Here's What Is Happening In The Economy Right Now

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by: The Atlas Investor

Jordan Roy-Byrne: Welcome back to The Atlas Investor podcast with Tiho Brkan. Thank you so much for tuning in today for episode number 22, Tiho, and in this episode, I know you want to cover the global economic situation and what's going on. Please tell us why you think it's important to cover that right now.

Tiho Brkan: Hello, everybody. Hello, Jordan. I hope you're doing well. Thank you for having me on for another podcast. Looking at the global economic expansion, it's very long in the United States, and it's been segregated into a different boom and bust period struggle the last nine years while the United States has been growing. Basically, we had a problem with Europe in 2011 and 2012.

We had a problem with emerging markets after taper tantrum in 2013, and then 2015 and 2016 with China and commodity bust. None of these slowdowns globally has affected the United States.

Today, we're going to focus on the US economy, as well as the world economy, and the way that the US has been I guess delinking itself. It's not as synchronized to the global as it has been earlier in the decade and that's primarily the reason why United States equities are outperforming every other asset class this year and for the last several years running.

It should be an interesting episode and we kind of focus on a bit more on the economic side of things, which we don't really do here quite a lot, Jordan, so I'm really looking forward to it.

Jordan Roy-Byrne: Okay, Tiho. Let's start off and talk about what's going on with the US economy. First, I just like to say, Tiho, that it's so great that you cover the big picture macro and what's really going on, because so many traders say they don't care about the fundamentals, whatsoever. Can you just explain why you look at fundamentals in addition to charts?

Tiho Brkan: Yes. Actually, I start with fundamentals. It's just that I don't share it very often because most people don't really care for it and they're kind of bored with it. There is this whole I guess a battle going on between I'm a fundamentalist or I'm a technician. I don't really buy into any of that stuff. I just use any tool available in the weapon arsenal to help me produce a profit for me and my clients.

Naturally, I start with fundamentals first, because I want to make sure I'm putting my money into sound economies, sound asset classes, and sound let's say investment opportunity deals.

Whether it's the micro or the macro, I always look at what's going on as a foundation, as the underlying picture, and then I would look at the actual deal, I would look at the actual asset class, I would look at the opportunity, I would look at the price, the valuations, the trend, and many other things. I always start with the fundamentals. I would like to give you an example before we start, Jordan.

As you know and maybe as our readers recall, listening back to the several podcasts, I have been doing some investments with some of my clients in the Czech Republic and we are looking at finishing the projects here in real estate. The question is not one of real estate or the actual opportunity that was presented to us.

It's the fact of how we came to invest in the Czech Republic in the first place. Obviously, Eurozone had quite a slowdown as I just said earlier in 2011 and 2012 and, crisis after crisis, it hasn't really done well since 2007 until let's say 2014. It's been in a bit of a downtrend on a relative basis to the United States and Asia.

Obviously, from that, there will be some opportunities there. When you look at it at a macro level, there are certain countries that have problems, debt problems, growth problems, no reforms, and so forth.

One of the countries that really stands out in my opinion, because of the growth, because of the manufacturing, because of the growing wages, the tourism boom, the low taxes, and the very competitive nature of the country, great geographical location, decently growing population, which is decent for Europe because Europe doesn't have a very good demographics feature, but without the immigration problems that some of the Western Europe countries are going through right now and the crime rates that are seen with that, and when you put all these together, this was the Czech Republic. It didn't have a large amount of debt relative to its peers. It has its own currency. It's not blocked within the euro.

It's actually been raising interest rates instead of cutting them or keeping them in negative territory like the rest of Europe. The unemployment rate is below 2.5%. The real estate market is booming. Only 25% of all real estate is purchased with mortgages, so there's not a lot of debt in the country. Wages are growing at 7% per annum, real inflation adjusted, which is the fastest-growing wage not only in Eurozone but in the whole OECD. You know, it looks like our investments are going to do quite well. We're going to get, I believe, over 20%, maybe even over 30% returns, cash on cash. Obviously, we're bored, right, with the macro investment?

