Barron's: Capital Spending Boom

By SIMON CONSTABLE

The prolonged capital-spending drought may soon end. If it does, which seems increasingly likely, equipment makers should benefit.

Over the last five years, Corporate America has spent barely enough to replace worn-out or depreciated machines, equipment, and factory buildings, according to a recent report from Société Générale. In simple terms, capital equipment, which typically costs at least $5,000 and lasts more than a year, is defined as the machines used to make other items.

"Today's capital stock [is] older than at any point since 1964," writes Aneta Markowska, a New York-based economist at SG.

Why? It's the result of chronic underinvestment. Capital stock grew at an average rate of just 1% per year during the past five years, well below the historical average of 2.6%, the report says.

Markowska concedes that capital expenditure orders are "not very encouraging" so far. Orders dropped from December through February, according to the latest government data.

Still, there are reasons why she remains hopeful.

The first is that corporate chieftains know that to remain competitive they need to invest. Second, executives have more of a sense about what the government will do. Stated differently, there is less policy uncertainty.

The Economic Policy Uncertainty Index, as designed by academics from Stanford University and the University of Chicago (Scott Baker, Nicholas Bloom and Steven J. Davis), has remained close to its long run average for the past five months. It spiked considerably during the financial crisis and then again during various fiscal showdowns in Congress.

"History suggests that capital expenditures levels tend to respond to changes in the uncertainly level with a 12-month lag," writes Jack Ablin, chief investment officer at BMO Private Bank in Chicago. The general idea being that when there is more certainty about what the government will do then businesses are more likely to make risky investments.

"I'm hopeful that based on the indicators that [capital expenditure] should rise toward the second half of the year," Ablin says.

If we see capital spending surge due to uncertainty staying low that would help equipment manufacturers like GE (ticker: GE) and Honeywell (HON). Alternatively, investors looking to place a broader bet might want to buy the Industrial Select Sector SPDR Fund (XLI), which holds a basket of industrial stocks.

See original story here.

Barron's: Why Copper is Pointing to a Slow Economy

By SIMON CONSTABLE

Dr. Copper is signaling that more danger is ahead.

Copper, which is consumed for a wide variety of uses including manufacturing and construction, is said to have a Ph.D. in economics because of its ability to forecast economic activity. Hence the Dr. Copper moniker.

When prices of the red metal drop it often presages slower economic activity and lower stock prices. Benchmark contracts for copper have tumbled from around $3.38 a pound at the beginning of the year to about $3.00 recently. But that's only part of the story. See original post here.

Barron's: Ukraine Farmers Stockpile Grain

By SIMON CONSTABLE

Here's something to chew on: Ukraine's farmers are using wheat and corn to hedge against the risk of a currency crisis. What's more, the uncertainty in Crimea has the potential to drive prices even higher in markets already worried about supplies from the major grain exporter. See original story here.

Photo by Igor Karimov on Unsplash

MarketWatch: The Cost of Dumbness

By SIMON CONSTABLE 

We all know there’s a price for being dumb. The problem is quantifying it.

But now some researchers have an estimate of the cost of America’s failure to make the grade in the classroom. It will cost the U.S. economy close to $15 trillion through the year 2050.

That’s trillion, with a T. It’s enough money to wipe out nearly all of America’s debt. Read more here.

Photo by Museums Victoria on Unsplash

Barron's: Tide Rising For Shipping Market

By SIMON CONSTABLE

Get ready for a gust of wind—freight futures look ready to set sail. The recently becalmed dry-bulk sector is likely to get a lift from surging demand for raw materials, particularly from China, which is expected to outpace freight capacity over the next two years.

The Baltic Dry Index, which measures the cost to move freight such as coal, iron ore, and grain across the world's oceans, plunged over the past few weeks, sinking more than 50% from its Dec. 12 peak. Still, at 1106, the index is more than 300 points above its lows from last year. See original story here.

WSJ: How Scotland Can Keep the Pound

By SIMON CONSTABLE

If UK chancellor George Osborne wants to come down hard on Scottish hopes of independence, he should at least get things right. The problem is he hasn’t.

This week Osborne, who holds a cabinet position roughly equivalent to Treasury Secretary, said “If Scotland walks away from the U.K., it walks away from the U.K. pound.”

If the Scots believe him, his pronouncement sounds like a scary proposition. Or it would be, if only he was correct.

“Osborne is just wrong,” says Steve Hanke, professor of economics at the Johns Hopkins University. “There is a viable option that is easy to implement.” See original post here.

Photo by Charlie Seaman on Unsplash

WSJ: Checking the Vital Signs of a Jittery Market

By SIMON CONSTABLE

The housing market is weakening. Job growth is stalling. Emerging markets are teetering. And U.S. stocks are struggling.

Despite a strong rally late last week, the Dow Jones Industrial Average is down 4.7% from its all-time high, set just over a month ago on New Year's Eve. See original post here.