February 04, 2016

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January 2016. A hard landing for world markets and the world economy.

Leading indicator the Baltic Dry Index, which measures the cost of chartering a cargo ship, fell to an all-time low last week. The cost of hiring a 335-meter ship has dived, by over 90% since last August, to around $1,500 per day, Zero Hedge reported. “€œIt is now cheaper to hire a supertanker than a Ferrari,”€ MoneyWeek enthused, reporting shipping executives”€™ fears of industry “€œArmageddon”€ and even of the freight industry “€œgoing under.”€

Mohamed El-Erian, former PIMCO CEO, now chief economist at multinational behemoth Allianz”€”and the most impeccable interpreter of the global economy”€”put the probability of a recession in 2016 to Bloomberg at 30%. In emerging markets (EMs), borrowing costs have hit their highest level in five years, inciting fears of a “€œdebilitating credit crunch”€ in the developed world, the FT said. Simultaneously it reported ICBC Standard Bank’s data that “€œinvestors are deserting emerging market bonds at the fastest rate on record, withdrawing more money than they did at the height of the financial crisis,”€ even. This exodus continued throughout January with circa $8 billion in outflows over three weeks.

“€œBright spots are rare. You have to look at the micro level; the macro picture is unclear.”€

FT commentator Katie Martin wrote on Jan.18 that “€œmetals are in meltdown. Oil is falling faster than forecasts can keep up.”€ And the IMF is concerned that EMs are crisis-bound”€”oh, and the bears are taking over on Wall Street. “€œSell (mostly) everything,”€ wrote one RBC analyst. Only, as she pointed out, “€œmany of the usual emergency exits are bricked up…. Investors are cornered.”€

No kidding. Even the positive correlation between volatile markets and gold-price increases no longer holds fast, although gold started the year well, rising 5% in 30 days. However, the S&P 500 had fallen 15% by Jan.21, just short of the one-fifth decline that defines a bear market. The Dow Jones Transportation Average, another economic barometer, fell clearly into bear territory along with the Russell 2000 small-companies index.

Bright spots are rare. You have to look at the micro level; the macro picture is unclear. Yet depressed stock prices such as Apple’s (AAPL)”€”which hovered around $95 on Feb.1, well below $133 eleven months ago”€”mean contemporaneous uncertainty may have spooked flighty investors into selling…leaving the occasional good deal behind? Investors Chronicle awarded AAPL a second “€œBuy”€ rating following November’s, highlighting that “€œat the $100 mark, they trade at just ten times forecast earnings for this year.”€ A blue-chip stock with 30% off?

Another bright spot can be found in Amazon (AMZ), whose price languished Feb.1 at $528.38, against a high of $641.93 only 60 days previously. Especially when you factor in eye-opening research published by the FT that reveals how Amazon’s Web Services (AWS) division is growing into a juggernaut business of its own. Amazon Web Services sales continue to grow at 69% per year, with growth in operating income of 161% per.

Amazon (with Netflix) is winning the home-entertainment race, as the Motley Fool discussed, along with the rising buying power of tech companies in Hollywood. A “€œrace to zero”€”€”meaning: competitive cost-cutting”€”is under way up on “€œthe cloud,”€ with tech megacorps fighting for your attention. And nobody undercuts prices better than Amazon. Is it a buy, before word gets around that Amazon has two huge heads?


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