The main point of this is that with the micro-investment, looking at the actual deal itself and the price that we got it for and the opportunity with the renovation process, the value-add process, but what's more important is the way that we chose the Czech Republic and why we chose this from the macro side. I hope that answers your question because I believe macro fundamentals are the first step to actually making a sound investment. You have to know where you're putting your money, and it's got to be a smart place. It's got to be a place that's showing growth and it has fewer risks than the other parts of the region, let's say.

Jordan Roy-Byrne: Okay. Very well said. Speaking of a first step, let's take that first step with the US and see your opinion of what's going on now. Starting off, Tiho, how long is the current business expansion. I know we talked about this last quarter, but how many months are we up to and how much longer can this continue in your opinion?

Tiho Brkan: It can continue for as long as it wants, there's no rule. Business cycles cannot stay in a boom phase forever, unless you're from Australia. We've done 26 years there without a recession. Generally speaking and looking at the history, United Stated cycles on average are about 60 to 70 months, and we are well past that. We are now at 112 months as of next month. We're approaching 120 months, which is going to be a decade since the great recession of 2008, the GFC. Obviously, what happens to business cycles is that, somewhere along the line, the Federal Reserve, by the way, which has hiked rates once more in September, will over-tighten the monetary policy, because they admitted recently themselves that they don't really know what's a normal rate to get back to.

They don't even know what they are meant to be doing. They're kind of following the data like the rest of us. If things look okay, they will keep hiking and then will continue to hike until something snaps. First, it's your ankle that snaps, then your knee stops working and then you can't walk. That's called the recession, right? Excuse my metaphor for it, but first you catch the flu, then you get a sore throat, then you get a lung infection. That's kind of how it goes. The fed is in this tightening mode and the yield curve is getting closer and closer to inversion and, you know, the public is very overconfident. All of these things, we're going to cover in this podcast, but generally speaking, this is quite an old expansion.

In my opinion, even though it might go on for another couple of years or maybe couple of quarters only, it's hard to say and predict the future but the stock market is fully valued. There is quite a lot of bad breadth. Right now, with these Hindenburg omen signals occurring, it's fully priced. As I said in particular, price to sales ratio is as high as the year 2000. The business cycle is old, it could get old, but still the bull market is very aged.

Finally, the fed is becoming tighter and tighter. The dollar, is going to maybe get stronger from here, a little bit stronger. It has already for the first part of this year. All of this is impacting corporations. You know, it remains to be seen how long the US corporations can buck the trend from the rest of the world, because the rest of the world is really already under pressure.

Jordan Roy-Byrne: Okay. I want to talk about consumer confidence which we know has been elevated for a while. How do you use this information? I mean, is this super actionable or is it just one of a number of statistics you look at to try and figure out where the economy is and where it might be going?

Tiho Brkan: That's a great question, Jordan. Here in front of those who are watching the podcast on YouTube or reading it on the website, I have the US consumer confidence from the University of Michigan. There is also I believe the Conference Board Consumer Confidence Index as well, and they have something very similar, too. Both of these indicators are kind of showing the same thing right now. Unfortunately, I don't have a chart here that goes back several decades. Basically, we're only in the third period of where the public is very optimistic and I guess euphoric. The first period was in 1967, under President Lyndon. Second period was in the late '90s, during the tech boom. That was swinging '60s.

This is the tech boom, the flying '90s, the soaring '90s, whatever you want to call it, the dotcom '90s. That was under Bill Clinton and we had euphoric public sentiment and optimism. Now, under Donald Trump, carried from Obama, we are having a euphoric US public once more. Every one of these euphorias where the public was overly optimistic or super confident about their prospects, about their future, has led to, number one, a recession, number two, a bear market, and number three, a real estate bust. If that doesn't answer your question, you know, I'm not sure what will.

That doesn't mean history will repeat itself precisely, but there is a very good chance, looking at the precedents, that whenever public sentiment, consumer confidence gets this high, this elevated, within the next three years, the stock market has an awful negative performance, not just a flat negative performance. A real loss like a bear market. The economy goes into contraction, sometimes less so if it's inflationary, sometimes more so if it's deflationary. Unemployment rises in the real estate comes under pressure. The US public does not have a very good track record. This is very clear, by the way, because the last time there were this euphoric was late 1999 and early 2000. On the contrary when they were very negative was in 2009 and 2011.

