After a tumultuous half-decade, the world has gone relatively
Sure, the Chineseeconomy is slowing, the Federal Reserve is
preparing for an end to quantitative easing, and the U.S.
government is weighing down the economy with its sequester-driven
setbacks. But we haven't seen any catalyzing events, positive or
negative, of the sort that can trigger a rapid 1,000-pointgain or
loss in the Dow Jones industrial average.
Whether it's a tsunami in Japan or a sudden plunge in Europe,
market-moving events aren't always foreseeable. These kinds of
events caught the markets by surprise, and more surprises
probably lie ahead. For example, of the four potential "black
swans" I described at the start of thisyear , one has already
come to pass.
Yet we can still identify other events that have a decent
chance of playing out, with profits or losses to follow close
behind. Here are five themes I'm monitoring closely in this
year's second half.
|1. U.S. natural gas exports get the green light
In recent years, companies have laid out plans to build
huge natural gas export terminals along the Gulf Coast. The
move is quite logical: Our gas costs just a fraction of
what it costs in Europe and Asia, and the profit gains
in terms of exports would be enormous.
But many of those plans remain in limbo, as the Obama
administration has not yet delivered a clear directive on
the issue . Consumers of natural gas such as electric
utilities and chemical companies hate the idea of exports
as they may raise the price of natural gas. Energy
producers absolutely love the idea, for obvious
The Obama administration is aware of the heated nature
around this debate, and chose to side-step this issue when
it recently drafted this set of energy proposals.
Yet the administration is expected to make a decision on
the matter in coming months, and a thumbs-up for exports
would likely lead to a quick share price boost across the
|2. Stimulus in China
The Chinese government has largely stayed on the sidelines
during a recent banking cash crunch, suggesting
that the era of government intervention has passed. That's
a fine stance to take as long as the Chinese economy
experiences only a mild slowdown. But if the Chinese
economy starts to decelerate quickly, inaction will
no longer be a choice, and the government will likely
pump funds into the economy. And that would
likely give a sharp boost to commodity prices,
many of which have been in freefall lately. As I've noted
before, this is a good time to track the supply and demand
dynamics that are impacting commodities, because supply
cuts will eventually set the stage for the next bull
market in commodities.
|3. Europe's pent-up demand finally kicks in
One of the unreported aspects of Europe's malaise is the
sharp underinvestment in many industries, as factories get
older, vehicles rack up the miles, and information
technology systems start to slip behind the global
standards. At some point, perhaps later this year, we will
see the start of a catch-up cycle incapital spending. It
did wonders for our economy in 2010 and 2011, and it could
be a very positivecatalyst for European economies.
Finding the right entry point for Europeanstocks is
tricky. European stocks seemed to have gotten ahead of
themselves in the final six months of 2012, when the
Vanguard EuropeanETF (
rose 17% (compared with a 6% gain for the S&P 500). Yet
in the past six months, the tables have turned, and the
S&P 500's 14% gain handily exceeds European break-even
results. (I'm still partial toemerging markets , which have
sold off sharply this year, yet are showing signs of a
|4. Japan's experiment ends badly
A country that already has the highestdebt levels in the
world (at 230% ofGDP ) has embarked on more government
borrowings to stimulate the economy. The experiment, which
is aimed at triggering a bit ofinflation and consumer
demand, absolutely needs to show signs of progress in
coming months. Globalbond markets will become increasingly
spooked if they conclude that still-higher debt levels
aren't producing much of an effect.
Japan's Nikkeiindex is up a stunning 50% over the past
12 months (even after a sharp recent plunge), so investors
need to closely monitor the Japanese economy if they are
invested in that country. Thedownside is fairly open-ended
-- if the new Japanese fiscal policies fail to make an
|5. Oil prices drop sharply, aiding consumers and select
Even as many commodities have been in a deep slump, oil
prices remain firm. West Texas intermediate crude remains
near $100 a barrel. However, if the Chinese economy slows,
the U.S. boosts its production, and notable
energy-efficiency gains are made in Europe and the U.S.
(especially in automobiles), then the bias for crude will
be lower -- perhaps much lower.
I touched on theseissues two months ago and though
thatcall was premature, there's no reason to expect that
such a scenario will not come to pass. Any consumersavings
from falling gasoline prices could add to the consumer
confidence ledger, which may be the underpinnings of a
Risks to Consider:
There's a good chance that the biggest event to affect the
markets over the rest of 2013 is not on this list. Other global
events, such as the pending hurricane season, could have a major
impact as well.
Action to Take -->
Some of these events will generate early warnings signs, so
it pays to monitor Europe, Japan, our energy sector, and any
other majorfactors that could affectcorporate profits . The back
half of 2013 may well end up being as quiet as the first half,
but you shouldn't be complacent.
© Copyright 2001-2010 StreetAuthority, LLC. All Rights Reserved.