk exist, not how that risk will manifest and play out.”