It looks like today Germany will take away what Japan gave investors yesterday.

I think this just highlights how tough it is to value stocks right now. The global economy is slowing, but if we don’t know by how much, we’re just guessing at share prices.

Yesterday, August 15 global stock markets rallied when second quarter GDP in Japan fell by an annualized rate of 1.3% instead of the 2.5% decline economists had forecast.

Today an unexpected stall by the German economy has taken down European stock markets. The German DAX index was down almost 1.9% as of 11:30 a.m. in Europe. The French CAC 40 and the Spanish IBEX 35 indexes were each down 1.4%.

The problem is data released this morning showing that GDP in the 17-country EuroZone rose by just 0.2% in the second quarter. Read more

Today’s rally in Japan on news that could have been worse suggests stocks may have fallen too far

Here’s the question that global stock markets are grappling with now: If global economies are slowing, stocks should get marked down in price. But by how much?

This morning’s economic data from Japan and the reaction of the Tokyo stock market suggests that the August sell-off may have gone a bit too far.

The news certainly wasn’t good from Japan. Gross domestic product fell at a 1.3% annualized rate in the second quarter.  That’s the third consecutive quarterly decline: Japan is most definitely back in recession.

But GDP fell more slowly than the 2.5% drop projected by economists as spending on reconstruction efforts after the March earthquake and tsunami started to offset some of the damage from the event itself and a slowing in exports caused by a stronger Japanese yen.

On the news the Nikkei 225 stock index was up 1.4% as of the August 15 close in Tokyo. Read more

Picks up 11.6% in Q2

The Jubak’s Picks, my 12-18 month portfolio, returned 11.6% in the second quarter of 2009. Not shabby for a portfolio almost 50% in cash when the period began. When stocks are plunging, holding cash limits your losses. When stocks are rallying—and the 40% gain on the Standard & Poor’s 500 Stock Index from March 7 to June 12 sure counts as a rally—cash is an anchor holding down returns. So with half the portfolio in cash as I tried to limit the risk in my portfolio, you’d certainly expect the portfolio to trail the indexes. But the returns weren’t nearly as bad as you’d think for a portfolio so heavily in cash. The 11.6% return for Jubak Picks basically matched the 11% return for the Dow Jones Industrial Average for the quarter but trailed the 15% return for the S&P 500 and the 20% return for the NASDAQ Composite Index.

How did the portfolio come so close to the indexes while holding so much cash? Well, Jubak’s Picks positions in the hottest sectors during the rally scored big. Materials stocks were on fire during the rally and so were such picks in the sector as Thompson Creek Metals (TC), up 157%, Fortescue Metals (FSUMF), up 65%, and Yara International (YARIY), up 27%. Industrials soared and so did such picks as Maxwell Technologies (MXWL), up 99%, Middleby (MIDD), up 35%, and Deere (DE), up 22%.

Of course, the portfolio would have done even better if I’d owned more in the energy and financial sectors during the quarter. And my lack of exposure to the world’s emerging markets hurt too. In the quarter the Brazilian stock market climbed 41% in dollar terms; India was up 63%, and China rose 36.1%. But that’s what I gave up by holding so much cash in order to reduce my risk. (It also didn’t help that, thanks to a disagreement with MSN Money, Jubak’s Picks was sidelined without the ability to buy or sell, from May 12 through the July launch of this blog.)

For the year, though, a play-it-safer strategy is ahead of two out of the three major market indexes. The year to date return for 2009 on Jubak’s Picks of 7% beats the 1.8% gain on the S&P 500 and the 3.8% loss for the Dow Industrials. My year-to-date performance does trail the 16% return for the NASDAQ Composite for the year.

Longer term Jubak’s Picks is down 5% for the three years that ended on June 30, 2009 (versus a 24% loss for the Dow Industrials, a 29% loss for the S&P 500, and a 15% loss for the NASDAQ). Looking back five years, Jubak’s Picks is solidly in the black with a return of 58%  (versus a 19% loss for the Dow, a 19% loss for the S&P, and a 10% loss of the NASDAQ). At 10 years, the return on Jubak’s Picks is 89% (versus a 26% loss for the Dow, a 36% loss of the S&P, and a 33% loss for the NASDAQ). Since inception on May 7, 1997, Jubak’s Picks is up a cumulative 239% (versus a 15% return for the Dow, an 11% return for the S&P, and a 38% return for the NASDAQ).

A final but very preliminary word on the performance of The Jubak Picks 50 portfolio I started tracking on December 30, 2008. The six month return on that portfolio based on my 2008 book, The Jubak Picks:  50 Stocks That Will Rebuild Your Wealth and Safeguard Your Future, was 28%. Now, short term returns don’t mean much. It takes a good 10 years for a portfolio to really prove itself. Still, I’d rather start out 28% ahead than 28% behind. As they say, It’s better than a poke in the eye with a sharp stick.

You can follow both these portfolios in detail—including every buy and sell and those oh-so-meaningless but oh-so-captivating short-term returns—by clicking on the appropriate portfolio tab on the top of this page.