November 24, 2014

Major economies are in the world are slowing or weak

The disconnect between slowing global economic growth and all-time highs in the S&P continues, and forms a potentially toxic cocktail for investors over the near term. This is why my net short exposure is so high. 

This is the core reason why I am at my highest net-short exposure in a long time.
Doug Kass
Last night, the November Euro PMI (for factories and services activity) unexpectedly dropped to 51.4 (the lowest in 16 months) from 52.1 in October. And 52.3 was the consensus expectation.

A November gauge for China factory activity was also released and fell to a six-month low.

The preliminary PMI from HSBC and Markit Economics came in at 50.0, below the median estimate of 50.2 and lower than last month's 50.4, indicating that targeted monetary easing is failing to boost that region's rate of economic growth.

Russia, Japan, Italy and Brazil are in recession. Germany and France's growth is flat-lining. So, nearly 25% of global GDP is either in recession or showing no economic growth.

In the U.S. -- adjusted for inventories -- the real GDP growth rate is only 2% to 2.5%.

Automobile sales have peaked and plateaued for months, construction activity is moribund, business fixed investment has failed to recover and export orders are now coming under the strain of weak worldwide growth and a strengthening dollar exchange rate.

So, where I disagree with the bullish cabal is that while the U.S. might be the cleanest dirty shirt in the laundry, one has to wonder if the domestic economy can remain an oasis of prosperity in the quarters ahead. 

Originally published Nov 20, 2014