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Global Risks Abound Yet Markets Lift?

Posted on March 30, 2016

Global Risks Abound Yet Markets Lift?

Posted on March 30, 2016

Yellen says global growth is at risk and Markets lift. Wait. What?

Let’s put the big picture together before taking it apart and critiquing it.

  • Commodity prices, base metals and precious metals have been falling since 2011.
    • What this means: Global demand has been weakening since 2011.
  • The USD is stronger than most of our trading partner’s currencies.
    • What this means: It hinders trade and makes repayment of debt from foreign borrowers cumbersome.
  • The US is expected raise rates which would lift the dollar.
    • What this means: it would exacerbate number two listed above.
  • Inflation, which is every fundamentalist’s watchword, is low in the US…very low.
    • What this means: The low interest rates that our US has had since 2009 (an unprecedented amount of time) has not worked to increase demand nor create a booming economy or employment rate.
  • The Wealth Effect: Is when assets such as real estate, stocks, Retirement plans, etc. rise in value thus making people feel comfortable with borrowing and spending more than they ought to due to their big ticket assets rising in value.
    • What this means: It’s run its course. So much so that Yellen herself has come out saying global demand and growth are tepid at best.
  • Herd mentality: Yellen became more dovish upon the dip in the market during the beginning of this year as well as the fears of growth abroad—mainly China.
    • What this means: nothing good that’s for sure.
    One would expect the stock market and the herd to quiver and fall after such a weary statement from Yellen yesterday. Yet, the stock markets across the globe rallied. Why? It seems the herd doesn’t expect US rates to be lifted until September and therefore was encouraged to stay a-board the rally in equities. The trend is your friend, right? …Right….? What Am I Missing? The fact is, that generally speaking, when rates are lowered and kept lower the markets tend to lift over time. Hence, why central banks all cut rates during financial crises. The problem I see is this: We’re already in the midst of a financial crisis because three out of the four major central banks (ECB, PBOC and BOJ) have not only lowered interest rates excessively but continued to do so into negative territory. This is not a precedent that spells out “big bull market ahead, everyone.” That and the other global concerns swirling that I listed above. What to do about it?
  • The herd may be cheering the dovish demeanor of the Fed but don’t be pulled into the herd mentality.

—Be independent—

Follow our signals or a methodology you’ve designed for your personality and trading style. Have your stops set in place and the exact actions you want to take written-out before you make them. Don’t let inflation be your watchword. Discipline should be your watchword. Fear and panic selling cause investors to forget their rational approach and become irrational.

The point is simple. Yellen did not describe a global economy prepped for a raging bull market…rather the opposite. Stay nimble.