Conclusion: Singapore's recent economic data is supportive of our call that the slope of global economic growth will continue to remain negative over the intermediate-term TREND.
Position: Long a U.S. Treasury Curve Flattener (FLAT).
Today, Singaporean officials came out and cut their forecast for 2011 non-oil export growth to 6-7% from a previous estimate of 8-10%. This is just two days removed from a -100bps cut to the country’s 2011 GDP forecast of 5-7% (now 5-6%). Slowing U.S. and E.U. growth were cited as the main culprits.
Why does this matter? Well, simply put, Singapore is the largest exporter in all of Asia on a per capita basis. Its trailing three-year average exports/GDP figure of 215.8% completely dwarfs China’s 33.5% reading. Further, Singapore is home to the world’s second-busiest container port, and those containers are typically filled with a great deal of high-end products (i.e. consumer electronics, corporate machinery, and pharmaceuticals) waiting to be shipped all over the world (no single country accounts for more than 1/8thof Singapore’s exports). The key takeaway here is that the Singaporean economy is very relevant as it relates to short-to-intermediate term read-throughs on the global economic cycle.
Given, we think it pays to pay attention to Singapore and patiently wait for the turn in the global economic cycle – a turn that Singaporean economic data currently suggests is nowhere in sight. One quick look at the recent contractions in the key forward-looking subcomponents of Singapore’s manufacturing PMI should lead one to conclude that this global growth-sensitive country doesn’t like what’s currently under the hood of the world’s economy.
As long-time value investor Marty Whitman once famously said, “A bargain is not a bargain if it remains a bargain.” Along these lines, we continue to believe valuation remains no catalyst to buy equities when the growth expectations investors are valuing stocks on continue to be off the mark. As a reminder, current Bloomberg Consensus forecasts for 3Q11, 4Q11, 2012, and 2013 U.S. real GDP are: +3.2%, +3.2%, +2.9%, and +3.2%, respectively - rates well above what our models continue to suggest.
In our opinion, if there’s one subtle takeaway to Bernanke’s comments yesterday, it’s that he’s seeing something negative out on the TAIL worthy enough of marking the risk-free rate of return at ZERO percent through “at least mid-2013”. Keep that in mind as you ponder the true “value” of any enterprises you’re looking to invest in at what appears to be “discounted” prices.
Last, but certainly not least, we think it’s appropriate to reintroduce an equation we published last November right ahead of the official QE2 announcement:
QG = inflation [globally] = monetary policy tightening [globally] = slower growth [globally]
Now, just as it was then, it’s important for consensus to be careful what it wishes for.