Had you bought the stock market in both of those instances, you would have tripled your money or doubled your money respective to those dates. Whenever the public is euphoric, you ought to definitely consider being a contrarian, or if not that, at least cautious. That doesn't mean that it can't go on for a few more quarters and the public can get even more confident and the momentum is strong with the US equities, but it's hard to say how we go from here, but I'm definitely alert to the risk right now. I don't like to see the public at these kinds of levels that they are, coupled with many other things that we talked about before, including valuations and breadth, Jordan.

Jordan Roy-Byrne: Okay, Tiho. Let's talk about manufacturing. I have two questions for you. The first question is how big and how important is the manufacturing sector to the overall economy? I say that in thinking about, because it looks like from the charts you sent me, we had a mild recession in late 2015 or in early 2016. That's my first question.

My second question is we have two charts here, one is of the US manufacturing survey, and if you look at that, that looks very strong, it's elevated, it's trending higher. Then we have the Philly Fed manufacturing survey, and that looks like, in recent months, it's kind of turned down. It's not negative yet. I guess, the first question, the overall importance of manufacturing to the overall economy. The second question, can you discuss these two charts and maybe the difference?

Tiho Brkan: Great question about that, Jordan. The manufacturing sector is not that important to the overall economy. The United States is still a very big manufacturer, but it doesn't create that many jobs, because technology is replacing jobs. No one including Donald Trump can bring that back. We're not in 1960s anymore, and majority of the things that happen in factories and other high-end manufacturing plants occur in systemized fashion, with computers, robots, and AI in some instances already. We don't really need Billy Joel and Ted and Bob and Fred helping out to put a car together, because the machines are doing that, and it's all systemized and programmed in a very interesting way.

Having said that, that doesn't mean following manufacturing is not important, just because the US economy or Australian economy or the UK economy is service driven. What it means is that, following the manufacturing surveys like ISM and PMI is very important for the actual stock market sentiment, because these are purchase managers and CEOs and the important guys in the corporations telling us how they feel, what their optimism is like, what their pessimism is like, and what level of economic activity they expect in the near future.

While manufacturing is not that much a bigger part of the United States economy or any other economy, unless you're China, South Korea, Japan, or Germany, or Vietnam for that matter where I used to reside for a while, the important thing is following manufacturing is very good because it's cyclical, and it kind of connects very closely to the stock market. I hope that answers your first question.

The second question is, yes, that's true. There are quite a lot of sentiment surveys that are showing that we are having finally a cyclical slowdown in global manufacturing. United States has bucked this trend. There are some surveys like the Philly Fed that show that even the United States manufacturing is slowing, but it's still growing, it's just the growth is slowing.

Some of the other manufacturing surveys around the world, including Asia or any particular Europe, have fallen down to 50. They've came to a standstill. I wonder why somebody is kind of looking at the stock market and saying, well, Europe is down or flat for the year, emerging markets are down for the year, and US is kind of up for the year. If we don't kind of look at year to date, but actually look at it from peak, from the 26th of January peak, United States is up about 3% to 4% for the year, emerging markets are down about 15% for the year, and I believe Japan developed world and Eurozone is down about 6% for the year or so. Generally speaking, that kind of connects very closely to the economic activity in particular manufacturing surveys.

United States is holding up, but it's not growing as much as it used to, so the share market is kind of moving sideways towards up. The momentum is still pretty good. On the other hand, the rest of the world, the manufacturing has slowed, and the stock markets have been discounting that in recent times. Definitely, there's a pronounced slowdown in the rest of the world, and US has bucked the trend, so that's why their share market has outperformed.

Jordan Roy-Byrne: Okay, Tiho. Moving on, let's discuss corporations and corporate profit margins. In recent years, they appear to be ticking up slightly, but they're not quite where they were in let's say 2012, 2013. Still fairly elevated historically. I want to get your thoughts on this chart. My second question or a follow-up to that would be, what's the second order information that we can invert from corporate profit margins, if anything?

