Tags: US | China | growth | currency

US Remains the Only Real Bright Spot Among All the Major Economies

Monday, 02 March 2015 09:22 AM Current | Bio | Archive

On Friday we got the second estimate of the real annual GDP growth rate in the U.S. for the year 2014 as well as for the fourth quarter. The annual real GDP growth rate came in at 2.4 percent in 2014, which was up from 2.2 percent in 2013, and for the fourth quarter the real quarterly growth rate was revised down to 2.2 percent from the first estimate of 2.6 percent, which was certainly not a stellar performance but not bad either.

When we put the U.S. annual real growth GDP numbers in the context of those we have gotten since the Great Recession of 2008 and 2009, it shows they are not strong enough for the U.S. becoming the growth engine for the world as a whole.

And here we have a problem lurking below the surface for long-term investors who would like to invest part of their portfolio outside the U.S.

On Sunday, Soren Skou, chief executive of Maersk Line, which is the world's largest container shipping company, said in an interview with the Financial Times that the possibility exists that global trade growth could slow this year, notwithstanding the low oil prices, because growth in Europe as a whole remains sluggish while the Chinese, Russian and Brazilian economies, which were economies that generated growth not so long ago, have obviously lost their power to continue to perform. He also noted that the U.S. economy remains the only real bright spot among all the major economies of the world while the performance of the U.S. was "good," but "not great."

What's also important and complementary to Skou's comments is that the Baltic Dry Index (BDY), which is priced in dollars in London and provides an assessment of the price of moving the major raw materials by sea, dropped on Feb. 18 to $509, which was its lowest historical level in 25 years. Last Friday the BDY was priced at $540.

By the way, China's seaborne coal imports slid 10 percent in 2014 after growing16 percent in 2013.

On Monday the Chinese National Bureau of Statistics released the country's official purchasing managers index (PMI), which came in at 49.9 for February, its second consecutive reading below the 50 reference line that separates growth from contraction. No, that was not a good performance.

The People's Bank of China (PBOC) practically simultaneously surprised market observers by cutting its benchmark one-year deposit rate by 25 basis points to 2.5 percent and the one-year lending rate by 25 basis points to 5.35 percent after having already cut these benchmark rates in November, which was, by the way, the PBOC's first real easing act in more than two years.

Not surprisingly, the Chinese yuan quoted Monday morning at its lowest level against the dollar since October 2012. Please take notice at the same time emerging economies' currencies like the Indonesian rupiah quoted at its lowest level in 16 years, the Brazilian real hit its lowest level in 10 years but didn't stay there and Turkey's lira quoted at an absolute record low.

It now looks like the global currency war is picking up steam for real, now that China has definitively joined the "herd" of the 21 central banks worldwide that have lowered their benchmark interest rates so far this year in the hope of stimulating their economies. I hope they will succeed, but I have my serious doubts.

In my opinion, when practically all these important central banks in the world do the same thing at the same time, with exception of the United States, we are bound for a bad outcome. Believe me, I hope I'm wrong.

In the context of the long-term investor, I would stay away from economies, developed as well as emerging/developing, that absolutely need growth stimuli through easing. I would remain with my two feet on the ground and stay in the U.S. where there is still continuous "real" growth on a yearly basis of above 2 percent since 2010, as well as in direct U.S.-linked and dollar-liquid equivalents.

About the Author: Hans Parisis
Hans Parisis is a regular contributor to the Financial Intelligence Report. To join the Financial Intelligence Report, click here. Click Here to read more of his articles.

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In the context of the long-term investor, I would stay away from economies, developed as well as emerging/developing, that absolutely need growth stimuli through easing.
US, China, growth, currency
Monday, 02 March 2015 09:22 AM
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