EWH

Europe and China

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Europe and China are on high alert. European Central Bank President Mario Draghi made it known that the ECB will do everything in its power to “expand its asset purchase programs if inflation fails to show signs of quickly returning to the ECB’s target.” Just a few weeks ago, Draghi had sent shudders through the global equity markets with his view that “without reform, there can be no recovery.” It appears that significant and aggressive monetary action may be the only option for a European continent that could once again be headed into recession and/or deflation. This announcement won’t be the last that we hear regarding moves to aid the European economy. Iron ore prices have been in free fall … Read more

Yikes! Brazil’s Real Plunges; Protests in Hong Kong

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Recession worries in Brazil (EWZ) sent the Brazilian real to a five-year low after poll results showed President Dima Rousseff gaining a lead over candidate Marina Silva, according to Bloomberg. Dropping a couple percent versus the US dollar today, its biggest one-day drop in three years, the Brazilian real has fallen more than 10% during the third quarter. Many had hoped a new government would spur economic growth in the country. The Brazilian economy is an important one, a component of the faster-growing BRIC nations, and many firms in our coverage universe are dependent on its resilience. This could potentially compound problems in Latin America, with Argentina defaulting on its debt earlier this year. Fundamentals at PetroBras (PBR), Gol Linhas … Read more

China Trouble: Plenty of Pain to Go Around

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Global stock markets have struggled mightily over the past few weeks, mostly in conjunction with the Federal Reserve hinting at a possible change in monetary policy. There have also been signs that global economic expansion is starting to weaken (read the World Bank’s lowered global outlook for GDP growth here), particularly in China–something we had identified a number of weeks ago as cause for concern prompting us to add protection to our Best Ideas portfolio at that time. It’s clear from recent data that economic growth in China will no longer be in the 9-11% range that the market has grown accustomed to, and it is our view that expansion will never return to such a pace due simply to the size of the country (absent, of course, during a recovery in the event that a deep recession does occur). … Read more

Update on Wuhan 2019 Novel Coronavirus Outbreak: 31,000+ Infections, 630+ Deaths

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Image Source: 2019-nCoV, Centers for Disease Control and Prevention The number of infections and deaths related to the Wuhan 2019 Novel Coronavirus has surged since our last update, but we maintain our view that investors should keep a level head. We continue to wait to add protection to the newsletter portfolios as the market absorbs a massive liquidity injection from the PBOC. By Brian Nelson, CFA The week of trading ending February 7 was a very strange one. Last Sunday, one could have only expected that given the news related to the Wuhan 2019 Novel Coronavirus outbreak, the bad news related to airlines (JETS) and aerospace players–Boeing (BA), in particular–and the speculative frenzy associated with Tesla’s (TSLA) rise, that the … Read more

2,350-2,750 on the S&P? Could the Coronavirus Catalyze a Financial Crisis?

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Image: We think a rather modest sell-off in the market to the target range of 2,350-2,750 on the S&P 500 is rather reasonable in the wake of one of the biggest economic shocks since the Global Financial Crisis. The chart above shows how far markets have advanced since 2011, and an adjustment lower to the target range of 2,350-2,750 is rather modest in such a context and would only bring markets to late 2018 levels (note red box as the target range). The range reflects ~16x S&P 500 12-month forward earnings estimates, as of February 14, adjusted down 10% due to COVID-19. When companies like Visa talk about a couple percentage points taken off of growth rates, one knows that … Read more