Tiho Brkan: One of the interesting things is that corporate profit margins, they don't peak together with the stock market. The stock market can continue to rise and continue to rise for a lot longer period, as history shows that when the corporate profit margins peak. Eventually, as corporate profit margins start to decline and deteriorate and corporations become less competitive, this tends to lead to a nature. If you look at the trough of almost every single recession or a stock bear market or even a stock correction, usually it's a company with a very low trough of corporate profit margins, especially in the chart that I'm showing here, for those watching on YouTube or reading on the Atlas Investor, we had a peak in 2012, actually, just after 2011.

Most of the world equities peaked in 2011 to 2012 to 2013 in particular emerging markets, and they haven't recovered since. They've been kind of flat. In Europe, they made a little bit of a higher high, but it's been very difficult for global stocks, excluding the US, to do that well. In the US, some of the corporations like tech continue to have very good profit margins. Tech is the main driver of this bull market, in particular, over the last, let's say, several years. The top large cap stocks with an index are all tech names. We didn't have this during the oil boom and when the energy peaked, we only had five out of the top 10 I believe large cap companies were energy.

During the last tech boom in the late '90s, we only had five or maybe seven out of the top 10 large cap stocks with technology. Now, all of them are tech. We're really predominantly driven by tech. Now, other sectors are really doing that well, because their corporate profit margins have peaked. That doesn't mean they are in the downtrend, but they're not performing as well, but tech is kind of holding on the market. This is another reason why US continues to outperform Europe, Japan, and emerging markets. The US stock market, the S&P 500 is tech heavy, and this is predominantly, once again, comes back to fundamentals.

Technology seems to be in a strong cycle right now, and it has been so for several years already. Companies like Amazon (NASDAQ:AMZN), Apple (NASDAQ:AAPL), and other things have done really well and made their shareholders very, very wealthy, and that comes down to fundamentals. People who have read the fundamental picture or invested in that macro environment years ago are getting the rewards for that. For the rest of us who didn't like myself, we are looking back on it and saying, well, we should have been smarter.

Jordan Roy-Byrne: Okay, Tiho. Now, Let's talk about some other parts of the world. First, let's talk about the entire world itself. Starting off, I want to ask you, when you look at the statistics for leading global economies, when you look at everything together, it seems the data is kind mixed. Can you just cover what you see in this data exactly and what you're takeaway is given how it's kind of mixed if you look at everything together?

Tiho Brkan: Sure. We're talking about the OECD composite leading indicator, which is one of my favorite indicators to gauge the business cycles strength or weakness or the ebb and the flow of the cycle. This indicator has done really a good job, especially if you look at the world composite, it's done a really good job when it predicted the slowdown in 1998 during the Russian Default and, prior to that, the Asian financial crisis. It's done so again in early 2000s during 9/11 and the tech bust and Argentinean Default and the whole slowdown in 2002 and 2003, and then obviously, eventually, predicted the slowdown in 2008, as well as the Eurozone crisis of 2011, 2012. That's the one that I was meaning to say.

Then finally, the emerging market slowdown and the commodity bust and China slowdown in 2015. It seems that the global economy is slowing once more, and we're getting a little bit of a mixed picture from different areas, because China seems to be coming back onboard, while Japan and Eurozone and US are kind of flatlining, but the rest of them are slowing down. From that aspect, it looks like the world as a whole is starting to slow down again. If we look at the world stock market with the United States, it's kind of flat from the January peak. If we look at the world stock market excluding United States, it's actually down from the January peak, down by about 10% or so. The leading indicator is actually discounting exactly what we're seeing right here.

The reason there's a mixed picture is because there are some revisions in the data from time to time as well, Jordan. Looking back in hindsight on it is much easier to understand how it all played out relative to looking at it in real time. Sometimes, these indicators don't help. That's why I always tell my followers, my readers, and especially my clients, first and foremost, we pay attention to the stock market, the price of the market, the trend and the momentum of the market. When the market senses that something is wrong, it's going to know that a lot quicker, then we can figure it out from various data points. The stock market is discounting all of the data available every single day.

