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US Remains Safest Place for Investors Amid Global Turmoil

Tuesday, 25 March 2014 11:25 AM Current | Bio | Archive

If the U.S. economy continues to expand, I expect the Federal Reserve to start raising rates in the second half of 2015.

The Markit Flash U.S. Manufacturing Purchasing Managers’ Index (PMI) for March came in at a strong 55.5. Employment also continued growing (53.9 in March, slightly down from 54.1 in February).

More importantly, on average, the U.S. Manufacturing PMI came in at 55.4 for the first quarter, up from 53.8 in the fourth quarter of 2013, which was its best performance in three years. That should help first-quarter GDP, of which we will have a first estimate on Thursday.

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Friday, we will also have the very important Personal Income and Outlays that could give us a hint on how the American consumers are faring in the ongoing recovery. About 70 percent of the U.S. economy is still based on consumption.

In sharp contrast to the U.S. numbers, the HSBC Flash China Manufacturing Purchasing Managers’ Index (PMI) contracted to an eight-month low at 48.1 in March, down from 48.5 in February while the Flash China Manufacturing Output Index contracted to an 18-month low at 47.3 in March, down from 48.8 in February.

It’s clear that China’s economy is on a sluggish path at best.

Investors should note a China Securities Journal report that stated there is limited room for China to loosen monetary policy. According to the Journal, monetary policy can only be eased when there is sharp depreciation of the Chinese currency, the renminbi/yuan, and strong capital outflows. The Journal also added that “the government has the ability to push for a higher economic growth rate but doing so would only bring bigger crises in the future.”

There have also been many questions about where the Chinese currency is headed.

The renminbi/yuan exchange rate against the dollar in October 2012 is almost exactly at the same level as it is today. So anticipating further gains for the renminbi/yuan isn't as easy as it once was. (The USD/CNY closed on Oct. 30, 2012 at 6.24 and on March 23, the USD/CNY closed at 6.22.)

Meanwhile in Europe, the Markit Flash Euro area Manufacturing Purchasing Managers’ Index (PMI) came in at 53 in March, slightly down from 53.2 in February.

More importantly, employment rose only marginally, as the recovery appears uneven and fragile in various countries.

Unfortunately, the biggest risks for Europe are numerous because of the situation with Russia and the European elections in May, both unpredictable events.

Let’s hope Russia and the West reach some kind of agreement.

I’ll remain very cautious while hoping for the best, but remaining prepared for the worst, because if things should get out of control for whatever reason, the price most of us would have to pay could be extremely heavy. I certainly don’t overlook the geopolitical risk we are facing for the moment.

I have no doubt that if Europe should get involved in a trade war with Russia, there is a great probability Europe would relapse into recession. I don't see the same fate for the United States for the very simple reason there is extremely little commerce between the United States and Russia.

To me — for now — the United States remains one of the safest locations for anybody’s investments, which doesn’t mean we should exclude a sizable market correction in the foreseeable future.

Editor’s Note: Pastor Explains His Biblical Money Code for Investing

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The Markit Flash U.S. Manufacturing Purchasing Managers' Index (PMI) for March came in at a strong 55.5, notwithstanding down from 57.1 in February, which was by the way a 45-month high.
united states,investors,global,turmoil
Tuesday, 25 March 2014 11:25 AM
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