With mounting geopolitical tension, lack of opportunities overseas, and the relative attractiveness of U.S. markets, foreign investors are bidding up the price of U.S. stocks and the dollar, which is putting increasing pressure on gold, oil, and commodities, says Martin Armstrong.
Between Ukraine and ISIS, 2014 has been a year marked by geopolitical tension. Yet, contrary to intuition, market volatility has continued to trend downward along with the price of gold and oil, while stocks continue to hit new all-time highs. Why?
With ongoing problems in Europe and U.S. valuations looking stretched, well-known money manager Louis-Vincent Gave thinks Asia has the most going for it right now. Here are some excerpts of his recent interview.
Should the USD break out from its 2005 to present bearish trend, we should see some significant developments in inter-market relationships. For starters, the relative performance of U.S. stocks relative to the MSCI World Stock Index Excluding the U.S. shows a strong correlation to the USD Index.
Once breaking through its eight year declining trend from 1989 to 1997, the dollar rallied 50% until finally peaking with the tech bubble. Should the USD break out this time around, it is quite likely to have a strong bullish run going forward.
Ongoing tensions in Ukraine have recently settled with a ceasefire deal and Russian troops also pulling back from the area. This is certainly a positive development, though many still wonder whether we are witnessing the beginnings of a new Cold War or worse between Russia and the West.
A handful of readers wrote yesterday: “Corporate profits are rolling over!”, “Cris, it’s time to get the word out.” It appears the source of all the alarm was an article that recently appeared at Business Insider, “Wall Street Declares the Great Profit Margin Boom Is Finally Over.”
Given the prior inflationary move seen earlier in the year, it is likely we should expect a moderation in economic momentum that has been building since Q1 of this year. Should growth moderate we are likely to see more economic releases surprise to the downside.
Financial stress rose significantly as the market peaked during the tech and housing bubbles. One popular measure of financial stress, the TED spread, however may no longer "work" at identifying market tops. For that, we must look at others. What are they saying?
Shadow banking is back in the news. First there are ongoing problems in China where bad loans outside of the traditional banking system are causing increasing financial strain. Then, here in the U.S., regulators are also becoming more concerned about the rising use of leveraged loans by non-bank intermediaries or things like peer-to-peer lending, where the largest such company in this space, Lending Club, just filed for an IPO.