All of the participants, their knowledge and wisdom, their opinions, they're making bets every single day in the stock market. Yeah, it's very, very interesting. Furthermore, if we look at the OECD composite leading indicator from China, that's had a very good track record of following the actual emerging market index, because, predominantly, Chinese growth is what pushes the rest of the emerging markets up as a whole. In particular, Taiwan, South Korea, and China make up 50% of the EEM ETF.

Those three countries are basically like one big manufacturing block, and they're right next to each other. That's a very strong part of the Asian economy, manufacturing side of the Asian economy. Recently, we're having a little bit of a rebound in the leading indicator from China, and emerging markets are trying to find supports somewhere around here. It remains to be seen whether we have found a bottom and a place to rebound. If the US dollar continues to rally, obviously, a lot of us are still suspicious. It's hard to say.

Jordan Roy-Byrne: Okay, Tiho. Let's delve into specific areas for the rest of the world and start off in Europe. I know you want to discuss consumer confidence in Europe, which judging by this data, it appears to be rolling over a little bit and ticking down. I mean, is this drop in consumer confidence in Europe significant or will this just prove to be a little bleep in the uptrend that's been intact for many years?

Tiho Brkan: That's hard to say, but one of the things that we've done is, maybe several podcasts ago, we had European Union business confidence, I mean, we're discussing this, which showed that German CEOs were extremely confident. Only maybe five or six months ago when we were discussing this. We were saying that it seems like we're close to the peak, because there's same kind of a confidence in German CEO relative to the manufacturing sector that we've seen before in the year 2000 and 2007 and as well as 2011. German stocks have corrected by some 10% or so.

Generally speaking, European stocks have corrected ever since consumer confidence in the whole of Europe has also peaked. It was right spot on, whenever the public gets extremely confident, future expected returns by the stock market tend to be down and sometimes really poor returns. Whether or not this is just a small bleep or not, it's hard to say, but whenever confidence gets this high, I think investors need to bring their expectations down, and the stock market usually does not have a lot of juice left to go higher. Maybe it's different this time, I doubt it. As I said before, it's definitely a contrarian indicator and it's worthy of being cautious here, Jordan.

Jordan Roy-Byrne: Okay, Tiho. Let's move on and discuss Japanese business confidence. You also have a nice chart here of the EWJ ETF. This looks interesting to me, Tiho, because if you look at the ETF, it looks like the index had a very significant breakout recently, but now has corrected a little bit. It could be retesting the breakout.

Could this be a start of a bigger move higher in Japan, and what are you getting from business confidence to color your view on the Japanese market itself? Because I know Japan is a little different and that they've been growing so slowly over the past decades and they've been in a larger bear market for decades. Give us your views here on the Japanese economy business confidence and maybe mention one or two differences you see there with the rest of the world.

Tiho Brkan: Great question. I ought to think that we should be concerned with doing a full podcast in Japan one time, Jordan. Before I continue, what do you think about that? We should actually cover the third biggest economy in the world, its stock market, its currency, its economy, real estate. I haven't travelled to Japan in about four years. Usually, as you know, I do these podcasts where I travel. I'd been stationed for the last six, seven months working hard on a real estate project and some other investment. The travelling season is upon me once again, and maybe I hit your pen and we cover it in-depth, what do you think about that?

Jordan Roy-Byrne: I think that'd be a fantastic idea, Tiho. Given how, as I said, Japan compared to the US especially and most of the rest of the world, it's been such an underperformer in recent decades that I'd love to get your view. If you think this is a market over the next 10 years or so that can really outperform the rest of the world. I mean, given how badly it's underperformed in recent decades. As I said, if you look at the price action, you always say, you have to follow price. It appears that the price action in Japan, I mean, it's been trending up and it's broken above some key levels. Those are my thoughts on Japan. I would love to have you travel there and give us your take after you've been on the ground.

Tiho Brkan: Yeah. You know, of the things is I grew up in Japan a long time ago as an exchange student. My father sent me there, so lived in Tokyo and Osaka, and I can speak a little bit of Japanese as well, and it was as very interesting experience. I love the culture, I love the country, I love the traditions, the history, it's amazing. Japanese market has been underperforming since, I believe, 1989. It's just been in a relative downtrend constantly and it still is so, despite the fact that it's broken out recently.

