Nikkei 225 (10.0889) Dax (5.250) FTSE 100 (4.571) Dow Jones (9.104) S&P 500 (980)

After hitting a bottom at 82,2 in March the German IFO index has gone steadily up since to reach 87,3 at the latest reading in July. Are the people at the German companies cheered by the investor optimism or are things simply improving ? Honestly, I also feel at bit more comfortable and would rate the world less bad than for six months ago. The people I speak with at different companies have the same feeling, but in Germany are companies also getting a few more orders than in March / April. As mentioned in the China article, some selected Japanese and German companies will benefit from the large Chinese fixed asset investments. Another reason for the pick up is that inventories have been run down to the absolute minimum. Some inventories now need to be rebuild and traditional export countries will benefit slightly from this effect. This will not rebound the world, but just confirms that the world didn’t drop into a black hole. We do still consume, but as mentioned in prior comments are the consumers buying goods that they need to have, and not those who are nice to have. The goods bought in emerging countries are still cheaper low technology products produced in low cost countries and not the high tech stuff. A consumption pattern I think that investors should have in mind when picking the stocks.

It would be tempting to conclude that the US consumer is alive again, and just recommend to buy more stocks as US consumer confidence also hit a clear bottom in March / April. The common sense speaks against it. We all know that many private households are heavily indebted, the unemployment continues up and that the housing market is just looking less bad. The way I read the consumer confidence numbers is that, US consumers also have concluded that the world didn’t disappear but continue at a slower pace.

In the context of expecting a lot from each other, did the Asian Development Bank (ADB) publish a very interesting report on the economic outlook for the Far East. It confirms that things are improving, but to get the economy rolling again, the western old economies should start to import and consume more.

The old western economies hope that China can save the world, particularly the Euro Zone wants to export more. Far East waits for the old western economies to consume more again. At the same time are all public stimulus packages designed to help the domestic demand. So we all wait on each other. This way the economic recovery will move on, but not as fast as the expectation indices signal.

All stock markets are bid

Where ever we look it says recovery. I fully admit that I am behind the curve regarding the turnaround in the stock markets since March. So I am trapped between the currently very bid market and my view that it has already gone too far this year.

As mentioned earlier this year I found it necessary to buy 1/3 of the intended portfolio of global stocks when S&P 500 broke 925. The next tranche is when the index trades at 1030. I have always argued that Far East will turn first, but the speed surprised me. The first allotment of Japanese shares (1/3 of intended total portfolio) is when Nikkei breaks 10.500. As the rest of the world I also look for Japanese corporations with good Chinese market share within fixed asset segments, special machinery tools and luxury consumer goods.

Globally I still search for companies who sells products that supports internet based sales or services. Preferably products that generate steady fee incomes. The entry levels I mention above are stop entry levels, i. e. a stop loss on my sceptic view regarding the current uptrend in all stock markets.

As you can read, I am uncomfortable with going longer in equities but I need to respect the market. Please be aware of the relative low turnover there has been as stock prices has gone up lately. It is dangerous, and the bullish sentiment is based on our expectations to each other instead of real earnings. If stocks goes up without earnings are rising, then it can be explained by the cheap liquidity the central banks flood the world with = an asset bubble, that’s the risk.

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