Diverging central bank policies: The US Federal Reserve is talking about raising interest rates (4 governors were speaking of it yesterday in their respective speeches) and the European Central Bank is talking about more monetary stimulus.
When financial markets are confused and uncertain, investors sell risky assets and move to safer assets.
US consumers are saving, not spending.
Volatiltiy is rising again.
Commodity prices are falling, copper hit new lows yesterday (levels not seen since 2009) as demand is falling in China:
Oil supply is at its highest level in years and oil prices are falling too, traders will likely test the August lows to see where buying support will be found.
Commodity price deflation is holding inflation rates down.
On one hand you have a US economy that has been improving, but not enough to pull the global economy along. On the other you have a slowing Chinese economy (and other developing economies in its wake) that is an anchor to the global economy.
The question we are all asking is: can the US economy continue forward momentum with the anchor dragging?
The Fed is anxious to get rates off of 0% and fears getting stuck there. But what might be the consequences in a world awash in debt, with asset prices declining?
It is a precarious place to invest. Risks are high.
Taking risk off of the table is the prudent thing to do.
Sell expensive (over-valued) assets, pay down debt, stay close to cash for awhile to play it safe. There will be time in the future (as the cycle plays itself out) when prices are lower and risk will be too. Then we can all have another look.
For the time being however, for the short-term, we will remain in a low return environment, when taking risk does not pay.
Scott Tomenson,CIM Managing Partner, Chief Investment Strategist