We’ve all got our own take on what’s happening these days. Each of us taking the information we receive – and interpreting it the best we can. Ideally we get “some” of it right, and in turn are able to put some money in the bank.
Here’s my take – bare bones.. take it for what it’s worth.
- The business cycle has topped or is still in the “process of topping” as equities continue to grind across the top. The actual “level” of the SP 500 ( I track /ES futures ) is STILL at the exact same level ( give or take a point ) as the peak back in May so…..if you’d been nimble enough to “sell at the top” in May….then “buy the dip” late June (and taken advantage of these last few weeks) – all power to you. You are a star.
- The suggestion of “slowing” in China coupled with the problems brewing in their credit markets ( now looking to be of much larger concern than I originally had thought) suggest WITHOUT QUESTION that China will experience a slow down moving forward.
- As seen through the complete “destruction” of the Australian dollar ( which usually serves as a good indication of global risk) there is no question that slowing in China will have considerable global reach.
- Gold and commodities in general have taken their beating and look to have bottomed.
- The Federal Reserve will continue on it’s quest to destroy the US Dollar (which correlates well with the idea that commodities and the “cost of things” should be on the rise).
- U.S equities will continue to grind across the top and lower, then lower and yet lower as we are now entering a period of “rising interest rates” which ultimately hurts corporate borrowing, and in turn corporate profits.
I’ve suggested for some time now that ” we are on the other side of the mountain”. These things always take longer than most anyone can imagine, but the bigger building blocks are most certainly sliding into place.
Can the U.S survive an environment where interest rates are rising, and global growth is falling?
So do you think that copper will rise with commodities or drop with slower growth in China?
Great question Kevin…as often copper ( and the price of copper ) is associated with “growth” and China’s need for it.
As equally as copper ( and commods in general ) have been beaten to a pulp while the “illusion” of prosperity runs rampid in U.S media and markets, I find it all too fitting that we see the complete inverse when the turn comes.
If Ben want’s to continue printing ( which he does ) then a lower USD will equate to higher prices in commodities REGARDLESS of a slowing in China. The trouble with copper is that most people don’t really understand that “storage” is also a huge contributing factor as copper is “hoarded” at times…..”used” at times…..and “purchased” at times making the copper market a bit of it’s own animal.
I’m no expert – but on the simple basis of a lower dollar – things “priced in dollars” should be on the rise.
thanks
Kong, “Can the US survive an environment where interest rates are rising and global growth is falling?” That’s the $64,000 question (not adjusted for inflation 🙂 ).
There’s one school of thought that says yes it can, that higher interest rates in the US will counterintuitively lead to increased confidence in the strength of the US recovery, increased bank lending, and stronger investment spending – and everything will normalize.
Another school of thought says maybe, but the adjustment to higher rates in the US could either trigger a market event (think LTCM, 1987 market crash or something along those lines) or another economic downturn if higher rates kill the recovery underway in the US housing market.
A third school of thought says, no way, the extreme monetary measures undertaken in the last 5 years are going to have unavoidable consequences: either inflation; a new economic downturn which will be met by an even more extreme monetary response; a long tail market event; or some combination of all three.
If I was smart enough to know which one of the three it will be I would definitely tell you. 🙂
(One strong clue will be how US bank stocks react to higher rates.)
I so appreciate you outlining these “options” as I’m not on the ground.
I’d pretty much say that solidifies your spot as “the man on the ground in the U.S”. Woohoo!
Yes it could most certainly go a number of different ways……..I for one have a very, very difficult time considering “increased confidence in the U.S recovery” but again…..I’m just a loley Canadian lost in Mexico so……
So we shall see!
Great stuff man….the input is greatly appreciated.
I have a difficult time with that one too. Consider this: on 12/31/2006, months before the failure of those 2 Bear Stearns hedge funds tagged the beginning of the 2008 global financial crisis, the US total credit market debt to GDP ratio was 3.36 to 1. On 3/31/2013 the ratio was 3.57 to 1. That doesn’t look much like deleveraging to me, and I see it as a hurdle to higher rates leading to things returning to ‘normal’.
Nevertheless, the idea that higher rates don’t kill the US economy but instead lead to a return to ‘normal’ is the entire basis for the so-called ‘great rotation’ investment argument up here – out of bonds into stocks, with the directional arrow of stock market performance maintaining an upward trajectory.
US bank stock performance is the canary in the coal mine…