Markets Experience Global Cooling

08/12/2010 11:57 am EST


Igor Greenwald

Chief Investment Strategist, MLP Profits

Floods in China, fires in Russia, a glacier calf loose in the Arctic—there’s been no shortage of apocalyptic portents for those who look for such.

At least financial weather had relented after the springtime storms, thanks to last month’s scorching corporate earnings. But now there’s a chill in the air again and darkness on the horizon. Suddenly, those fit-as-a-fiddle European banks and extra-busy exporters are old news.

That’s because China’s appetite for imports has recently weakened, the latest headlines said, despite evidence to the contrary on the fat order books of Western manufacturers. Or, rather, Chinese imports in July were up “only” 23% year-over-year, down from the 34% annual gain in June. In fact, at $117 billion, imports were above the monthly average this year. But economists expected more.

Other releases added to the gloom. China’s industrial output grew 13.4% in a year, down from 13.7% in June, while inflation quickened as the flooding drove up food costs. Booming Chinese retail sales fell a little short of the consensus forecast.

Meanwhile, the US trade deficit swelled as recovering imports from China and elsewhere outpaced sluggish exports. The trade deficit cut in half US gross domestic product growth during the second quarter, according to the Commerce Department. The latest number may halve the headline growth rate yet again to little more than 1%.

Lost in the shuffle was the renewed US appetite for imports, which may yet prove relevant to global growth prospects. No matter: With the hot July in the rear-view mirror and bond purchases by the Federal Reserve hinting at a frigid future, bulls were an endangered species once again.

Overnight, markets seemed to have lost the yen for any asset save the Japanese yen—the ultimate deflationary token.

The yen, like Leonardo DiCaprio’s spinning top, may be a clue that something isn’t quite right. After two straight lost decades, and despite the country’s rapidly aging population and massive debt, it just keeps going up at least against the dollar.

With growth in most developed and many emerging economies cooling, risk became—at least for one summer dog day—the worst of the four-letter words. Carlton Delfeld, for one, thinks Japan may be near a turning point. And even those who’d rather side with an established 20-year trend would benefit from Delfeld’s advice on the pitfalls of assembling a global ETF portfolio.

Paul Goodwin dutifully reported last week that a gauge he tracks yielded a Buy signal for China. He also cautioned readers not to rely too heavily on evidence so flimsy. Goodwin has been much more bullish on a fast-growing Chinese hotel chain, and his confidence has been rewarded with an ADR trading near a 52-week high in a horrible tape. It’s a chart worth checking out even if you opt not to check in.

Franco-Nevada, a recent favorite of Gavin Graham, also has quite a bit of growth in its near future as new royalty streams from gold mines come on line. That means the modest dividend could grow even if the global slowdown doesn’t inflate gold prices to a new record, as it well might.    

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