- Data from the Purchasing-managers’ indexes of manufacturing activity showed that the U.S., Europe, Japan and China all saw a jump in manufacturing activity last month.
- The Labor Department noted that claims for first-time unemployment benefits barely rose last week, and the four-week average of claims fell for the 18th straight week. Unfortunately, it also reported that U.S. employers cut 85,000 jobs in December. We are slowly getting a bottom in job losses and may start seeing a slow recovery.
- Retailers reported the December sales rose 2.90% over last year. The consumer is showing signs of life and some stores actually raised profit outlooks.
All of the above should provide positive support for the stock market and U.S. economy. However, the U.S. stock market seems to be shrugging off this good news this week. It could be that most investors have become somewhat complacent after last year’s dramatic market turnaround and may need additional time and positive economic reports to reignite their enthusiasm and future gains.
Don’t you wish we had invested in a snow removal company!
The KC metro area is experiencing unseasonably cold and snowy conditions, and in some areas KC city snow removal crews are hauling away truckloads of snow. This cold spell is nationwide and it has impacted natural gas prices in the short-term.
This impact has been felt by Jennison Natural Resources (PNRZX), which is one of IIA clients’ largest natural resource holdings. The combination of higher natural gas (as described above) and oil prices have helped pushed the fund up 5.76% in the last week and approximately 10% in the last month.
Unfortunately, these portfolio gains will be somewhat offset by the higher utility and gasoline prices we’ll be paying. In addition, this week U.S. Interior Secretary stated that his agency will require oil and natural-gas companies to clear more regulatory hurdles before they can drill on federal lands. This combined with stories of alternative energy companies being restricted from building solar and wind farms in various desert, rural and offshore settings that offer optimal conditions is setting the stage for potentially high energy prices. As a result, those investors with positions in natural resource companies (i.e., oil, natural gas and coal) may see profits ahead.
China trying to become spenders versus savers
The Chinese government used stimulus programs much like an athlete using steroids to get a leg up on their competition. By doing so China emerged from the financial crisis as the world’s fastest-growing major economy. To keep the momentum, the government is continuing subsidies to support consumer spending.
As one Macroeconomist noted in today’s Wall Street Journal, “the key problem is how to open up domestic consumption now that external (foreign) demand is declining.” China’s official policy since 2004 has been to get more economic growth from household consumption. Thus, if we Americans are consuming / buying less, then China is going to look towards its own citizenship to make up the slack. However, that is somewhat tough when China’s household savings rate has actually been increasing over the years, as the following chart illustrates:
The Chinese government is spending substantial funds to get consumers to buy manufactured goods. For example, it budgeted three times as much as the U.S. on subsidies for car purchases in 2009, notes Thilo Hanemann, an analyst for Rhodium Group.
While other countries have also used such subsidies, few governments have extended them for as long as China’s has. This suggests that the Chinese government is not that confident that consumption will remain strong without these subsidies in force.
These stimulus programs can produce amazing results in the short-term. However, once the programs run their course, China will need to address the longer-term challenge: weaning China’s economy off exports and finding new sources of growth in domestic consumption. In addition, China will face huge resource and infrastructure challenges in attempting to allow its citizens the luxury of multiple TVs, cars, iPods, microwaves, and array of other conveniences that we take for granted in the U.S.
Quotes
“If I could give the world any advice, I’d tell ‘em exactly like my great-granddaddy told me. He said, ‘Jimmy, be yourself. Because if people don’t like you as you are, they’re not going to like you as somebody you’re trying to be.’ Generally, I’ve followed that advice. In the moments I haven’t, I’ve gotten into more trouble than a centipede with fallen arches.”
Jimmy Dean, singer , actor and businessman
“It is a mystery why adults expect perfection from children. Few grown-ups can get through a whole day without making a mistake.”
Marcelene Cox, author
Tony Moeller, President
Integrity Investment Advisors
12721 Metcalf, #202
Overland Park, KS 66213
tmoeller@iia-kc.com
913-897-2074
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