Two of the World's Best Investors Want You to Own This Currency

From DailyWealth

Two of the World's Best Investors Want You to Own This Currency

Friday, May 29, 2015

They're not all household names like Warren Buffett...

But they're superstars in the money-management business... And you can learn a lot by looking at how they're investing.

One of the main goals in our DailyWealth Trader service is to pass along insights, strategies, and actionable ideas from top money managers. These elite investors have decades of experience, high-level contacts, huge research budgets, and long track records of success.

We'd be fools not to "look over their shoulders" for investment ideas...

So today, we're sharing an important idea held by two of the best in the business: Paul Singer and Ray Dalio.

Singer runs the $24 billion fund, Elliott Management. His fund averaged 14% annual returns from 1977 to 2012, with only two down years. Singer has degrees in both law and psychology... And he's well known for investing in debt from bankrupt companies.

Singer is extremely concerned about the state of the world's monetary system right now. Many governments have taken on debts and obligations they can't pay back with sound money. They plan to pay back their debts with debased, devalued money. Singer also believes extremely low interest rates have encouraged people to speculate and make bad investments.

Given all this risk, Singer sees gold as a great hedge against a potential financial crisis... And he's urging investors to own some.

Regular readers know we see gold as a form of "real money"... and one of the ultimate ways to protect yourself against a financial crisis. (You can read a full explanation in this educational essay.)

Dalio calls gold a currency, like the dollar or the euro... It's an alternate form of cash.

Dalio is one of the world's most respected big-picture economic thinkers... and one of the most successful. In 1975, Dalio founded Bridgewater Associates. The firm has averaged 13% annual returns... And Dalio has grown Bridgewater into the world's largest hedge fund. It now manages around $170 billion in assets.

Lots of investors don't remember a time when folks didn't believe in paper currencies and needed an alternative. But Dalio makes the important point that there's nothing new in the investment world. Just because it hasn't happened in our lifetimes doesn't mean it's impossible.

Gold was used as money throughout history... And as Dalio explained in an interview with the Council on Foreign Relations, folks could turn to gold again in a currency crisis. The precious metal could be seen as an economic "barometer."

Dalio said, "It's not sensible not to own gold." He doesn't suggest putting all of your money into gold. But if you don't own some, he says, "you don't know history and you don't know the economics of it."

We agree with Dalio and Singer. We suggest holding some portion of your investment assets in gold as part of your "catastrophe prevention plan." Because gold could soar in a crisis scenario, having some of your portfolio allocated to gold could save you from a huge drop in net worth.

Read more from DailyWealth >>

Bill Gross: Don't downplay Greece's struggles

From YahooFinance


Bill Gross: Don't downplay Greece's struggles

By Jacob Pramuk  |  CNBC

A Greek exit from the euro zone could "discombobulate" currencies and open the door for contagion to other heavily indebted nations, bond investor Bill Gross said Wednesday.

The cash-strapped European nation's struggles matter despite markets' perceived resistance to its ongoing debt negotiations, Gross contended. He noted that if Greece left the euro zone, it would only lead to speculation swirling around Portugal, Spain or Italy.

"I think it matters because markets interpret events on a forward basis," said Gross, manager of the Janus Global Unconstrained Fund.

In an interview on CNBC "Power Lunch," Gross noted that projecting economic growth in the euro zone is difficult, especially because it depends on the effectiveness of the European Central Bank's bond-buying program. The ECB's easy policy does not necessarily make 2 to 3 percent growth in euro zone nations a "slam dunk," Gross said.

Earlier Wednesday, Gross outlined what he believes is an "excess" of monetary policy intervention that opened the door for his call on shorting German Bunds last month. In a report to clients, Gross said his short against the Bund was well timed but "not necessarily well executed." Last month, he tweeted that German 10-year Bunds (Germany: DE10Y-DE) made "the short of a lifetime."

