New evidence of the strength of the global economy poured in over the past week. Besides the good earnings numbers from Best Buy (BBY) we also saw great results from Tiffany (TIF) and Williams-Sonoma (WSM), and car sales in March were up 8.3% month over month.
One of my advisory service’s main plays on the phenomenon, the equal-weighted SPDR Retail (XRT) is up 11% since March 1 alone. That is a great result for an unleveraged fund for a month, as it annualizes out to more than 130% — something that is just not going to happen, even in a fantastic year. Which means you need to mentally prepare for a slowdown.
But there is a larger message, and it is this: Nominal GDP is on track to hit a new high in the first quarter less than two years after its 2008, according to ISI data. That means the global economy is moving from recovery right into expansion in record time. The chart above details the stunning increase in global imports for both developed and emerging economies; this reflects accelerating domestic demand in most countries worldwide.
How incredible is that? It took 12 years for GDP to move from recovery to expansion mode following the Great Depression. The first high was 1929 and the second was 1941.
ISI reports that real GDPs (i.e. growth minus inflation) have already moved above their prior peaks in nine economies. The list includes Poland, Brazil, Australia, South Korea and Indonesia — all in expansion mode, as if the 2008 breakdown never happened.
To make this happen in the United States, as appears to be on track, takes top-line, or revenue expansion — not just accounting tricks to make earning look better than they are. Think about this as earnings season rolls around. In the last season (January-February) there were a lot of complains about revenues growth not matching earnings growth; in the coming earning season that won’t be the case.
What’s really impressive is how determined policymakers appear to be to achieve above-trend growth and cut unemployment. ISI provides the following evidence, as gathered from seemingly random news items over the past week:
- Obama announced new programs to help owners avoid foreclosure.
- The Bank of Japan doubled its lending program to $222 billion.
- A Bank of Japan board member hinted the institution will consider further rate eases.
- The budget for Japan in 2010 includes spending that’s a big 4.3% higher than 2009.
- The European Central Bank said it will leave emergency collateral rules in place into 2011.
- Russia cut rates again.
- Dubai pledged to inject $9.5 billion into Dubai World.
- Global short interest rates last week reached a new record low of 1.9%.
This is a lot of new growth enhancements to see this far into a recovery. This is what you would normally see only at the beginning of trouble.
So when you hear people talk about the drag on GDP next year from tax increases, recognize that at the same time there will also be tremendous lagged impacts from the 809 stimulus initiatives announced over the past two years. And keep in mind that if potential for sub-par growth emerges, politicians will show no hesitation or shame about legislating more stimulus initiatives.
You want more? OK, how’s this: Surveys of conditions for truckers moved to a new 19-month high this week, tech companies’ outlook is the highest in a decade, apartment rents are up almost a third over September. And as the table above shows, the manufacturing purchasers index in March is on track to increase to 58.5%, a six-year high. That is much higher than the slow recoveries of 1991 and 2002 and about in line with the rapid recoveries of 1975 and 1983.
And in just the past eight weeks, steel production has risen at a 32% annualized rate, the rig count is up 101% annualized and railcar loadings are up 31% annualized. Meanwhile, commercial real estate prices in the past three months have climbed 6.1% even as skeptics believe they should be plunging.
In short, the recovery is really under way and that is why the bears will have a hard time getting any real traction even if they do manage to create a temporary top in the next few says. Their view will only grip emotions if revenue and earnings are set to slip in the second half. That just doesn’t look likely at this point. So I recommend that you stay positive unless some very persuasive contravening data emerges.
For more ideas along these lines, check out my Trader’s Advantage newsletter.
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