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5 "Tells" that the Stock Markets Are About to Reverse

Boost Your Portfolio by Investing in Emerging Markets

Portfolio / Emerging Markets May 20, 2009 - 08:19 AM GMT

By: Uncommon_Wisdom

Portfolio

Best Financial Markets Analysis ArticleTony Sagami writes: The Dow Jones Industrial Average suffered a 3.5 percent loss last week. One of the main culprits was a report from the Department of Commerce that retail sales dropped by 0.4 percent in April.

That was on the heels of a 1.3 percent drop in March. And back-to-back quarterly declines in the last half of 2008.


That’s what happens when people lose their jobs or are afraid of losing them. Last week, 637,000 Americans filed for unemployment insurance.

Will things get worse? Ab-so-freaking-lutely!

arrow outline Add Foreign Spice To Your Portfolio Those jobless numbers are going to get even worse. Chrysler’s bankruptcy filing last week and General Motors’ plans to close 1,900 of its dealerships guarantees it.

arrow outline Add Foreign Spice To Your Portfolio The trouble isn’t limited to just the auto industry either. Production at U.S. factories, mines and utilities dropped by 0.5 percent in April, the sixth month in a row of falling output.

arrow outline Add Foreign Spice To Your Portfolio Americans are so worried now that they are doing something they haven’t done in years — saving! America’s savings rate increased to 4.2 percent in March.

arrow outline Add Foreign Spice To Your PortfolioAmerican Express (AXP), Wells Fargo (WFC), Citigroup (C), and Bank of America (BAC) all reported credit card default rates above 10 percent.

I don’t intend to sound like a total downer. Believe me, I would love to tell you that things are great and are going to get better … but I can’t do that for the U.S. market today.

I can, however, give you a very positive picture about other parts of the world.

Life is Good #1: China

Let’s take retail sales for example. Instead of steadily shrinking like the United States, retail sales in China are booming. Sales for the first three months of 2009 were up 15 percent from the same period a year ago, but were actually up 15.9 percent if adjusted for lower prices.

The demand for food, clothing, autos and home decoration materials were the strongest. Chinese auto sales skyrocketed by a 37 percent year-on-year increase in April to 830,000 cars.

“That the economic data for April and the data for the first quarter creates a whole picture together indicating that positive changes have occurred in the economic operations of China,” said Ma Jiantang of the National Bureau of Statistics.

Life is Good #2: India

India's steel consumption is on the rise, and auto sales are expected to jump up to 5 percent this year.
India’s steel consumption is on the rise, and auto sales are expected to jump up to 5 percent this year.

The Indian stock market rose for the 10th week in a row, and its economy is expected to grow by 6 percent in 2009. That’s below the breakneck pace India previously enjoyed, but could you imagine the cartwheels that Obama and Bernanke would be doing if the United States were growing at a 6 percent rate?

The World Steel Association expects India to be one of the few countries where steel consumption is expected to rise, and the Society of Indian Automobile Manufacturers expects auto sales to rise by 3 percent to 5 percent this year.

Life is Good #3: Taiwan

Chen Tain-jy, chairman of Taiwan’s Council for Economic Planning and Development, proclaimed last week that, “the worst stage is undoubtedly over and Taiwan’s economy is likely to gradually pick up in the fourth quarter.”

Why so optimistic? The political, transportation, and economic barriers between China and Taiwan are quickly crumbling, and Taiwan is enjoying a resurgence in new business from its Chinese neighbors.

Ties between Taiwan and China have been tense for decades, but for the first time since 1999, officials from the two countries met, agreed to host permanent representative offices in each other’s country, and agreed to boost transport and tourism links.

Life is Good #4: Brazil

Brazil's stock market has soared more than 75 percent since October.
Brazil’s stock market has soared more than 75 percent since October.

The Bovespa, Brazil’s primary stock market index, has jumped by more than 75 percent from its low point last October thanks to aggressive interest rate cuts from the Brazilian Central Bank.

Unlike our Fed, which has already shot all its monetary bullets by lowering interest rates to essentially zero, the Brazilian Central Bank recently cut its key rate to 10.25 percent. That may sound high, but it is an all-time low.

More importantly, it leaves lots of room for even more stimulus.

As you can see, some parts of the world are dancing to a different economic drummer. Sure, we live in a global economy, but the countries that are rich in natural resources … that aren’t spending beyond their means … that enjoy trade surpluses and have large war chests of foreign reserves have been able to avoid the financial plague that is killing the U.S. economy.

Look, your investment feet are not stuck in U.S. cement. Nobody is forcing you to keep your money in U.S. stocks. What you should be doing with your portfolio is avoiding/underweighting the countries with slumping economies and loading up on the countries with positive economic prospects.

The four countries above are a great place to start your investigation, but make no mistake … doing nothing is the worst mistake you can make this year.

Add a little foreign spice to your portfolio — especially from Asia — and I believe you will be very happy with the results.

Regards,

Tony

This investment news is brought to you by Uncommon Wisdom. Uncommon Wisdom is a free daily investment newsletter from Weiss Research analysts offering the latest investing news and financial insights for the stock market, precious metals, natural resources, Asian and South American markets. From time to time, the authors of Uncommon Wisdom also cover other topics they feel can contribute to making you healthy, wealthy and wise. To view archives or subscribe, visit http://www.uncommonwisdomdaily.com.

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