Bund yields fell following the European Central Bank's purchase of public sector bonds in March as part of a trillion-euro stimulus program. After touching 0.049 percent on April 17, yields on the 10-Year Bund have risen significantly as prices fell. Yields climbed to about 0.56 percent by Wednesday afternoon.

On "Power Lunch," he noted that the trade lacked execution because others may have shorted German Bunds before he did himself.

In a note Wednesday, he said his bet against Bunds "was a prime example of opportunities hatched by the excess of global monetary policy-zero based policy rates and tag team match quantitative easing programs which continue to encourage malinvestment in financial assets as opposed to the real economy."

Read more from YahooFinance >>

Power Profile: Cheyn Crangle

Recession in Late 2015 a Strong Possibility as U.S. Economy Slows at Alarming Pace

From ProfitConfidential


Recession in Late 2015 a Strong Possibility as U.S. Economy Slows at Alarming Pace
~ By Michael Lombardi, MBA

Is the U.S. economy getting close to a recession? Rising business inventory and slowing consumption say yes.

In these pages, I have argued over and over again that consumption data are important; they're the biggest part of the U.S. gross domestic product (GDP) calculation. And, currently, consumption in the U.S. economy is stalling at an alarming pace.

I look at consumer consumption to see how businesses are reacting, and how their sales and inventories level are looking. If sales decline and inventories rise, it's a problem in any economy.

In March 2015, sales at manufacturers declined 2.1% from the same period a year ago. Inventories in the same month increased by 2.9% year-over-year! (Source: U.S. Census Bureau, May 13, 2015.) This is a bad combination to have.

Rising inventories and declining sales mean that businesses are just not selling and consumer spending is weak.

Of note: the manufacturing inventories-to-sales multiple (this is simply how much inventory manufacturers have compared to sales) currently stands at 1.36. The last time the inventories-to-sales multiple was this high was back in 2009!

Another leading indicator of U.S. economy is industrial production. If industrial production declines, it means factories are slowing down.

From December 2014 to this April, industrial production declined every month. The last time industrial production declined for five consecutive months, the U.S. economy was in a severe recession—late 2008 to early 2009. (Source: Federal Reserve Bank of St. Louis, last accessed May 15, 2015.)

Why I Remain Pessimistic on the U.S. Economy

Those data (reported on by very few in the mainstream) tell me that the U.S. economy is in trouble. The few statistics I have just mentioned and others I closely follow say there is no reason to be optimistic towards the U.S. economy. It is decelerating at a dangerous pace. Sooner rather than later, those who say we are headed towards prosperity will see we are in a recession.

With this in mind, I look at the stock market and can't help but ask if investors have lost their minds.

The majority of public companies have reported their first quarter of 2015 corporate earnings...and it was a terrible quarter, one of the worst in years for corporate earnings. The lack of earnings growth and revenue growth at American companies is the ultimate confirmation that the U.S. economy is slowing down.

But even with all this happening, the S&P 500 just made a new all-time high. Stock markets rally when earnings expectations are great. We simply don't have this right now. The stock market is far too irrational right now and the reality of it all will soon hit.

World Wide Web is only 1/3 wide

The internet is a dream for entrepreneurs....it has spawned so many millionaires.

The world is only one third wired.

Imagine if the world's entire population has internet access.... how many more millionaires and billionaires will be made.

In a news article written in the Wall Street Journal titled "Tech Firms Discover Web Isn't World-Wide," Evelyn Rusli wrote:

"When Sumarni, a 39-year-old woman in a rural village in Indonesia, first cradled a smartphone in her hand about two years ago, her reaction was “bingung,” the word for “confused” in Indonesian.

As she looked at the Android phone's sleek, black surface, she asked herself: "Where are the buttons?" She was wary of holding it, since the smartphone was worth far more than her monthly income of roughly $60 from selling crackers and potato chips at a room in her house.

Now, though, Ms. Sumary is an enthusiastic participant in the world-wide digital economy. She proficiently uses her smart-phone's web browser, mobile messaging service WhatsApp and Facebook IInc.'s social-networking site, where she has 40 firends and launched an onlince shop with women's clothing and accessories.

