Equity Inspiration

Gentlemen, the market is still showing signals indicating that the global equity should rise more than it has until now. The US Personal Consumption Expenditures already exceeded the 2008 maximum; the Personal Savings seems to have been at a peak and is starting to drop; the global Yield Curve rose even more than it had. All of these are bullish signals. Principally, the Fed Fund Rate is still low and, as long as it stays in this minimum, I will remain bullish.

Ben Shalom has spoken recently and the signals he gave to the market were extremely positive. When reading his words, I found phrases about economic conditions improving, that he hopes to see an increasing optimism in consumers, the banks loaning, the productivity improving, and the companies controlling costs. He said he wishes to maintain low rates for an “extended period.” On the other hand, he expressed concern about the non-significant recovery of the home building market. I find to be great everything he said, even regarding the deficit.

"To avoid large and unsustainable budget deficits, the nation will ultimately have to choose among higher taxes, modifications to entitlement programs such as Social Security and Medicare, less spending on everything else from education to defense, or some combination of the above."

The current scene of low rates, increase in consumption, in business confidence and in private consumption is hyper-bullish for the stock market.

We are in a positive stage of the business cycle, and there are great investment opportunities in every front, from the more conservative to the more aggressive ones.

The European stock market is still very volatile, mainly guided by liquidity excesses. The American stock market has already gone through that stage and is now mainly led by positive earnings. Sometimes it is good to compare these differences, I would not be surprised if Europe followed the American pathway.

The German economic situation is outstandingly improving. They announced that the unemployment rate decreased to 8% thanks to the incorporation of 31,000 new workers to the labor market. Besides, the International Monetary Fund and the European Union have already confirmed a monetary help for Greece, enough to cover its immediate liquidity necessities. The consequences of this situation are rather positive for the euro.

Japan disconcerts me. The Japanese deflationary context seems eternal. Prices fall, public finances are not so good, the Bank of Japan maintains low rates. An economist would say that this is bearish for the yen. Nevertheless, the yen is experiencing a phase of much strength, which disconcerts me. Yet we must find some explanation, and that would be the work of analysts. It may be positively affected thanks to its trade balance, its exporting boom, guided by the giant neighbor, China. It may be the case that the yen is already devaluated and there is not enough margin for it to continue losing value.

The emerging markets are enjoying the rally, likewise the rest of the stock markets. Nevertheless, one should be very cautious about these markets. They are not cheap and they reflect many of last year’s good news, which turns them quite vulnerable before any bad one.

If choosing among the emerging ones, I would go for the more benefited during the last years, where investments have a certain maturing degree, they are already established. I will expound no longer. Recommendations for IIP!

A brief comment about natural gas. It is really interesting what happens with this commodity. Despite continuing gaining ground regarding the energetic participation inside the United States, the supply increase is one step ahead, which makes its price fall abruptly. The ratio of Natural Gas to WTI Crude Oil continues falling and is still early to go in favor for the ratio recovery at an average “normal” value. The ratio is nearly 0,08 and comes from peaks near 0,20. Sometime in the future, I may prepare a special about this commodity, in which I am really interested.

Oil & Cooper. Something tells me they are about to fly upwards. Obama proposed to expand exports seeking oil and gas in the Gulf of Mexico and along the whole Atlantic coast. Because, as he said, even if the world’s evolution is heading towards alternative energy sources, these commodities still have greater percentage of participation as global sources of energy, and we need them.

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