"Kee" Points with Jim Kee, Ph.D.

Current state of the global economy? I’d say, still mediocre. The Eurozone cut rates by 0.25% as expected, given the strength of the Euro and the low rate of inflation there. I can’t imagine why the press called that a “surprise move,” except for the fact that it makes a catchier headline. Last week Europe notched a 2nd quarter of positive growth, albeit just 0.1%for the quarter, which I would call negligible relative to the measurement error. Italy, for example, the 3rd largest economy in Europe next to Germany and France, contracted -1.9% in the 3rd quarter (-2.1% the previous quarter). In fact Italy has the worst growth record of any OECD (Organization for Economic Cooperation and Development) country over the last decade. So Europe has a long way to go. GDP growth decelerated in Japan during the 3rd quarter as well, although the 0.5% number (1.9% annualized) beat expectations of 0.4%. And in China the headlines read “Beijing signals determination to unleash market forces” (Financial Times). Recent official communique from China have included mention of everything from elimination of state-influenced prices, to facilitating the selling of privately owned land (currently prohibited), to deregulation of many giant state-owned enterprises (SOEs). Of course those are words, not actions,. but at least they point in the right direction. Finally, in the U.S., most of the data over the past several weeks (housing, manufacturing, retail sales) points to slow growth. A big positive here has been low energy and gasoline prices. Wall Street analysts are pretty pessimistic towards the upcoming holiday season, so we’ll see.

 

Of course, from an investment perspective it is often asserted that what really matters is what’s priced in? What is the market expecting?  I think the data point to fair-valued stocks in the U.S., and perhaps emerging markets (treating a heterogeneous group as homogeneous!) a little cheap in Europe, and cheap as always, Japan. But keep in mind that at South Texas Money Management we don’t have to rely on thousands of stocks –overall markets - being attractive. We only have to find 60 or so with 25% upside to our price targets. That’s a much more doable task!