MorningWord 5/12/15: Multinational Geographic

by Dan May 12, 2015 9:28 am • Commentary

Yesterday in this space (The Year of the PBOC) I discussed the difficulty assessing the health of the Chinese economy for those of us who are not on the ground,  and who generally rely on the financial media and pundits to inform our world view:

The point here is simple, sensational headlines about China, its centrally planned economy and whether or not it will cause the world to head back into recession (or lift us back out) is a surefire way to sell newspapers, get viewers and a boatload of clicks. But I suspect most of the opinions are nothing more than a shot in the dark. The situation over there is opaque and decided by a small number of people in a back room.

Good Luck making investment decisions in the U.S. based on what you think is going on in China

Which leads me to a segment that I caught on of Jim Cramer suggesting that China’s economic turnaround is “months, not years away”.  Watch here:

Jim highlights several reasonable data points that suggest a turn could be near, and offers some fairly safe ways to play via U.S. multi-nationals that would be levered to China economic reflation. When it comes to Cramer, I think you can throw out all of what you think you know about financial pundits. He is a tried and true market practitioner, puts his money where his mouth is, works twice as hard as most full time professionals I know, has an amazing information pipeline in both media and finance and is extremely thoughtful about what and how he makes predictions. All with the added pressure of knowing there are thousands of viewers/fans who like to replicate his latest picks to click.  So when Cramer goes out on a limb like he did last night, I think it is worth taking note.

But here’s the part where I put my contrarian pundit hat on.  In Cramer’s clip he mentions companies like BA, CAT, GE, HON & JOY (all save HON) expected to have year over year earnings and sales declines in 2015, all trading above a market multiple.  I would say that there stocks right now already reflect optimism of a recovery abroad (most of their future growth is expected to come outside of the U.S.)  If China were to turn in the coming months, and the companies listed above were to see a pick up in demand (halting earnings declines) then the stocks will be re-rated.  But if China’s growth decline does not reverse in 2015 (despite continued monetary easing) at a time where it looks like the U.S. just posted a negative Q1 GDP print, then these stocks, many which have under-performed the S&P 500 0ver the last year are continually vulnerable.

Again I think you could defer to Cramer, as he does or has owned many of the stocks listed above and likely done dozens if not hundreds of hours of work on them.

But, if it wasn’t Cramer making such an assertion, on such an important topic I would merely quote the atheist socialist scholar, Christopher Hitchens:

That which can be asserted without evidence, can be dismissed without evidence.

Still waiting on that evidence.