The new number one stock picking criteria

US Manufacturing has been in contraction for seven months now, and the slow-down there looks to be accelerating.

Now, just released yesterday, we are seeing the same slowing in Services activity. US Services PMI is basically flatlining. Dropping to just 50.3 in May.

US Services PMI heavy in Covid-lockdowns zone. It doesn’t get much worse.

Housing is in recession. Manufacturing is in recession. Services are stagnant. How do we not get a recession?

Just as some economists are beginning to suggest the US economy will escape recession, there is real cause for alarm here.

We forecast the recession last year, and maintain our further flat growth to recession risk outlook.

Where we differ from most, is that I believe this is an entrenched state of affairs for the US economy. The US will be in the doldrums economically for many years to come. No rebound.

That this is in fact the new broad economic normal for the USA.

Just as China will never return to its ‘agrarian to consumer’ boom GDP rates, the US is not returning to its hay days either. The situation is far more severe for the US. While China will maintain strong rates of growth, albeit at lower levels of activity, the US appears trapped in a cycle of momentary strong growth followed by long periods of stagnation.

The market still does not seem to understand that from a grand historic perspective the US economy is extremely mature in capitalist terms.

The long post WW2 duration of the American economic boom is such that profit margins will continue to be squeezed just as regulation and interest rates continue to lift significantly. Making it extremely difficult to maintain strong growth rates for extended periods.

We may in fact be at a tipping point where it is time for investors to increasingly shift their focus from a US, even Western centric perspective, to discovering the vibrant opportunities of not just Asia still, but also increasingly Latin America and Africa.

LATAM leads the African continent substantially in terms of reliability and security of investment, but for the brave there are significant opportunities tending toward stability occurring in Africa too. Of course, the Middle East is going to have a very strong historic growth period over the next decade. As is India. So the opportunities outside of the US, and the West in general, are truly immense.

This is great news for US corporations who understand the future is indeed in these other markets. They must however be approached with a devolved management style and with regard to the specifics of each culture. Not something the US has always been good at, but corporate America must adjust.

Small side note. When I delivered my speech at the annual USA Eurofinance Summit in 2012, I started with ‘you will never be number one again’. My own version of shock and awe, to 600 major US corporate CFOs.. The sooner US corporations get this, the better they will do through greater management delegation throughout the rest of the world. Funny, I didn’t get invited back.

The US companies that do choose to ‘look out the window’ and see the world as it is, rather than relish in the past, the global brands that can do this, are indeed strong investment candidates over virtually every time horizon.

Just as the US banking system is now permanently fracturing it would seem, between the ‘too big to fail full deposit guarantee banks’, and the regionals, so too will the stock market listings between the smart globally diversified brands, and the pure domestic American economy companies. For one will be operating in a vibrant and diverse world. And the others in the most mature capitalist economy on the earth, and therefore the most challenging.

This could indeed be the most valuable stock picking criteria of the coming decade. The possession of diverse sensitivity and greater delegation to satellite regional and national management structures for important decision making, will be pure gold over coming decades.