In the Blue corner Mr Buffet and in the red Mr Ichan

Sell in May and go away, and in the first full trading day of May, that would have been a wise decision. We highlighted at the start of the week that the focus this week would be on the purchasing manager surveys as these are considered forward looking indicators. A quick review from the readings so far reinforce the mixed economic picture that has been painted this year so far. The Chinese manufacturing and services PMI index readings at 50.1 and 53.5 respectively were approximately in line with expectations, and crucially remained above the 50 mark. The Caixan manufacturing reading of 49.4 was a little more disappointing.

The Markit/CIPS manufacturing results for the UK economy for the month of April was also very disappointing, as the reading came in below 50 at 49.2, this was versus expectations of 51.1. The Brexit fears will probably take the blame for this weakness. The readings for the US economy as a whole come out later on Wednesday, however there was a small crumb of good news as the Institute for Supply Management PMI reading for the New York area came in at 57 well above expectations.

 The executive arm of the European Union did however cut their growth forecasts for the euro area economy for this year by 0.1% from 1.7% to 1.6%. Although the reduction is small the direction is a tad disappointing.  All this added to markets falling once again on global growth fears. For the euro area the releases are also later in the week.

There is a nice little debate is developing between a natural born bear and what one would consider to be a died in the wool bull. Warren Buffet, at his annual shareholder meeting to the attendees not to take Mr Ichan dire “day of reckoning” as gospel. Warren Buffet did not see negative rates as the end of the world, but has hoped to live to see what the outcome will be, so say all of us. Mr Ichan continues to fear these low interest rates will create a bubble, arguing that if one knew rates would be at zero for ever stocks could trade on 100 or 200 times earnings.

This debate is the one every investor is having with themselves, how long will rates stay where they are, and am I being lulled into a false sense of security by this policy.  Warren Buffet is probably right and no-one will know the answer till events play themselves out. 

Posted on May 3, 2016 .