That makes her a dream come true for technology companies as they try to reach the roughly two-thirds of the global population still without internet access."

Watch the video below about this Indonesian woman Sumarni who knew nothing about the internet:

http://www.wsj.com/video/in-indonesia-the-new-face-of-internet-evangelism/31E48409-D30D-48F9-BBC9-C066096A1591.html

Stocks get that Friday feeling as stimulus trumps growth concern

From YahooFinance

Stocks get that Friday feeling as stimulus trumps growth concern

By Jamie McGeever | Reuters

LONDON (Reuters) - Global stocks rose and bond yields fell on Friday, as investors shrugged off slowing global growth and focused instead on the continued stimulus provided by the world's major central banks.

Wall Street's record high on Thursday lifted Asian stocks on Friday, a day that will be packed with key European and U.S. economic data as well as speeches from Federal Reserve chair Janet Yellen and European Central Bank president Mario Draghi.

China's main index leapt nearly 3 percent to a fresh 7-year high, rounding off a weekly gain of 8 percent, its best week this year. Boosted by hopes of further central bank stimulus, it has risen 45 percent in only six weeks.

European shares struggled to match that, but the leading index of European shares was still poised for its biggest gain in six weeks and Germany's DAX its best week since January.

A batch of soft manufacturing data on Thursday from the United States, China and Germany pointed to sluggish global growth but cemented investor hopes that central banks will continue to do all they can to support activity.

To that end, Yellen and Draghi will take center stage on Friday. Earlier this week Fed meeting minutes appeared to push the timing of the first U.S. rate hike out to late 2015, while the ECB's Benoit Coeure said the ECB could increase its bond purchases in the near-term.

"Risk assets continue to edge higher ... and Draghi is set to make a speech. Listen out for further assurance of the QE program running until September 2016 but more importantly any clues as to inflation expectations," said Angus Campbell, senior markets analyst at FxPro in London.

In early trade the FTSEuroFirst 300 index (.FTEU3), Germany's DaX and France's CAC 40 (.FCHI) were all flat on the day. Britain's FTSE 100 (.FTSE) was up 0.3 percent.

Earlier, MSCI's broadest index of Asia-Pacific shares outside Japan rose 1 percent and Japan's Nikkei rose 0.3 percent. Japanese stocks have been boosted this week by data showing stronger-than-expected first quarter growth. The Bank of Japan kept its policy as widely expected.

Read more from YahooFinance >>

Fed officials see June rate hike as unlikely - minutes

From YahooFinance

Fed officials see June rate hike as unlikely - minutes

Reuters | By Michael Flaherty and Howard Schneider

WASHINGTON, May 20 (Reuters) - Federal Reserve officials believed it would be premature to hike interest rates in June even though most felt the U.S. economy was set to rebound from a dismal start to the year, according to minutes from their April policy meeting released on Wednesday.

The central bank debated whether a slew of disappointing data, including weak consumer spending, signaled a temporary slump or evidence of a longer-lasting slowdown, with most participants agreeing economic growth would climb to a healthier pace and the labor market would strengthen.

The U.S. economy grew an anemic 0.1 percent in the first quarter, according to the most recent government data.

The minutes from the April 28-29 policy-setting committee meeting also highlighted the quandary the Fed faces in trying to avoid the market volatility tied to a rate hike while sticking to its meeting-by-meeting guidance on when that move will come.

With an increased amount of uncertainty and signs of softness across the economy, the minutes showed Fed officials pushing the prospect of a rate hike later into the year.

"Many participants, however, thought it unlikely that the data available in June would provide sufficient confirmation that the conditions for raising (interest rates) had been satisfied ...," the minutes said.

U.S. Treasury prices were largely unchanged after the release of the minutes, while short-term interest rate futures and TIPS inflation break-even rates held firm, as did stocks.

Fed officials flagged a number of concerns including disappointment that falling oil prices did not spur consumer spending as much as had been hoped. They also cited economic worries in China and Greece.

