The so-called “powerhouse” of the global economy, China is witnessing an economic slowdown like never before—the repercussions of which will be felt here in North America.
The HSBC Flash China Manufacturing Purchasing Managers’ Index (PMI) continued its slide in June, registering 48.3—a nine-month low—compared to 49.2 in May. (Source: Markit, June 20, 2013.) Any number below 50 suggests contraction in the manufacturing sector.
China is a leading indicator of the global economy, because it exports a significant portion of its products worldwide. If manufacturing in China declines, it suggests the economic hubs of the global economy aren’t really buying much.
Similarly, Germany, the fourth-biggest economy in the global economy, is also facing dismal economic conditions. The country’s Flash Manufacturing PMI declined to a two-month low in June, standing at 48.7 compared to 49.4 in May. (Source Markit, June 20, 2013.)
And Russia seems to be headed towards an economic slowdown as well. The International Monetary Fund (IMF) has slashed its growth forecasts for the country. The IMF expects the Russian economy to grow only 2.5% in 2013, and 3.25% in 2014. I think the IMF is way off with both estimates—we see growth coming in much lower for Russia this year and next.
As an economic slowdown in the global economy emerges, we are seeing U.S.-based companies report weak demand. Caterpillar Inc. (NYSE/CAT), the big construction and mining company, reports that in the last three months ending in May, its total machine retail sales in the global economy fell seven percent from the same period a year ago. Caterpillar’s retail machine sales declined in every region of the global economy except for Latin America! (Source: Bloomberg, June 20, 2013.)
Caterpillar’s retail sales declining in the global economy may just be the beginning of what may become the norm for second-quarter earnings results for other large American multinational companies—weak revenue.
My opinion hasn’t changed; the global economy is treading in dangerous waters. Very few in the media are covering this story. It’s a global economy: if China, the eurozone, Japan and other big economies are all facing soft demand from their consumers and businesses, big American companies operating in these countries will eventually feel the pain as well. That pain will eventually make its way to the stock prices of those companies.
What He Said:
“Why Google stock will go higher: Most investors in Google, surprisingly, are retail investors. And that’s why the stock can go higher—because only 20% of the stock is owned by institutions. If the institutions jump in and buy Google, the stock will certainly move higher.” Michael Lombardi in Profit Confidential, June 2, 2005. Michael recommended Google Inc. (NASDAQ/GOOG) as a buy on June 2, 2005, when the stock was trading at $288.00. On November 5, 2007, when Google reached US$700.00 per share, Michael advised his readers to sell their Google stock and to put the proceeds into gold-related investments. Coincidently, gold bullion was also trading at about $700.00 per ounce in November 2007. Michael’s message was to trade each $700.00 share of Google into $700.00 of gold, because he saw gold as a much better investment.