Monday, February 22, 2016

Last Week Of February:
How Are Our Themes For 2016 Shaping Up?


1) Volatility / Uncertainty


Volatility spiked in mid January, but has settled down through February. There are still many contrary forces (driving uncertainty) at work in the global economy but for the time being, anyway, the extreme negativity has abated.  

2) Can The US Economy Survive The Global Economy?

After a troubling end to 2015, early indicators have the US economy looking a little better:


The GDP Now forecast for Q1 GDP is at 2.6%. Tomorrow we shall see how the consumer has responded to all of the influences of volatility on their psychology, with the latest reading on consumer confidence, followed by data on incomes and spending on Friday.

3) Commodity Prices (Deflation Risk):


Commodity prices have stabilized and moved a little higher lead by Gold and Copper. Even Oil prices have moved off of their lows. Deflation fears, while still a factor, are lessening (at the moment).

Consumer price inflation (albeit a lagging indicator) has been rising:


4) Central Bank Monetary Policy Divergence:

The US Fed may be softening their position on raising interest rates (with rising global uncertainty). The European Central Bank and The Bank of Japan have gone negative and the ECB may have more stimulus on the way. The Bank of England and The Bank of Canada remain on hold. A stronger C$ is adding interesting circumstances and a weaker pound providing a different influence.

5) Geo-political issues:

"Brexit", the referendum whereby the UK may leave the European Union, has started to gain in the headlines. If they do decide to leave, it could have lots of negative implications both for the UK economy and the European Union itself.

Russia and OPEC are negotiating on oil production. 

North Korea continues to try to keep itself in the spotlight.

6) Bond Markets Lead:

Bond markets have raised the probability of further economic slowdown and deflationary pressures (with flattening yield curves). But are bond markets being manipulated by central banks? Can their signals be trusted?

7) Equity markets remain expensive:

10 year average price to earnings (P/E) ratios sit at 14.2 times. 
The 12 month forward P/E ratio is still an above average 15.4 times.

Since the beginning of the year, analysts have lowered their earnings growth expectations for 2016 from 7.4% to 3.4%.

8) Negative returns (thus far in 2016) continue to pull the long-term averages back to the averages and investors who have been re-evaluating their portfolios have been in rather "grumpy" moods (like Mr. Grumpfish above). 

I have been fielding plenty of calls from unhappy folks.

Lots of those folks (in greater numbers) have been tuning in to our weekly Tuesday webinar to get our perspective, which we will host tomorrow for our clients. Following this, the recorded version will be posted on our website:

So feel free to tune in!


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