They also were troubled by the behavior of the bond market, which Fed Chair Janet Yellen spoke about earlier this month . The minutes show central bank officials believe bond market volatility was higher now because of high-frequency traders, decreased inventories of bonds held by broker-dealers, and elevated assets of bond funds.

To avoid a disruptive spike in long-term bond rates, Fed officials discussed whether the central bank should better telegraph a rate hike in post-meeting communications. But most said keeping to the meeting-by-meeting policy was best for now.

The "taper tantrum" of 2013, when emerging-market currencies and stocks plunged en masse on the suggestion that Fed bond-buying could be reduced, has loomed over the central bank as it nears its so-called rate lift-off.

Read more from YahooFinance >>

Power Profile: Doug and Lisa Auclair

Who are history's greatest young heroes?

This story is worth reading...it is heart warming to know such a pure soul!

From Quora

Geoffrey Reemer, Constantly curious
551 upvotes by Marie Stein, Salem Stanley, Balakumar Chandrasekaran, (more)

Jordan Rice (13)

As floods were ravaging Australia in January 2011, Jordan Rice got caught in the floods with his mother and brother. Two rescue workers came over and were ready to rescue him, but Jordan refused. He urged the rescue workers to first rescue his little brother Blake (10), and then his mother. Unfortunately, after the rescuers were able to save Blake, the floods swept Jordan and his mother from the car, carrying them to their deaths.

What strikes me about this story is that this young boy, who couldn't swim and was terrified of water, cared so much for his family that he was willing to sacrifice himself to let them be saved. Jordan's story is a true inspiration to us all, and tells us that we as humans actually have the capacity of bravery and self-sacrifice, even in the darkest hour. So that makes him a true hero.

China’s Yuan May Draw $1 Trillion on Getting IMF Reserve Statu

From Bloomberg

China’s Yuan May Draw $1 Trillion on Getting IMF Reserve Status

by Fion Li |  May 15, 2015

At least $1 trillion of global reserves will switch into Chinese assets if the International Monetary Fund endorses the yuan as a reserve currency this year, according to Standard Chartered Plc and AXA Investment Managers.

People’s Bank of China officials have called for the IMF to include the yuan in its reserve basket -- which consists of the dollar, euro, pound and yen -- in a review later this year. An inclusion could spur as much as 6.2 trillion yuan ($999 billion) of net purchases of China’s onshore bonds by end-2020, Standard Chartered estimates. AXA Investment Managers says about 10 percent of the $11.6 trillion of global reserves will flow into yuan assets. It didn’t give a timeframe.

“What is significant is the seal of approval by the IMF that the yuan has internationalized as a reserve currency,” Aidan Yao, senior emerging-market economist at AXA Investment, said in a briefing in Hong Kong on Thursday. “It could trigger a reallocation of global reserves portfolios.

China is making the yuan more freely usable in order to be included in the IMF’s Special Drawing Rights basket, PBOC Governor Zhou Xiaochuan said in Washington on April 18. The currency failed to qualify in a 2010 review.

The yuan reclaimed fifth place in global payments this March, according to the Society for Worldwide Interbank Financial Telecommunication. Standard Chartered said the Chinese currency has a 60 percent chance of getting reserve status this year.

‘Meets Criteria’

“The renminbi broadly meets SDR criteria,” Standard Chartered analysts including Becky Liu and Eddie Cheung wrote in a research report Friday. “Even if the decision to include the renminbi is deferred, we see a high degree of certainty for inclusion in 2020, or possibly earlier via an interim review.”

Read more from Bloomberg >>

No respite in sell-off of low-risk bonds

From YahooFinance

No respite in sell-off of low-risk bonds

By Nigel Stephenson |  Reuters

LONDON (Reuters) - Low-risk bonds sold off again on Tuesday driving down stocks and helping push the euro higher against the dollar.

Ten-year U.S. Treasury yields, the benchmark for global borrowing costs, hit their highest since early December, while German 10-year yields added 8 basis points to 0.67 percent.

