Stephenson Home Meet Stephenson Stephenson Commentary Stephenson Videos Stephenson Media Stephenson Blog Stephenson Commodities Stephenson Book Press Stephenson Speaking Stephenson Contact
Commodity Investing Shell Shocked
Recent Tweets

The recent dustup over the bailout and proposed taxation of bank deposits in Cyprus has many people worried that the markets’ recent heady gains will prove illusive in the months to come. Adding to the unease is the drag that higher payroll taxes, gasoline prices and delayed income tax refunds may be having on the American consumer. Just last week the U.S. Federal Reserve made it clear that there is still plenty of work to be done when it revised downward its 2013 forecast for real GDP growth to between 2.3 and 2.8 percent from its December forecast of between 2.3 and 3.0 percent growth.

But there’s been a lot to cheer about lately as growing retail sales, positive factory figures and an unemployment rate at the lowest level in four years has helped spur American stock exchanges higher. The market has for the most part looked through the possible negative consequences of sequestration-related impact on overall growth.

Japan has been another bright spot on the global economy lately as the country welcomed a new central bank governor to the job, Haruhiko Kuroda, this past week. Backed by the recently elected Prime Minister Shinzo Abe, the new central bank governor begins work on a feat no one has yet managed to pull off: to reverse nearly two decades of falling prices to lift wages and boost profits in the world's third-largest economy. If Japan’s experiment works, Japan, which has deprived the world economy of growth during past recessions could one again become an engine of growth and global prosperity.

The proposed policies of Mr. Kuroda have many detractors, including Masaaki Shirakawa, his predecessor, who say that combating Japan’s deflation just can’t be done. But Mr. Kuroda and Mr. Abe beg to differ, believing that Japan suffers from deflation in part because consumers and businesses have become accustomed to hoarding cash after the 1990s asset crash and lingering recession. But so far, just the talk of quantitative easing has made a noticeable impact. The yen has weakened by 18 percent against the U.S. dollar and stocks have risen by more than 40 percent since mid-November on expectations of a change in central bank policy.

But despite the positives the big picture globally remains the same: economic growth in Europe and the United States since the 2008/2009 financial crisis is anemic, growing at the slowest post-recessionary pace since the Second World War. The recovery globally is so weak that the governor of Australia’s central bank, Glenn Stevens has dubbed this period of sluggish growth following the financial crisis as the “Great Frustration.”

The slow pace of growth has many observers wondering whether the American economy has hit an air pocket that may result in a return to soft growth and dismal stock market returns. But the financial modeling that I’ve conducted suggests that while we may experience of few more months of softer than trend economic growth, the U.S. and international activity will likely revert to its prior pace of economic recovery. This resumption of growth is likely to be driven by the substantial amounts of stimulus being provided by global central banks and the collective strength of leading business cycle data.

Despite the persistent worries over America’s loss of competitiveness, something remarkable is happening at the grassroots level. Once you look beyond the dysfunctional and broken politics inside the Washington beltway, you discover reason for hope. America still leads the world in spending on research & development and towers over emerging giants such as China in crucial matters such as the quality of its research universities and the respect for intellectual property. At the grassroots level, local officials are competing aggressively to lure migrants and investment to their communities with strategies as diverse as scrapping income tax to building more bike lanes.

America is working well in spite of the shenanigans in Washington. And if the politicians in Congress ever decided to set aside their differences and punch at or above their weight, the U.S. recovery well so far unremarkable could quickly accelerate to the benefit of all Americans.

A likely uptick in the U.S. economy and stock market is the most likely endgame in my investment outlook, suggesting a strong preference for stocks over bonds and for U.S. stocks over foreign stocks for the balance of this year. The preferred style biases that I favor are for value stocks, with high betas in sectors that have already experienced a negative re-rating that will position them for future outperformance. One sector that looks particularly attractive right now is U.S. Financials. The recent housing crisis and subsequent financial crisis has seen valuations hobbled, making them the ideal play offering value, beta and strong outperformance possibilities if the U.S. economy continues on its upward trajectory.

Join Me
Home | Meet John | Commentary | Videos | Media | Blog | Commodities | Book Press | Speaking | Contact
© 2011 - 2012 John Stephenson. All Rights Reserved