“Words from the Wise” this week comes to you in a shortened format as I do not have access to my normal research resources while on the road in Europe (also see my post “Gone A.W.O.L. - to Slovenia and Switzerland“). Although very little commentary is provided, a full dose of excerpts from interesting news items and quotes from market commentators is included.

While investors’ hopes of an economic recovery might have got ahead of reality, the cartoonists continually reminded us of worrisome issues …

Source: Signe Wilkinson, Washington Post,  June 18, 2009.

The past week’s performance of the major asset classes is summarized by the chart below - a mixed bag so to speak.

Source: StockCharts.com

A summary of

A long-awaited reversal in the monumental global stock market rally since early March finally arrived last week. As the first-quarter earnings season started winding down and post stress-test capital-raising weighed on some banks, investors were faced with a slew of gloomy economic reports suggesting the recent optimism about a global recovery might have been premature.

“This week, the hard economic data remind us that the global recession is ongoing: exports remain deep in the red; retail sales disappoint; inflation still volatile on food and energy but down on year; and industrial production declines. However, the data are consistent with the story of a slowing economic decline, foretold by several ‘green shoot’ survey reports,” said Rebecca Wilder (News N Economics).

Source: Tom Toles, Washington Post.

“Less bad” economic reports provided investors with little comfort, sparking a reassessment

One of the definitions of “stress” offered by the Merriam-Webster dictionary is “bodily or mental tension resulting from factors that tend to alter an existent equilibrium”. Well, any bodily or mental tension investors might have been suffering from as a result of financial factors were shrugged off on Thursday with the announcement by US regulators that ten of the nation’s largest banks had to add a total of “only” $74.6 billion in equity following the completion of stress tests. However, whether this will indeed restore the equilibrium remains to be seen.

Source: Walt Handelsman

The diagram below, courtesy of the Financial Times, summarizes the stress test results in a nutshell. Click here or on the image below for a larger graphic.

Source: Financial Times

As investors welcomed the

“Goodbye safe havens, hello risky assets.” This was the refrain of investors’ theme song during the past week. Safe-haven assets were out of favor as better-than-feared corporate earnings and signs of a budding economic recovery emboldened investors’ appetite for reflation trades such as equities and commodities.

Investors’ sentiment improved notwithstanding a number of influences that could potentially disturb financial markets. These included a three-day delay in the release of the stress test results of the 19 biggest US banks until May 7, the plight of the beleaguered US automakers with General Motors (GM) proposing a sweeping debt-for-equity restructuring and Chrysler filing for Chapter 11 bankruptcy protection, and fears of an escalation in the number of swine flu (H1N1) cases.

Source: Vita

As to be expected given the countless catalysts, the past week’s trading was bumpy, but the major

Spring is in the air – at least in the Northern Hemisphere and on global bourses. Last week marked the sixth consecutive up-week for stock markets as investors’ risk appetite returned amid signs of global economies and the financial sector embarking on the road to recovery.

Source: Tom Toles, The Washington Post.

Speculation that the unprecedented stimulus measures are starting to take root saw the safety appeal of government bonds diminishing, despite the buying support from central banks’ buying programs. Similarly, gold bullion struggled to find traction as investors continued to unwind positions. Silver and oil also languished in the red, but copper, other industrial metals and soya beans surged ahead.

The performance of the major asset classes is summarized by the chart below, courtesy of StockCharts.com. A picture tells a thousand words …

Japan has been seen since September as one of the few bastions of relative stability in the global economic climate. It “only” fell approximately 30% during the September crash, compared to the approx. 40-60% of the US and China respectively, and has weathered the global economic storm much better than most. This is evidenced by the following Emerginvest performance charts of Japan, China, and the US – note the relatively shallow decline in September for Japan compared to its counterparts:

Japan’s Market Performance over the last year.

China’s 12-Month Market Performance

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As the last country highlighted by Emerginvest in 2008, Costa Rica holds a place as one of the best markets to have invested in – both in terms of relative performance for the last year, as well as strong growth in the last month.

Nestled between Nicaragua and Panama, south of Mexico, Costa Rica lays claim to only 4.3 million people, and a national GDP of approximately $21 billion. The economy is mainly driven by three industries: a widespread agricultural sector which accounts for 8.7% of the GDP, a strong industrial sector (producing items such as electronic components, food processing, textiles, etc), which accounts for 28.9% of GDP, and an extremely deep tourism and services sector which accounts for 62.4% of GDP. Their stock exchange, the Bolsa Nacional de Valores, has been in operation for the last 29 years.