Volatility in the bond markets weighed on stocks, adding to existing investor anxiety over the perilous state of Greece's finances. Shares in Europe and followed Wall Street lower.

"It's a matter of concern for the market. When any particular asset class goes through periods of extreme volatility in a short space of time, people feel the pressure to take their risk exposure lower," Ian Richards, global head of equities strategy at Exane BNP Paribas, said.

Less than a month ago German 10-year yields hit a record low of 0.05 percent, driven down by a 1 trillion euro European Central Bank bond-purchase scheme intended to kick-start inflation.

Traders, who struggle to fully explain the recent yield surge, blame it on a rise in inflation expectations, higher oil prices, and restricted liquidity, caused by ECB purchases, as investors sought to exit a crowded trade.

"It's clear that the market hasn't stabilized. Before the sell-off started the common perception was one of low volatility. Now investors are more cautious, asking for a premium for the volatility we've seen recently," said Jan von Gerich, chief fixed income analyst at Nordea.

Higher German yields lifted the euro 0.7 percent to $1.1233, having fallen close to Monday's low of $1.1131 in Asian trade. It was also up 0.7 percent at 134.80 yen.

The dollar index, which measures the U.S. currency against a basket of major peers, fell 0.5 percent. The yen was 0.1 percent higher at 120 per dollar.

U.S. 10-year yields, which have been driven higher in recent weeks by German Bunds, last stood at 2.29 percent, up 2 basis points on the day, having earlier hit 2.31 percent, their highest since Dec. 8.

Elevated U.S. yields mean higher corporate borrowing costs , which could hit shares across the world.

The pan-European FTSEurofirst 300 index fell 1.3 percent in early trade.

YahooFinance >>

Power Profile: Holly and Harold Walters

"Why anyone should look at it (Market America)? Because no one ever expects their next paycheck 
to not arrive until it doesn't...."

Dietary Flavanols Reverse Age-Related Memory Decline

From Columbia University Medical Center

Dietary Flavanols Reverse Age-Related Memory Decline
Findings strengthen link between specific brain region and normal memory decline

October 26, 2014
Posted in: Aging, Neurology

Dietary cocoa flavanols—naturally occurring bioactives found in cocoa—reversed age-related memory decline in healthy older adults, according to a study led by Columbia University Medical Center scientists. A cocoa flavanol-containing test drink prepared specifically for research purposes was produced by the food company Mars, Incorporated, which also supported the research, using a proprietary process to extract flavanols from cocoa beans. Most methods of processing cocoa remove many of the flavanols found in the raw plant. (Credit: Mars, Incorporated)

NEW YORK, NY (October 26, 2014)—Dietary cocoa flavanols—naturally occurring bioactives found in cocoa—reversed age-related memory decline in healthy older adults, according to a study led by Columbia University Medical Center (CUMC) scientists. The study, published today in the advance online issue of Nature Neuroscience, provides the first direct evidence that one component of age-related memory decline in humans is caused by changes in a specific region of the brain and that this form of memory decline can be improved by a dietary intervention.

As people age, they typically show some decline in cognitive abilities, including learning and remembering such things as the names of new acquaintances or where they parked the car or placed their keys. This normal age-related memory decline starts in early adulthood but usually does not have any noticeable impact on quality of life until people reach their fifties or sixties. Age-related memory decline is different from the often-devastating memory impairment that occurs with Alzheimer’s, in which a disease process damages and destroys neurons in various parts of the brain, including the memory circuits.

Previous work, including by the laboratory of senior author Scott A. Small, MD, had shown that changes in a specific part of the brain—the dentate gyrus—are associated with age-related memory decline. Until now, however, the evidence in humans showed only a correlational link, not a causal one. To see if the dentate gyrus is the source of age-related memory decline in humans, Dr. Small and his colleagues tested whether compounds called cocoa flavanols can improve the function of this brain region and improve memory. Flavanols extracted from cocoa beans had previously been found to improve neuronal connections in the dentate gyrus of mice.

