Dear Money Morning Reader,

Is the global economic recovery running out of steam? StanLib economist Kevin Lings says the US leading economic indicator – comprising 10 measures of US-economic health – could ‘turn-over’ in the next two months. But there are some facts you should consider before getting on your loud hailer in an attempt to encourage your neighbours to dump their shares. Your first consideration should be for the unrelenting 11-month acceleration in this barometer of superpower wellbeing. Some slowdown is inevitable...

On closer inspection the latest numbers point to an economy of two halves. Investors have newfound confidence in the stability of the global financial system. This is evidenced by continued improvement in interest rate spreads and real money supply. US manufacturers are also upbeat – increasing inventories of consumer goods and materials. If their confidence in the consumption side of the economy is misplaced we could see a serious hiccup going into the second half of 2010. Says Lings: “A sustained improvement in the US economy into late 2010 and 2011 is going to require an improvement in final demand.” Growth prospects in the US hinge on improvements in employment and consumer spending. In the absence thereof, the recovery could run out of steam.

You’ll find similar hindrances to sustained economic growth in South Africa. Statistics SA provides the ammunition for a discussion on GDP growth constraints with the release of their latest production price index (PPI) at 2.7% year-on-year in January 2010. Prices at the factory gate are on the rise, with electricity costs ‘top of the radar’ of input cost concerns. Unless you’ve just emerged from a sensory deprivation chamber you’ll already know all about Eskom’s three-year 25% per annum electricity price coup! The challenge to local producers is to fully utilise their available production capacity without compromising the efficient use of electricity.

We've also had another 0.5% slashed off the repo rate. The decision revolved around the outlook for the economy and interest rates 12-months hence. The arguments for a rate cut only slightly outweighed those against – and analysts were proved wrong. They predicted no further interest rate cuts this year and warn the next interest rate move you see will be higher! It looks like the bank was swayed by the fragile state of the domestic consumer.

South Africa’s economic recovery cannot proceed at full strength until consumers get back on their feet. Confronted by rising jobless numbers and soft sales statistics the bank has capitulated by throwing consumers another lifeline in the form of a last-ditch rate cutting exercise.

Even with this latest MPC decison, the recent economic recovery is entering an uphill stage. You’re going to have to know your game to extract maximum value from your investment portfolio over the next 12 to 18 months.

Should you be in equities, listed property, bonds or cash? You may have to try something more adventurous to earn market-beating returns through 2010.

Until next week,

Gareth Stokes

Editor, MoneyWeek

Turning to the markets...

The JSE all share index traded flat, up 0.1% on Friday. The gold mining index slipped 0.58%. Resources added 0.49%. Banks and financials grew 1.33% and 0.56% respectively. Industrials traded flat, up 0.03% and the platinum mining index jumped 0.13%.

London's FTSE100 climbed 0.51%. The Dow Jones traded flat, up 0.08% and the Nasdaq traded flat, down 0.1%.

Tokyo's Nikkei traded flat, down 0.09%. Hong Kong's Hang Seng added 0.88%.

Brent crude is currently trading at $79.95 per barrel.

Spot gold's trading at $1,112.68 and platinum was last quoted at $1,607.50.

And here's how the rand is performing against the major currencies:
R/$7.38
R/₤11.07
R/€9.95