Good news. China reported their GDP and magically it arrived at exactly what most were expecting – as they devalued their currency again. Recall it was only 18 months ago when chatter was that the Chinese currency would become the new world currency – replacing the dollar. Uh, right.

By the way – China is not growing at 6.7% as reported…but that is alright, don’t worry. They still produce the equivalent of a new Greece GDP each year. Not too shabby – but not world bending either. Slow and steady is just fine guys.

Likewise, as the year began in the midst of all the fretting over China’s doom and the collapse in oil prices, along with sub-$2.00/gallon gasoline, the natives were restless. Or should I say flooding out of their equity investments and clamoring into more bonds?

The chart above from Dr. Ed shows the flood out of equities in the first 6 weeks of this year nearly equalled the 2008/09 panics. Really? Nearly 10,000 points higher and yet the same fear levels.

What I like most about this chart is that it covers all the way back to the end of 2007. Look at the larger view as a whole and note in your mind how many data points are below the zero line (outflows) and how many are above (inflows). Be assured of this — at the end of secular bull markets, the charts look opposite – with massive inflows for years.

The Benefits?

Long-term equity investors looking to own value can continue to shop and build during the short bouts of panic seemingly normal now.

Be assured, the masses show fear with their wallets.

Why else would you buy negative rate bonds overseas?

I mean after all, who wouldn’t want a guaranteed 1.7% (or less) on their money for the next 10 years while dozens of solid companies pay twice that and have for decades? As the title notes – laughable.

The good news is rates will likely stay low for longer than expected – even though they should rise a bit in my opinion. They will stay low because if you live in other parts of the world with negative rates as your alternative – 1.7% for ten years looks like a steal.

Crawling Back

The all-feared earnings season, expected to be the worst in decades has begun to flow – at far better levels than expected. Seems companies can indeed get out of the way of the various oncoming freight trains heading at us – loaded with doom.

Let’s remain patient. I stand by the idea we can be somewhat confident there will be a few potholes in this earnings season and we need to be ready to take advantage of them while others will see them as negative short-term.

The Barbell Economy is at work under the noise – make certain you are aware of it.

Comedy At Its Best

Under the “no wonder this seems so confusing” label this week, we have this snapshot below from a well-traveled financial site providing opposite headlines within an inch of each other.

And, of course, there is no story about gold without a reference to something else melting down – this time it is apparently Miami real estate.


The March ISM service sector business activity index, shown in the Calafia charts below, rebounded strongly from its February low. The much-feared deterioration failed to materialize.

February’s very weak reading was likely influenced by the panic that had infected some areas of the market. By the way – the second version of the chart is there for slow people like me : )

I drew a red line back across the chart to show the current reading is at the higher end of readings for the last 18 years. Laughable.

Overnight Supply Management

Remember, we have slowly converted to a Fedex Economy – something we wrote about years ago. Pipelines are thin with supply. They will get thinner as supply management tools focuses on even quicker turns and efficient use of capital.

Gen Y will do even better with technology advances.

The point? Pretend the consumer stops spending money by half tomorrow morning at 9:00. In about 38 days, we would literally run out of stuff. Hence, it’s tough to have a recession of any significance as our Fedex economy advances.

That overlooks the tiny little issue of Generation Y. Their 86 million strong contingent will grow up – and change all that we know about the economic world.

Weekend Pondering

In the late 70’s/early 80’s, the largest generation of people to ever impact our economy began to hit the system. To the surprise of all the experts at the time, in the midst of very ugly circumstances everywhere one looked, the economy exploded as that egg went through the snake.

Today, the new largest generation of people to ever hit the US economy is setting their feet in the blocks, getting ready to run their race. They are preparing to grab the baton from the Baby Boom.

Do not mistake this for the end of the world.

Do not fall for the gimmick from SocGen geniuses.


Imagine for a moment you were investing back at the last demographic shift of this magnitude. Imagine further that you became enmeshed with all the mess present in the late 70’s and early 80’s.

Lastly imagine how foolish it would appear now if you had thought then,

“I am not going to invest at DOW 1400 because it has never been this high before…and the future looks dark.”

Yes, I agree – it is very uncomfortable given all the terrible indications out there flashing in front of our eyes. But that is the way it always is….

Enjoy your weekend.