Read more from Columbia University Medical Center >>

Buffett Takes a Page From the "Inflation King's" Playbook

From DailyWealth


Buffett Takes a Page From the "Inflation King's" Playbook

By Jim Rickards, editor, Strategic Intelligence
Thursday, May 7, 2015

Hugo Stinnes is practically unknown today, but this was not always the case.

In the early 1920s, he was the wealthiest man in Germany at a time when the country was the world's third-largest economy. He was a prominent industrialist and investor with diverse holdings in Germany and abroad.

Chancellors and Cabinet ministers of the newly formed Weimar Republic routinely sought his advice on economic and political problems. In many ways, Stinnes played a role in Germany similar to the one Warren Buffett plays in the U.S. today...

He was an ultra-wealthy investor whose opinion was eagerly sought on important political matters, who exercised powerful behind the-scenes influence, and who seemed to make all the right moves when it came to playing markets.

If you're a student of economic history, you know that from 1922-1923, Germany suffered the worst hyperinflation experienced by a major industrial economy in modern times. The exchange rate between the German paper currency, the reichsmark, and the dollar went from 208-to-1 in early 1921 to 4.2 trillion-to-1 in late 1923.

At that point, the reichsmark became worthless and was swept down sewers as litter. Yet Stinnes was not wiped out during this hyperinflation. Why was that?

Stinnes was born in 1870 into a prosperous German family that had interests in coal mining. He worked in mines to obtain a practical knowledge of the industry and took courses in Berlin at the Academy of Mining.

Later, he inherited his family's business and expanded it by buying his own mines. Then, he diversified into shipping, buying cargo lines. His own vessels were used to transport his coal within Germany along the Rhine River and from his mines abroad. His vessels also carried lumber and grains. His diversification included ownership of a leading newspaper, which he used to exert political influence.

Prior to the Weimar hyperinflation, Stinnes borrowed vast sums of money in reichsmarks. When the hyperinflation hit, Stinnes was perfectly positioned. The coal, steel, and shipping vessels retained their value.

It didn't matter what happened to the German currency – a hard asset is still a hard asset and does not go away even if the currency goes to zero. Stinnes' international holdings also served him well because they produced profits in hard currencies, not worthless reichsmarks. Some of these profits were kept offshore in the form of gold held in Swiss vaults.

That way, he could escape both hyperinflation and German taxation. Finally, Stinnes repaid his debts in worthless reichsmarks, making them disappear. Not only was Stinnes not harmed by the Weimar hyperinflation, but his empire prospered and he made more money than ever.

He expanded his holdings and bought out bankrupt competitors. Stinnes made so much money during the Weimar hyperinflation that his German nickname was Inflationskönig, which means Inflation King. When the dust settled and Germany returned to a new gold-backed currency, Stinnes was one of the richest men in the world, while the German middle classes were destroyed.

Interestingly, you see Warren Buffett using the same techniques today.

It appears that Buffett has studied Stinnes carefully and is preparing for the same calamity that Stinnes saw – hyperinflation. Buffett purchased major transportation assets in 2009 in the form of the Burlington Northern Santa Fe railroad.

This railroad consists of hard assets in the form of rights of way, adjacent mining rights, rail, and rolling stock. The railroad makes money moving hard assets, such as ore and grains. Buffett next purchased huge oil and natural gas assets in Canada in the form of Suncor.

Buffett can now move his Suncor oil on his Burlington Northern railroad in exactly the same way that Stinnes moved his coal on his own ships in 1923.

For decades, Buffett also owned one of the most powerful newspapers in the U.S.: the Washington Post. He sold that stake recently to Jeff Bezos of Amazon, but still retains communications assets. He has also purchased large offshore assets in China and elsewhere that produce non-dollar profits that can be retained offshore tax-free.


Read more from DailyWealth >>

Stocks "Extremely Cheap Now," Says Legend

From  DailyWealth

Stocks "Extremely Cheap Now," Says Legend

By Dr. Steve Sjuggerud
Tuesday, May 5, 2015

"One thing you can say is, stocks are cheaper than bonds. Very definitely."

