More reasons to like the Equity Market

by Laura Ehrenberg-Chesler on February 7, 2013

in Employment,Energy,equity market,Foreign Markets

In today”s research from Ed Yardeni, he touched on some reasons for why we may be in a secular bull market.  Some of the reasons he gives have been discussed on these blog pages over the past twelve months, which is why I am copying some of them to this post today.  It is good to have continuity!!

(1) More balanced growth in China. The 2/1 WSJ included an titled, “China’s Surpluses Start to Balance Out.” It reported: “China”s economic relationship with the rest of the world is becoming more balanced, new data show, as China soaks up less money from the outside world and as its central bank is intervening less in markets to keep down the value of the yuan. The ratio of China”s current-account surplus–the broadest measure of its trade balance with the outside world–to gross domestic product fell to 2.6% in 2012 from 2.8% a year earlier and more than 10% in 2007, the country”s foreign-exchange regulator said Friday.”

China continues to run a large merchandise trade surplus (Fig. 11). However, the capital account must be in deficit by a comparable amount. Implying substantial net capital outflows is the fact that China’s non-gold international reserves stopped growing around the summer of 2011, and have been flat since then (Fig. 12).

(2) Energy independence and manufacturing reshoring in the US. The reason why China’s capital account has turned from a surplus to a deficit may be that global manufacturers are moving elsewhere as labor costs are rising in China. Some are coming to the US because natural gas is so abundant and cheap here. For example, an article in the 2/1 reported that in 2004, steelmaker Nucor bought a plant in Louisiana, took it apart, and shipped it to Trinidad on ocean barges. This summer, it will open the same type of plant at the same site at a cost of $750 million. “Why? Natural gas, which is critical to these Nucor plants, was cheap in Trinidad. Now, it is suddenly plentiful and relatively cheap in the U.S. due to hydraulic fracturing technology…”

(3) The ongoing IT revolution in the US@. The information technology revolution, which started in the US during the early 1990s, did not come to an abrupt halt when tech stocks crashed during 2000-2003. The revolution has spread to other industries that have used the more powerful and cheaper IT tools to increase the pace of their innovations, boost their productivity, and lower their costs

Leave a Comment

Previous post:

Next post: