Weekly Notes With Tiho — Issue 10Bienvenue en Europe… Benvenuto in Europa.The sun is shining, the sea is crystal blue, temperatures are warm, food is delicious and well-dressed people are walking around me — speaking plethora of different languages.Yes.I’m back in Eurozone.That kind of explains the lack of updates in recent weeks, too.I am traveling with my beautiful parents and have gifted them all of my time.They gifted me life, so in the attempt to be a good son… it’s least what I could do.Having said that, constant travel also fatigues us. After all, it was only last month that I was doing a business trip to Singapore, Hong Kong, and Shanghai.One thing in common here is good whether accompanying me wherever I have gone. I feel very lucky.From Asia To EuropeShanghai forgot to be
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Weekly Notes With Tiho — Issue 10
Bienvenue en Europe… Benvenuto in Europa.
The sun is shining, the sea is crystal blue, temperatures are warm, food is delicious and well-dressed people are walking around me — speaking plethora of different languages.
I’m back in Eurozone.
That kind of explains the lack of updates in recent weeks, too.
I am traveling with my beautiful parents and have gifted them all of my time.
They gifted me life, so in the attempt to be a good son… it’s least what I could do.
Having said that, constant travel also fatigues us. After all, it was only last month that I was doing a business trip to Singapore, Hong Kong, and Shanghai.
One thing in common here is good whether accompanying me wherever I have gone. I feel very lucky.
From Asia To Europe
Shanghai forgot to be polluted and windy. It was bright, clear and clean.
Singapore forgot to be humid and wet — it was surprisingly pleasant.
London forgot to be rainy and miserable.
No, really. As hard as it is to believe, London barely had any clouds — let alone rain.
Paris is always very delicious and insanely romantic…
… while Hong Kong is still full of beautiful girls.
The problem is, every time I wave at them, they never wave back.
Late Cycle In The USA
Another thing in common across Asia and Europe is the feeling of higher economic confidence.
Flights are totally booked, hotel occupancy rates are very high, and restaurants unable to find any empty tables for last minute bookings.
An abundance of fancy cars is parked outside of fancy hotels, driven by fancy people. In my opinion, always a sign of late cycle excesses.
By late cycle, I am clearly referring to the US economic expansion.
The current cycle, which started in the depths of the Global Financial Crisis, is now approaching 100 months of age. It is the third longest expansion since World War 2.
Having said that… as long as the music keeps playing, markets will keep dancing.
Or better yet said rising.
And let us not forget that this is now the oldest bull market in US history, dating back to mid-1800s.
Asian Exports Are Booming
Regular readers of the site should know that one of my favorite economic indicators is South Korean exports.
I’ve explained before that South Korean economy is extremely cyclical and a well-oiled machine when it comes to exports.
South Korea isn’t a one industry trick pony either. It focuses on both new and old economy.
Major exports include semiconductors, petrochemicals, machinery, automobiles, ships, steel, LCD and wireless communication devices.
Furthermore, major trading partners are China (25 percent of total exports), ASEAN (14 percent), the United States (10 percent) and the European Union (9 percent).
Quite a variety when it comes to gauging the overall global economic activity.
The Star Business News writes:
South Korea’s exports posted double digit-growth for a sixth month in a row in June, overriding tepid manufacturing activity as normalising global demand continued to boost sales of memory chips and petrochemical products.
Shipments surged 13.7% to US$51.41bil from a year earlier, while imports jumped a faster 18% to US$40.01bil, resulting in a trade surplus of US$11.40bil, government data showed.
Although June exports growth slightly missed a 17.1% expansion seen in a Reuters survey, double-digit growth for a sixth month in a row marks the longest stretch of expansion at such a pace since September 2011, an indication that the economy is gathering momentum.
The other export powerhouse in the region is also showing signs of life.
Japanese manufacturing sentiment — as measured by the Tankan Index — is currently sitting at the highest level since 2007.
Japan’s Tankan report showed big manufacturers’ sentiment beat expectations, with the index hitting a three-year high.
The closely watched index, which can affect policy making, is a quarterly survey of Japanese businesses.
Kathy Matsui, chief Japan strategist at Goldman Sachs Japan, noted that the survey offered a very “real-time” read of corporate sentiment, which was running positively.
Confidence Has Returned To Europe
During the period from 2010 until 2013, the debt crisis was a very difficult time for the overall European continent.
It also had a negative impact on global exporters, as the overall Eurozone demand contracted and imports stalled.
Various extreme measures were taken over the years including banking and sovereign state bailouts; political and economic reforms across the continent; reduction in monetary policy interest rates towards negative levels (a clear mistake in my opinion); and purchases of sovereign & corporate bonds by the European Central Bank.
It seemed to have helped. For now.
Since 2013, consumer confidence has been on the rise. Recent data released showed EU consumers at the highest level of optimism since 2007.
At the same time, German business confidence — as tracked by the ifo Survey — showed the highest level of optimism ever.
Yes, a record reading.
Bloomberg was so optimistic about the German economy, they wrote:
Only the World Can Stop Germany as Business Climate Hits Record
It seems the sky is the limit for Germany’s economy. Business confidence — logging its fifth consecutive increase — jumped to the highest since 1991 this month, underpinning optimism by the Bundesbank that the upswing in Europe’s largest economy is set to continue.
With domestic demand supported by a buoyant labor market, risks to growth stem almost exclusively from global forces.
“Sentiment among German businesses is jubilant,” Ifo President Clemens Fuest said in a statement. “Germany’s economy is performing very strongly.”
Investors Are Discounting Optimism & Confidence
Investors aren’t blind, deaf nor stupid.
They have been busy discounting all of this optimism and confidence.
Charlie Biello summarized it nicely with his tweet today:
The first half of 2017 has been very favorable for investors, as discussed in the last post.
Furthermore, what is clear from Mr. Bilello’s table above is that foreign markets are, by and large, outperforming the US this year. This is something I already discussed earlier this year.
However, the global economy is a cyclical beast and market participants have experienced many ups-and-downs over the last decade.
With an abundance of optimism and confidence around, prudent investors would not be focusing on the lagging economic data presented above.
This has already happened and the market has already discounted these events.
Instead, the focus should be on discounting the future.
Will the global economy continue to boom?
Can export powerhouses — like South Korea — maintain outperformance?
Is the aging expansion at risk of falling into a recession?
If you would like to know my views on the global economy and how I am positioning my client’s portfolios as a result of what I see — get in contact by clicking below and filling out the brief survey.
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