Advocacy Investing® Portfolio Strategies, Issue 38

THE FEAR FACTOR

• The eurozone’s make or break moment

• Is the likely “Grexit” another Lehman moment?

• Economic indicators point south once again

• Sharp reversal in US employment situation

• The US economy’s loss of momentum could dampen further the tepid recovery

• Investors overwhelmed by fear push “safe” yields to historic lows

Negative Global Developments: The US economy is once again dragged down by negative global developments. The latest data releases show that we are experiencing a sharper-than-expected loss in momentum. Real GDP growth for 1Q12 was revised downward from 2.2% (annualized) to 1.9%. This loss in momentum is especially felt in industrial production and manufacturing sectors, which had provided the economy with a strong stimulus in the first months of the year. Survey data, while generally still in positive territory, underscored this slowdown. The Empire State index rose to 17.09 in May from 6.56 in April. In contrast, the Philadelphia Fed index fell into negative territory. The Chicago PMI fell sharply to 52.5, the lowest level since September 2009, and the Manufacturing ISM fell slightly to 53.5. Industrial production rose by 1.1% (month-on-month, m/m), but durable goods fell by 6.3% m/m. Factory orders were down 0.6% (m/m), the third consecutive monthly decline. The ISM Non-manufacturing delivered a positive surprise, rising to 53.5 from 53.3. Nevertheless, the consumer seems to be holding. Personal income rose by 0.2% (m/m), while personal consumption expenditures (PCE) increased by 0.3%. However, consumer confidence indices were mixed (up for the University of Michigan-Reuters index, down for the Conference board), which could indicate a negative shift in consumer behavior.

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