Legendary investor Warren Buffett was on CNBC yesterday, talking about stocks.

He said what I've been saying – for years.

He said that stocks are somewhat expensive today – IF these were "normal" times with normal interest rates.

The thing is, times are NOT normal today. Interest rates are not normal. They are near zero percent...

"I would've thought by now you would have seen much higher rates than we have now, which is essentially nothing," Buffett said.

"If these low interest rates prevail for five or 10 years, you'll look back and say stocks were very cheap. If interest rates normalize, you'll look back and say they weren't so cheap."

When interest rates are near zero, people are forced to look for other things to do with their investment dollars – like put it into the stock market. On the flip side, when interest rates are high, people will take money out of stocks and put it into interest-earning investments (like bonds).

Buffett doesn't like to make predictions about the economy or interest rates. He prefers to buy great businesses and hold them. However, the interviewer pressed him for his opinion on the future of interest rates...

He waffled a bit on his answer... But my interpretation is that he thinks rates will stay low for a few more years, at least, before ultimately going higher:

           "It looks to me like they are certainly going to stay low as long as Europe keeps
           following the present policies and Europe will probably keep following those
           policies until they see their European economy come back fairly strong."

After saying that, Buffett said he would bet on higher long-term interest rates in the U.S.

My story – which I have stuck to for years – is that these are not normal times. My story is that the Fed will keep interest rates lower than you can imagine, for longer than you can imagine. And that will drive asset prices (like stocks and real estate) higher than you can imagine.

Read more from DailyWealth >>

Power Profile: Cullen Haskins

PMI, U.S. Manufacturing Indicator, Warns of Slow Growth Ahead

From ProfitConfidential

PMI, U.S. Manufacturing Indicator, Warns of Slow Growth Ahead

By Jing Pan BSc, MA • Tuesday, May 5, 2015

On Friday, May 1, 2015, the Institute for Supply Management (ISM) published its April report on the U.S. manufacturing sector. The key number to look at in this report is the Purchasing Managers’ Index (PMI), which is an indicator of the economic health of the manufacturing sector.

According to the institute, the U.S. national PMI is at 51.5%. This number is unchanged from March’s report. However, it is short of the expected 52%. (Source: Institute for Supply Management, May 1, 2015.)

U.S. PMI Above 50; Employment Still Troubling
PMI is based on five individual indicators: new orders, output, supplier delivery times, inventory, and employment. A PMI of above 50 indicates an expansion of the manufacturing sector, while being below 50 means a contraction.

Some analysts are taking the 51.5 PMI as a sign of growth. Indeed April 2015 is the 28th consecutive month in which PMI is above 50. However, looking at the components of the index, you will find that the performance is really lackluster.

First, the bright side of things: new orders index improved to 53.5 from 51.8 in March. Production also increased; jumping from 53.8 in March to 56.0 in April.

The not-so-bright side shows the employment index is at 48.3, indicating that employment in the manufacturing sector is contracting. Moreover, the 48.3 reading in April is the lowest since September 2009. This is quite troubling: the March job report already showed a slowdown in growth in the U.S. labor market. This signals yet another continuation in the slowdown.

Note that the sectors with decreasing employment include computer and electronic products as well as chemical products. These sectors usually have more skilled labor than, say, restaurant services. The decline in employment in these sectors will likely contribute to stagnant wages, which will put constraints on workers’ disposable income.

Also making up the PMI is the institute’s price index. It is now at 40.5 in April, implying decreasing prices, or deflation, in the manufacturing sector.

World Economy: Similar Contracting Scenario
Three days later, on May 4, 2015, HSBC published the April PMI for China.

