June 12, 2018

This is “the end of the world as we know it,” or so it seems. On Friday, as he left for the G7 meeting in Canada, President Trump said, “We have a world to run” and we should “let Russia come back in because we should have Russia at the negotiating table.” Then he walked out of the G7 meeting early Saturday to head to Singapore for negotiations with North Korea after slapping tariffs on our allies while negotiating lower trade barriers with Red China. What’s going on here? Is the world suddenly turned upside down?

And that’s just the beginning. President Trump failed to sign the G7 accord, infuriating America’s leading allies. The following photo went viral when Angela Merkel (center) posted it on her Instagram account:

Meanwhile, Mexico placed $3 billion in tariffs on U.S. goods, after Trump imposed tariffs on Mexico…

But alas, most of the world doesn’t care about the G7 or tariffs or North Korea. They care more about their team at the upcoming World Cup in Russia. In this Thursday’s opening match, Russia hosts a 1,000-to-1 long-shot squad from Saudi Arabia, in what looks more like an oil exporters’ summit meeting.

What’s odd about this 32-team World Cup contest is the absence of the world’s superpower, the United States, and Italy, the world’s 4th best soccer team – and today’s most troubled developed economy. Otherwise, it looks like a battle between 16 developed nations (mostly European) and 16 poor countries.

The two favored World Cup teams are from Brazil – whose stock market fell over 5% last week as part of the emerging markets meltdown – and Germany, whose economy leads the Eurozone, and whose leader, Angela Merkel, seems to be the leader of the pack trying to convince Donald Trump to reconsider tariffs.

Germany’s “Mannschaft” executes a clinical game in black-and-white garb, while Brazil’s more colorful gang (in yellow and blue) plays a more fluid “beautiful game” that emerged from their steamy favelas.

Turning to the markets, Brazil is suffering, along with Italy, while the U.S. and Germany are doing better.

Every February, Transparency International ranks the 180 top nations on how corrupt their public sector (government) is perceived to be – on the theory that this perception dictates how freely individuals and businesses are willing to launch or transact business in that country. The 2017 index, released February 18, 2018, shows tiny New Zealand and Denmark once again leading the way, with the U.S. at #18.

Graphs are for illustrative and discussion purposes only. Please read important disclosures at the end of this commentary.

Like the World Cup, where 13 of the top 20 ranked World Cup soccer teams are in Europe, nine of the 12 top-ranked (least corrupt) governments are in Europe, but some major southern euro-zone nations did not make the top 40, including three “PIGS,” #42-Spain, #54-Italy, and #58-Greece (Portugal is a lofty #29).

Bring Those Investment Dollars Home, Pilgrim

It’s no wonder that economist Ed Yardeni has reverted to his “Stay Home” investment strategy instead of his alternative “Go Global” plan. With a strengthening dollar, an emerging markets crisis, and an upheaval in the international order, it’s just not the right time to try to pick winners and losers on the global stage.

As Louis Navellier has been saying, the Russell 2000 small-cap stocks are rising because of the strong dollar. That’s because small stocks are more domestically oriented and less exposed to global markets. In addition, they are profiting this time of year from index realignment, which forces several index funds, ETFs, and portfolio managers to buy the stocks which comprise the new fund index. Through last Friday, the Russell 2000 is up 7.4% year-to-date, almost double the 3.9% gain for the S&P 500 year-to-date.

The late 2017 tax cut continues to fuel phenomenal levels of corporate investment and potential growth. As of Friday, the Atlanta Fed’s GDPNow model, which weighs current GDP components, predicts a 4.6% growth rate for the U.S. GDP this quarter. On May 17, Reuters reported that corporate capital spending grew 21% year-over-year in the first quarter, on track to be the highest year-over-year growth since 2011. In reviewing this data, S&P’s Howard Silverblatt said, “These numbers are high, and I would expect higher numbers in capex this year. It takes a little bit longer for companies to plan and to execute.”

A recent survey of National Association of Manufacturing members reported that 86% were planning to increase investments due primarily to tax reform. The tax cut, as expected, has brought a lot of overseas corporate cash home. The Bureau of Economic Analysis (BEA) released the National Income and Product Accounts (NIPA) on May 30, showing that corporate “dividend receipts from the rest of the world” shot up from $349 billion during all of 2017 to $1.36 trillion in the first quarter of 2018 (shown below).

Graphs are for illustrative and discussion purposes only. Please read important disclosures at the end of this commentary.

Another reason to stay at home with your investing is that the “synchronized global growth” scenario we described over the last year is no longer in effect. First, the emerging markets are not partaking in this growth as they once were. The stronger dollar and higher U.S. interest rates have hurt capital flows into emerging economies. And now, euro-zone growth has become more sporadic between member nations, with another hand-wringing existential crisis in Italy and potential soap operas in Spain and Greece, too.

And who knows what turmoil will emerge from Asia next. So maybe it’s time to bring some chips home.

About The Author

Gary Alexander
SENIOR EDITOR

Gary Alexander has been Senior Writer at Navellier since 2009.  He edits Navellier’s weekly Marketmail and writes a weekly Growth Mail column, in which he uses market history to support the case for growth stocks.  For the previous 20 years before joining Navellier, he was Senior Executive Editor at InvestorPlace Media (formerly Phillips Publishing), where he worked with several leading investment analysts, including Louis Navellier (since 1997), helping launch Louis Navellier’s Blue Chip Growth and Global Growth newsletters.

Prior to that, Gary edited Wealth Magazine and Gold Newsletter and wrote various investment research reports for Jefferson Financial in New Orleans in the 1980s.  He began his financial newsletter career with KCI Communications in 1980, where he served as consulting editor for Personal Finance newsletter while serving as general manager of KCI’s Alexandria House book division.  Before that, he covered the economics beat for news magazines. *All content of “Growth Mail” represents the opinion of Gary Alexander*

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