If you weren’t with us last week, every Friday I’m embracing the old adage, “A picture is worth a thousand words.”
As such, I’m selecting five graphics that put the week’s investment news into perspective – and pictures – for you. In short, it’s goodbye to longwinded commentary and hello to easy-to-understand visuals, with some quick-hit observations…
The End of America is Nigh!
The gloom-and-doom crowd has banged the drum on this one for years: America’s global economic dominance is about to end.
This week, the International Monetary Fund went a step further by officially setting a date for this changing of the guard.
Based on purchasing power parity (PPP), China’s economy should overtake America’s as the world’s largest by 2016.
Skeptics caution that using PPP to calculate the transition date is too aggressive. However, there are more “accurate” calculations that still point to a transition… except not until 2030. Regardless of the exact timing, this is just one more reason we absolutely need to diversify and own more than U.S. stocks.
Put a Fork in the Global Recession
Unemployment remains uncomfortably high. But remember, this is a lagging economic indicator.
The truth is, the global recession is officially over – and the latest report from the CPB Netherlands Bureau for Economic Policy Analysis proves it. Worldwide trade and industrial production are now back above pre-recession levels. Talk about an impressive rebound!
Last summer, paranoia over a double-dip U.S. recession flooded the newswires. And the number of Google searches for “double-dip recession” increased five-fold between May 2010 and July 2010 – proving that the paranoia hit Main Street, too.
Of course, the double-dip never materialized. And this week, the Commerce Department revealed that while the U.S. economy grew at a slower rate during the first quarter – a 1.8% expansion, compared to 3.1% over the final three months of 2010 – at least it’s still in positive territory.
Unfortunately, the same can’t be said for the U.S. housing market. This week, Standard & Poor’s released the latest reading of the S&P/Case-Shiller home price indices. And it’s official. We’re in the middle of another dip in home prices. Don’t kill the messenger.
Sure, record gold prices garner most of the headlines. But it’s really silver that’s staged the most impressive rally. Not just recently, but over the past decade – as the following chart illustrates. (By contrast, stocks barely rank as an also-ran, even if you include dividends.)
Impressive, yes. But the bullishness is getting lopsided.
Case in point: The two main silver ETFs – the iShares Silver Trust (NYSE: SLV) and the PowerShares DB Silver Fund (NYSE: DBS) – are trading more than two standard deviations above their 50-day moving averages, according to Bespoke Investment Group.
If you believe in the statistical principle of reversion to the mean, a correction in silver prices is long overdue. Of course, that’s something I suggested two weeks ago in my article “The Disturbing Truth About Silver’s Rally.”
And wouldn’t you know it? Silver responded by climbing another 20%. John Maynard Keynes said it best: “Markets can remain irrational a lot longer than you and I can remain solvent.”
It’s All About Revenue
Last week, I stressed the importance of U.S. companies beating their earnings expectations in order to propel the market higher. And I showed how the initial earnings “beat rate” is the lowest it’s been since this bull market began.
However, we can’t overlook the significance of the revenue “beat rate,” too. At this stage of the economic recovery, cutting costs to profitability no longer works.
Instead, companies need to increase the top line to increase the bottom line. And thankfully, the revenue “beat rate” is a bit more encouraging for the longevity of this bull market. It currently stands at 73%, which is the highest it’s been since this bull market began.
That’s all for this week.