14 Jun 2011, 9:16pm
economy shares:
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  • I’m a glass half-empty sort of guy on the economy, but…

    The Daily Fail seem to be in a particularly dark mood where they presented this graph of the June 2011 OECD composite leading indicators as desperate evidence that growth has dropped.

    June 11 Composite Leading Indicators

    Obviously there was a near-death experience in 2009, but given that some people thought that the first half of the 2000s was a non-inflationary constant expansion, it looks like we’re off to the races economically somewhere in the world…

    I don’t know what they’re smoking, but it looks like these leading indicators are at their highest than at any point in the last ten years with the possible exception of 2007. There’s a country breakdown in the PDF which basically says get out of emerging markets and into the USA, Germany and the UK are okay-ish.

    The Mail seem to have confused the economy as experienced by the proletariat with the economy as measured by company results (the CLI graph is not the same as company results FWIW). Jobs are haemorrhaging and wages are below inflation so the popular experience of the economy is pretty rough.This is particularly the case in the UK where we pay too much for our houses, and then often don’t get round to paying down the capital of the mortgage spending the nominal increase in value on cars and holidays.

    However, companies seem to be in reasonably good shape as long as they aren’t exposed to the consumer and given the amount of lolly my modest ISA is paying in dividends they seem to be making money too. It is just that the spoils of war are increasingly going to people with money rather than people who are in debt, with the latter being most people in the UK.

    Now whether that is a good thing or not is a perfectly reasonable thing to challenge, however, it seems the money is being made even in the bombed-out West. Indeed, the United States which comes across to me as an indebted basket case appears to be growing well, it’s just that people there don’t feel it either. Conversely, there appears to be fire in the engine-room of some emerging economies – it almost looks as if the West has managed to craftily outsource some of its recession, if the turning points of these composite leading indicators really do correlate with growth a little while later. I experience that too – my Brazilian ETF is quietly dying in a lost corner of my ISA, and it’s hardly like the pound is strengthening against the Real to make this happen.

    So I’m a glass-half full sort of chap on this, unlike the Mail. Of course, it’s all damn lies and statistics, but it squares with what I am seeing when I look at the companies I own a trivial sliver of. Some of the buggers in my potential candidates watchlist have raced away from me before I could rustle up the wedge to buy – I have £7k of my ISA unused this year, but I’ve been concentrating on building cash reserves with NS&I of late. Hopefully the Greek denouement will bring things back down to earth a bit ready for me to take a second bite at the ISA cherry in the autumn, when I’ve saved some wedge.

    These companies are making money. It’s what capitalism does, but capitalism doesn’t say it’s going to spread the money evenly across the populace like manna. Some of the horrible time we the people have been having is because we borrowed like drunken sailors during that apparently NICE era from 2001-2007, and it’s payback time. I’m not sure that capitalism is going to help us do that.

    And no, I haven’t changed the medium term view that resource crunches are going to be bad news, particularly for general stock market index growth. However, I note that companies made money before the gift of ancient sunlight allowed us to run year-on-year growth. They just didn’t make so much of it… This is short term noise compared to that backdrop. Anyway, Peak Oil is a timebomb, and I’ve been reliably assured that timebombs don’t go off. I hope the man’s right about our healthy future 😉

    Time for a contrarian buy of HSBC N America S&P500 tracker, maybe. I still can’t see the United States as anything but a hopelessly indebted bombed out shell with very serious medium and long-term problems. But on the principle that the darkest hour is before the dawn, and that I have hardly any exposure to the US, I may sport some of my remaining ISA allowance there later this year, or even trickle it in up to 3k if I can convince myself I really don’t pay any per-transaction dealing fees on this with iii. Though I have reservations on the way index tracking works on top-slicing markets like the FTSE with the FTSE100, the US market is huge – the HSBC tracker holds 500 stocks, and seems to provide damn good sector diversification. No sector is > 15% by value, compared to the 1/5th of the FTSE100 in financials and 17% oilies.

    Guess there has to be the standard disclaimer – this is not suggesting anyone buy the S&P500 unless you already want to. The US is an oil-dependent empire in Spenglerian decline, though it has a gutsy and enterprising population so if anybody can run on empty they’ll find a way. Don’t do it to yourself 😉 I am mad, but in the end if I trash £3k on the US then it won’t kill me – it’s a mistake I can afford to make.

     

     

     
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