Paul Dietrich's Global Investing Trends Report

The Economy Is Doing Well

Posted June 12, 2007 · 0 Comments

Although it has taken over seven years, the S&P 500 INDEX recently broke through and surpassed its high from the year 2000. However, U.S. stocks took a beating this past week, because-well,-THE ECONOMY IS DOING TOO WELL.

 

Why would there be a sell-off in the stock market if the economy is doing well? I know that doesn’t make any sense to most investors, but this is the reasoning. Most economists and Wall Street insiders thought that slowing corporate earnings, the sub-prime mortgage debt crisis, and slowing real estate and new housing markets would force the Federal Reserve to lower interest rates. And lower interest rates are usually good for the stock market.

 

But the strength in global markets has surprised everyone (EXCEPT THOSE OF US AT FOXHALL CAPITAL) and that strength in global markets continues to make the U.S. economy stronger.

 

Unemployment remains low, real wages are going up, corporate earnings are stronger than expected and it looks like the real estate and housing markets are headed for a soft landing.

 

All in all, the economy is in better shape than most economists projected. That also means that we might see more inflation in the future. It is now more likely the Federal Reserve won’t lower interest rates anytime soon.

 

The stock market didn’t like that at all, because the stock market likes lower interest rates and investors should be prepared for more volatility over the summer whenever any government report seems to indicate a potential rise in inflation.

 

The good news is that this is all short-term “noise”  that most investors should ignore. In the short run the stock markets can irrationally bounce around based on various interim economic reports. But it is always best to focus on the long-term persistent trends in the economy as a wise investor.

 

History shows that in the long-term, the stock market always follows the economy. If the economy is going down into a recession, the stock market will go down too. But when the economy is doing well, AS IT IS RIGHT NOW, the stock market will always go up over the long-term following that up-trend in the economy.

 

Last Friday, Bill Gross, the manager of the world’s biggest bond fund, the $103 billion PIMCO TOTAL RETURN FUND, predicted that strong global growth will hurt long-term bond yields, which is generally good for the stock market.

 

He said, “The considerations on a longer basis have to do with strong global growth. We have recognized in the past few months at PIMCO that the world is going to keep on keeping on. Asian growth at close to double-digits in terms of that rate will influence production, yields and inflation on a global basis.”

 

As an alternative to bonds, emerging market currencies offer opportunities that are similar to fixed income investments, Gross said:

 

"As a bond investor, we tried to look for ways to invest in global growth that were bond-like. Emerging market currencies do that. Emerging market currencies which exhibit growth of 5% plus are the place to be if you’re in a bond world.”

 

Over the next three to five years, Gross said he expects the global economy to continue to grow at a pace between 4% and 5% as well as a mild acceleration of inflation, which together are “not necessarily bond-friendly.”  However this is very good long-term news for the U.S. stock market.

 

We at Foxhall Capital agree with his conclusion that global economic growth in Asia and other emerging markets will continue to buoy up the U.S. economy and over the long-term drive the U.S. stock markets up over at least the next year or so. As I always say, “THERE IS ALWAYS A BULL MARKET SOMEWHERE IN THE WORLD."

 

-Paul Dietrich

dietrich@foxhallcapital.com

800-416-2053

 

Disclosure:  The opinions and portfolio information provided in the Foxhall Global Outlook are subject to change at any time, and are not to be construed as advice for any individual nor as an offer or solicitation of an offer for purchase or sale of any security.  Client accounts may differ from model allocations due to many reasons.  All investment strategies offer the potential for loss as well as gain.  Individuals should consult with their financial professional to determine an investment strategy appropriate for their objectives, risk level, and time horizon prior to investing.  Past performance is not a guarantee of similar future performance.

 

 


Back to Blog

 



Subscribe
Subscribe to my blog via RSS or email.

Search

About Paul Dietrich
Paul Dietrich is the Chairman, CEO and Co-Chief Investment Officer of Foxhall Capital Management, Inc. (Foxhall).  Foxhall currently manages investments for individuals, mutual funds and private institutions throughout the United States. Paul Dietrich is also a portfolio manager to a publicly traded mutual fund, the Foxhall Global Trends Fund.
Learn more about Paul Dietrich

Latest Video:

Paul Dietrich on FOX Business





Tags

defensive investment strategy earthquake in china food prices investment portfolio stagflation Gold Mining SP 500 Greek elections foreclosures upward swing defensive position stock market crash price defensive investments Great Depressioin asian market investemt strategy emerging markets stop-loss diversified equity bull market cycle labor pools Indexes market rebound hard assets energy restructuring stock market cycles recession Deutsche Bank

Archives
August 2013
July 2013
May 2013
April 2013
March 2013
October 2012
September 2012
July 2012
June 2012
May 2012
March 2012
January 2012
December 2011
November 2011
October 2011
September 2011
August 2011
July 2011
June 2011
May 2011
April 2011
March 2011
January 2011
December 2010
July 2010
June 2010
May 2010
March 2010
January 2010
November 2009
September 2009
July 2009
June 2009
May 2009
April 2009
February 2009
January 2009
December 2008
November 2008
October 2008
September 2008
August 2008
July 2008
June 2008
May 2008
April 2008
March 2008
February 2008
January 2008
December 2007
November 2007
October 2007
September 2007
August 2007
July 2007
June 2007