The comment that you made about the EWJ ETF, if you were actually to get the MSCI Japan statistics which I have and going back to this 1970s, you will notice that this horizontal line of support or resistance that we recently broke in the EWJ, which is similar to the MSCI Japan index, it goes back all the way to 1990. This is a major breakout here, and we could be starting a whole new bull market. It's very difficult for me to say that, because, look, business confidence is quite high. That doesn't mean that Japanese stocks can't keep rallying. We saw that in 2004, by the way. Japanese manufacturers were very buoyant, very confident, and we kept seeing higher prices in the Nikkei, which is good. Also, Japanese consumer confidence is pretty decent.

It's not extremely high, but it's decent, and the currency is what's making this move happen, Jordan. As you know, the debt problems, not very good with the country. Basically, there's a huge debt overload. The demographics problems are a disaster, the Asian population, no net immigration. It's a very xenophobic culture, it doesn't even let … You know, Hong Kong and other parts of Asia at least let certain other countries come and work there, earn their wages. Predominantly, the Filipino people are famous for working in Hong Kong, making larger salaries than in their country, sending money back and working there. This works for Hong Kong for many, many years, and I also lived in Hong Kong. Japanese don't allow that.

It's very difficult to see that happening in the overall country. There's no positive immigration and the property prices have been falling. Despite recent recovery, they have been falling since 1989. The stock market hasn't done well. The question is if this is a major turnaround for Japan. I think it's really a monetary experiment, and in regards to the stock market, there's no reason why it can't keep going higher. In my opinion, that's a big possibility. It's very difficult for me to buy something and hold a large position in it without having a positive macro effect or strong macroeconomic numbers. Japan is mainly, I would say, just a trade, a technical trade where we are playing a currency devaluation.

Hopefully, they're trying to inflate the debt away without having the constant deflation and the suffering. How long it's going to last? It's anyone's guess. We ought to do the whole Japanese podcast and a large segment on it and maybe get a few other people's opinions, because there's quite a lot of famous bulls and bears. Some of the people are very, very bullish in Japan after Japan being in a downtrend for about 30 years and they call the 2012 to 2013 period a major secular low for the stock market. On the other hand, there are a lot of bears who are trying to short the Japanese bonds and the currency and think that Japan is bankrupt and the world's going to end there, you know? I've heard both stories numerous times.

I have some friends who have huge positions, huge bearish positions on the Japanese yen, and they're expecting that currency to collapse. I'm talking like 300 yen per $1. It's currently, I believe, at a 113. Mind you, these investors didn't put on these positions recently. They put them on I think back at the beginning of the bull market, when the yen was around 80. Back in 2012, 2013, they had these huge puts like a 10-year and 20-year puts that the Japanese yen will one day. I don't focus too much on Japan, and I don't invest a lot there myself, but I probably should have been investing. Especially now, since we have a breakout. It could carry forward, Jordan. Very good analysis and a very good observation.

Jordan Roy-Byrne: It's so fascinating. You and I, we definitely need to do our own podcast on Japan, because we could just keep going on and on. It's so interesting just that the differences compared to the other major countries. With that being said, Tiho, let's get into emerging markets. Something you want to talk about are the analyst net earnings revisions in emerging markets and tell us why these charts are important to you, why it's useful?

Tiho Brkan: I have a chart like this, and I track the sentiment of analysts, not just in emerging markets, but also in Europe, Japan, United States, and the all country world index, too. I've picked this one out because it works like a charm. Recently, we had analysts get just a little bullish. Generally speaking, whenever they get just a little bullish, that's a peak right there and then. Like analysts kind of stay bearish for a prolonged period of time, they always expect companies to do worse than expected, they're revising the earnings lower on net, not every analyst, but generally speaking as a sum. That's a rolling sum. Then recently, at the beginning of 2018, collectively, analysts became slightly net bullish. Of course, what happen to emerging market index, it peaked and corrected by 20%.

