More stimulus than expected from the European Central Bank yesterday: the initial reaction was favourable, the second-thoughts, not so much and plenty of volatility (our key theme for 2016). This morning, with oil testing $40 and the International Energy Agency suggesting that we may have seen the bottom (output has been falling inside and outside of OPEC), European stock prices have jumped higher.
So now, once again, we wait. (See last Fridays blog: Hurry Up and Wait) http://familywealthmanager.blogspot.ca/2016/03/hurry-up-and-wait-we-were-looking.html
We wait to see if the ECB's stimulus has the desired effects: to further stimulate economic growth and push inflation expectations higher.
We wait to see what the Chinese government and The People's Bank Of China come up with for further economic stimulus to keep GDP growth at their target 6.5%.
We wait to see what the March 22 budget brings for the Canadian economy and what, if any, response that the Bank Of Canada has to that. (Canada's employment growth showed little change in February: fewer full time jobs, more part time jobs, with unemployment rising).
We wait to see how the US consumer responds (2/3 of the US economy) going forward and if inventories (at the wholesale level) continue to build or if they are reduced.
We wait to see how the US Federal Reserve responds to the data (both domestic and international).
Lets not leave out the struggling Japanese economy (which is a longer term story of demographics).
We wait to see if corporate revenues and earnings begin to grow again (because they have had negative growth for 3 consecutive quarters and the expectations for the 1st quarter of 2016 is suggesting that there will likely be a 4th).
Until we get more answers we need to remain defensive (as we at High Rock have been doing since May of last year):
This means that (until further notice) we remain with lower exposure to higher risk assets (like equities) and greater weightings of cash and government securities in our models (for better buying opportunities in the future).
Waiting at the "crossroads" for more direction. A very prudent strategy.
If you would like to receive this blog direct to your inbox, please email firstname.lastname@example.org
Scott Tomenson,CIM Managing Partner, Chief Investment Strategist