Read more from ProfitConfidential >>

A Sense of an Ending

From Janus.com

A Sense of an Ending

“There is accumulation; there is responsibility; after these,
there is unrest – great unrest.”
 – Julian Barnes – The Sense of an Ending

Having turned the corner on my 70th year, like prize winning author Julian Barnes, I have a
sense of an ending. Death frightens me and causes what Barnes calls great unrest, but for
me it is not death but the dying that does so. After all, we each fade into unconsciousness
every night, do we not? Where was “I” between 9 and 5 last night? Nowhere that I can
remember, with the exception of my infrequent dreams. Where was “I” for the 13 billion years
following the Big Bang? I can’t remember, but assume it will be the same after I depart –
going back to where I came from, unknown, unremembered, and unconscious after billions
of future eons. I’ll miss though, not knowing what becomes of “you” and humanity’s torturous
path – how it will all turn out in the end. I’ll miss that sense of an ending, but it seems more of
an uneasiness, not a great unrest. What I fear most is the dying – the “Tuesdays with Morrie”
that for Morrie became unbearable each and every day in our modern world of medicine and
extended living; the suffering that accompanied him and will accompany most of us along
that downward sloping glide path filled with cancer, stroke, and associated surgeries which
make life less bearable than it was a day, a month, a decade before.

Turning 70 is something that all of us should hope to do but fear at the same time. At 70, parents have died long ago, but now siblings, best friends, even contemporary celebrities and sports heroes pass away, serving as a reminder that any day you could be next. A 70-year-old reads the obituaries with a self-awareness as opposed to an item of interest. Some point out that this heightened intensity should make the moment all the more precious and therein lies the challenge: make it so; make it precious; savor what you have done – family, career, giving back – the “accumulation” that Julian Barnes speaks to. Nevertheless, the “responsibility” for a life’s work grows heavier as we age and the “unrest” less restful by the year. All too soon for each of us, there will be “great unrest” and a journey’s ending from which we came and to where we are going.

A “sense of an ending” has been frequently mentioned in recent months when applied to asset markets and the great Bull Run that began in 1981. Then, long term Treasury rates were at 14.50% and the Dow at 900. A “20 banger” followed for stocks as Peter Lynch once described such moves, as well as a similar return for 30 year Treasuries after the extraordinary annual yields are factored into the equation: financial wealth was created as never before. Fully invested investors wound up with 20 times as much money as when they began. But as Julian Barnes expressed it with individual lives, so too does his metaphor seem to apply to financial markets: “Accumulation, responsibility, unrest…and then great unrest.” Many prominent investment managers have been sounding similar alarms, some, perhaps a little too soon as with my Investment Outlooks of a few years past titled, “Man in the Mirror”, “Credit Supernova” and others. But now, successful, neither perma-bearish nor perma-bullish managers have spoken to a “sense of an ending” as well. Stanley Druckenmiller, George Soros, Ray Dalio, Jeremy Grantham, among others warn investors that our 35 year investment supercycle may be exhausted. They don’t necessarily counsel heading for the hills, or liquidating assets for cash, but they do speak to low future returns and the increasingly fat tail possibilities of a “bang” at some future date. To them, (and myself) the current bull market is not 35 years old, but twice that in human terms. Surely they and other gurus are looking through their research papers to help predict future financial “obits”, although uncertain of the announcement date. Savor this Bull market moment, they seem to be saying in unison. It will not come again for any of us; unrest lies ahead and low asset returns. Perhaps great unrest, if there is a bubble popping.

Policymakers and asset market bulls, on the other hand speak to the possibility of normalization – a return to 2% growth and 2% inflation in developed countries which may not initially be bond market friendly, but certainly fortuitous for jobs, profits, and stock markets worldwide. Their “New Normal” as I reaffirmed most recently at a Grant’s Interest Rate Observer quarterly conference in NYC, depends on the less than commonsensical notion that a global debt crisis can be cured with more and more debt. At that conference I equated such a notion with a similar real life example of pouring lighter fluid onto a barbeque of warm but not red hot charcoal briquettes in order to cook the spareribs a little bit faster. Disaster in the form of burnt ribs was my historical experience. It will likely be the same for monetary policy, with its QE’s and now negative interest rates that bubble all asset markets.

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