Mixed Signals

Good news on Thursday 08/22/2013:
European Manufacturing PMI up to 51.7 from 50.5.

Chinese Manufacturing PMI up above 50 for the first time in four months.

US Manufacturing up to 53.9 from 53.5. New Orders now up to 56.5.

Bad News:

Clearly some parts of the economy are doing well while at the same time other parts are doing lousy.   Most retailers are reporting weak sales--except Home Depot and Lowes. Seems like people are spending money for "home improvement" but not much for new clothes and other "stuff".

Rapidly rising interest rates are causing bond portfolios to fall in value. They are causing concerns about less buying of dividend paying stocks. Also, since emerging market economies rely a lot on borrowed money, rising interest rates create a lot of concerns for stocks in emerging market countries--like India and Brazil. Finally the nascent "housing recovery" has stalled with a 13.4% drop in sales of new single family homes in July after mortgage rates reached 4.58%.  Low interest rates have made new housing more affordable, but the pool of buyers get's smaller when interest rates rise and mortgage payments rise by more than $150 per month (on a $200,000 mortgage) because of the recent rise in interest rates.

Take heart---markets always send mixed signals. And, interest rates are still quite low by historical standards.  Growth is never a straight line and is seldom homogeneous across segments. 

It certainly looks like we have a slowly recovering global economy. People may hope and expect that "it's safe now"  (almost like an on-off switch) but reality is always a bit more complicated.  Markets have blown off a bit of their "froth" recently--and may do more of that as fear of rising interest rates becomes more widespread, and as our government argues over fiscal polity, so the "market" still appears to be overpriced. But, opportunities in some segments are starting to present themselves.

Stay focused on the long term, always seek quality in your investments, and don't fall into the trap of the fear/greed "risk on/risk off" foolishness.