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“After years of spectacular growth, we are seeing evidence of an economic slowdown in China. This is occurring just as the U.S. is gaining some self-sustaining growth momentum, resulting in the possibility of the United States contributing more to global GDP growth than China for the first time in nine years,” predicts Bob Doll.
“China is currently experiencing negative growth rates in imports and freight activity, and slowing growth in auto sales and electricity consumption. These trends are echoed in declining consumer confidence. We also think it is possible that U.S. real growth will surpass that of the emerging market economies for the first time since 1999.”
Doll estimates the US could add $US840 billion to global GDP growth in 2015 while China adds $US810 billion.
Interest rates have been trending lower for around 30 years. Some argue the bond market is in a bubble. But not Robert Shiller, the Nobel-prize winning economist who saw the dotcom and housing bubbles before most.
From TIME: “Shiller, however, resists applying the B-word to bonds. ‘It doesn’t clearly fit my definition of ‘bubble,” he says. ‘It doesn’t seem to be enthusiastic. It doesn’t seem to be built on expectations of rapid increases in bond prices.’ In the unlikely event you meet anyone at the proverbial cocktail party talking about bond funds, he’s probably complaining about the lousy yields, not talking about the killing he expects to make.”
Economists continue to debate over the cyclical and structural forces causing the labour force participation rate to shrink. JP Morgan Funds’ David Kelly offers one structural reason that is underreported: criminal records.
“A large, unexplained part of the decline in participation may stem from the growing number of Americans with a criminal record. The percentage of the U.S. population with a criminal record rose from 13% in 1991 to 22% in 2012 — meaning that nearly one in four Americans has a criminal record. As many employers conduct background checks on prospective employees, the possession of a criminal record could remove many workers from the labour force, effectively permanently.”
From BlackRock’s Russ Koesterich: “Three themes to keep in mind this year. First, a stronger U.S. dollar as a result of economic and monetary divergence would put more downward pressure on commodity prices. Oil, natural gas and copper fell to multi-year lows last week. Second, we favour a more cyclical stance within U.S. equities. We continue to see opportunities in ‘old technology’ firms and in financials. Third, look for markets with tailwinds, either in the form of monetary stimulus or structural reforms. For example: Japan, emerging markets within Asia.”
Meb Faber is an authority on the cyclically-adjusted price-earnings (CAPE) ratio, which is the price of the market divided by the average of 10 years’ worth of earnings. CAPE was popularised by economist Robert Shiller, who used it to warn everyone about the dotcom bubble.
Faber notes that foreign stocks — with a CAPE of 15 — are cheaper than US stocks — with a CAPE of 27. On 1-year price/earnings and price/dividend bases, foreign stocks consistently look cheap.
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