Well it is 2015, and according to “Back to the Future II,” the Cubs are going to win the World Series. Holy Cow! What do you know the Cubs made the play offs! The Cubs still have a very long way to go, and you can’t bank on crystals balls and movies for predicting the future as it doesn’t look like we will all be driving flying cars power by Mr. Fusion by the time the 2015 World Series champ is crowned.
If 1980s movies about time travel can’t predict the future, then what are we do as traders? The first thing is to put the past behind, Q3 of 2015 is now in the books, and as they say “past performance is not an indicator of future returns.” With that said let’s look to the future, and see if we can make sense of what has been happening in the market and where we go from here.
It is nothing new, cheap commodities are good for consumers and the American consumers that love to spend as the US economy remains one of the few bright spots in the global market. Low gasoline prices have the US consumer feeling good as they are buying electronic gadgets (thanks Apple) and automobiles (just not VW’s) at near an all-time record clip. September auto sales numbers were blockbuster (the Labor Day weekend numbers were counted in September this year and they typically are record in August numbers), which gave a nice boost to Wall Street and commodities.
Despite the nice rally, there was more concerning data and news that came out continues to add to the long term bear case. In case you missed our radio interview we are feed up with the FED! Since we don’t yet know if the Cubs can win the World Series, let’s shift our predictions to what is going to happen with the FED and what they will do with interest rates when they meet again on October 27-28th. The FED typically focus on inflation, and jobs (wages) which came in well under expectations, and after the report most of the Street changed hike expectations until early 2016. Since the FED made it known last month that they are watching economies around the world and have concerns about the global economy, we turn back to Europe and Asia.
We featured Volkswagen in the last issue of “Signals,” and the diesel scandal is the last thing that the Germans and thus the European economy as they are still trying to pull out of their weakness that has been propped up by Central Bankers since the Great Recession. This week the European woes moved from Germany to London as Swiss based Glencore (and acronym for Global Energy Commodity Resources) the 10th largest company in the world and one of the largest producers and marketers of commodities in the world lost a third of its value as investors hit the panic button about a possible default. Glencore sprang into action, created some liquidity, tidied up their balance sheet and was able to rally the stock back to erase the losses, but is still down about 2/3 for the year.
China will be closed for a week (October 1-7th) for National Day, and according to the WSJ investors have already pulled $40 billion from emerging-market stocks and bonds in the third quarter in response to China’s effect on their economies. That is the biggest outflow since the fourth quarter of 2008, during the height of the financial crisis. Prior to the Chinese holiday their PMI numbers were released, and they were awful! As signs of China’s slowdown bleeds to the US and the rest of the globe it could be seen as the disaster that tips the whole global economy, or it could trigger the next round of global stimulus.
Not only will the Fed be watching China, but as we have reported Japan now spends 35% of their total Government revue just to service the interest on their debt. America is not far behind, but major disaster was adverted at the 11th hour when Government shutdown was adverted on Oct 1st as politicians were able to kick the can down the road again so we could keep charging up the debt ceiling.
Only time will tell if “Back to the Futures II” is right and the Cubs can win capture the 2015 World Series. Unfortunately we don’t have a DeLorean that travels through time, but whatever happens there are always opportunities whether markets are rising or falling, it just helps to know the facts, know the risks, know the rewards, and put emotions behind and make some money in Q4!
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