Unless we're coming out of a powerful bear market, where analysts tend to get kind of bullish at the beginning of the bull market, usually, other than that, whenever they get even slightly bullish, you should expect a correction or a bear market. Whenever they get really bearish, we are very close to the low. We're either at the low itself or we are maybe several months or quarters away from the low, depending on if we have a one final drop and a cascading drop. Usually, whenever you see analysts get bearish, that's when we're very close to the low. The only time that this indicator disappointed was in 1997 when we had an Asian financial crisis and all the analysts got really bearish, we had a bit of a rebound from oversold conditions.

Then in 1998, we had a huge cascading drop in emerging markets in Asia, and that's because Russia defaulted. That was the only other time. Usually, when they trough we are usually close to the bottom. Right now, we are back to bearish analysts that are expecting earnings from emerging markets to trend lower. As much as I don't want to say this and I don't want to be rude, I feel like saying, no shit, Sherlock. Because emerging markets are down 20% already, so we don't need analysts to tell us that the earnings are not going to be as good. The market's already telling us that, that's why it's down 20%. We can see it in the trade figures, the South Korean exports have stalled.

We can see that US dollar has been pressing against the currencies of Asia, export powerhouses, and they're trying to devalue their currency or their currencies are weakening anyway, just to improve their export picture. Generally speaking, it's quite common knowledge that the earnings in the emerging markets index have slumped, and analysts' bearishness is not a surprise. It should be a contrarian indicator whenever they get bullish or whenever they get really bearish as a total sum. We are not at either point yet, Jordan. Therefore, we're in no man's land.

It's hard to say whether the current horizontal support in emerging markets will hold. The stock market in general is quite cheap in this region of the world relative to the US. I would have like to see more analysts bearish. I would have like to see the US dollar have a proper top and break the low, the 200 day moving average, both of which would have helped future earnings and the overall fundamental picture.

Jordan Roy-Byrne: Okay, Tiho. Quite a bit that you've covered here today. If you can, could you give us a quick wrap-up, what are the important takeaways?

Tiho Brkan: Okay. If we were to do a point form, I would say it like this. Long economic expansion in the US, fed is still hiking. It's not moving very fast and the yield curve is still not inverted, but we're getting there. The economy could start to slow down soon, looking at how confident consumers are, how euphoric the public has become, similar to 1967 and similar to 1999. Those two were major peaks in the US stock market, and for the next decade, US stock market was flat. Keep that in mind. Why has the US continued to outperform in the asset classes like stocks? The answer lies behind manufacturing. US manufacturing is still expanding and it's still growing and it's holding its own, while the rest of the world, in particular, Europe and emerging markets have slowed down.

The leading economic indicators continue to point that world is entering another slowdown. The last when we had was 2015, 2016, and we are at the beginning phases of this one. Will it expand to a bigger slowdown or will this be as bad as it gets with the correction and emerging markets in Europe? That remains to be seen. In particular, I don't see any major pickup yet in South Korean exports. I don't see any major pickup in other parts of Asia where the economy is starting to get stronger, with all these currencies that had been weakening. Because usually whenever Asia has weakening currencies, it increases demand, because the cost of goods price in those currencies becomes cheaper to foreigners from Europe and, in particular, from the United States.

Confidence in the rest of the world is very high. Japanese manufacturers are overly confident as they've been prior to previous peaks in the stock market. The same can be said about the EU consumers. EU consumer confidence is one of the highest levels since 2000. Recently, it's starting to trend down from a very high peak, and the stock market is following it. Whenever it probably gets this confident, usually you have follow-up over a recession, at least a slowdown and some kind of a correction or a bear market. Generally speaking, we're stuck between a rock and a hard place, Jordan. It's a hard question to answer, but the main focus of the question is this. Will the US pull the rest of the world out from the current slowdown slump?

Or will the contagion effect spread towards the US and the tightening of interest rates that the fed is doing, it finally squeezes the noose through tied around the neck and the oxygen starts to run out? The economic recovery is quite old. I would say, eventually, if not now, eventually, it would be the rest of the world dragging the US down, because I can't see really how the US is going to decouple and continue to grow on its own consistently in a globalized world in of the 21st century. We have to respect the price momentum and it's no time to be shorting US just yet. The bull market is still strong and still making new highs. I guess stay invested for the time being and keep your stop-losses tight.

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