Long Term Stock Investors Uncertain And Confused
$DIA, $SPY, $QQQ, $VXX
US stocks close out their best week of the year, but fundamentally, nothing has changed, the weakening global growth remains of concern.
The rallies in Brent and WTI Crude Oil do not reflect fundamentals as the oversupply remains this year, into Y 2016, and beyond.
Wood McKenzie demonstrated in a recent study that Crude Oil over supply remains at a record 2.4-M BPD even with strong Crude Oil demand this year.
What will happen to the Crude Oil oversupply in 2016 is unknown as nobody knows what amounts Iran will bring onto the market, especially when we take into account there is a large portion of Iran’s tanker fleet, which is one of the biggest in the world, filled with 55-M bbl of Crude and condensate, ready for market.
Long-term investors who would like to take on some Crude Oil or related investments in their portfolios probably are better off waiting some time more as Southside risks remain very high, as the world is very weak on growth prospects,
IMF Managing Director Christine Lagarde said the world is stuck in a “New Mediocre” growth pattern, despite that central banks of advanced economies have injected about $7-T in QE programs since the financial crisis of Ys 2007-2008.
Central banks have little room for error in a low-growth world in which over-leveraged and commodity dependent emerging market economies together with a slowing China are major risks especially when we take over-leveraged corporate debt into account.
You do not have to be a financier to see there is serious risk when policy rates in the US at Zero+, the ECB at 0.05%, the UK at 0.5%. Japan at 0.1%, Canada at 0.5%, Those rates all at or close to historical low levels.
No wonder most long-term investors are confused at present and do not know what to do.
Emerging-market (EM) economies are in the late stages of their respective credit cycles, which normally means “wait and see what happens next” before engaging in long-term investing.
Countries like the US seem to be at the beginning of new credit cycles (expansion), which often indicates the right time for investing again, but prices are not attractive yet.
The EU markets remains reserved for risk-taking investors who overlook the fundamental weaknesses and political dangers.
China’s most important weaknesses is its “credit gap” that measures its current credit growth compared to its long-term trend. At the end of Y 2014 its credit gap stood at about 25%, which is excessively high. This means wait.
So, for now the US is the place for investors, but again, the prices are not attractive yet.
Friday the US markets finished a strong week at: DJIA +33.74 at 17084.49, NAS 100 +19.68 at 4830.47, S&P 500+1.46 at 2014.89
On the week: S&P 500 + 3.3%, the NAS 100 advanced 2.6%.
- NAS 100 +2.0% YTD
- S&P 500 -2.1% YTD
- DJIA -4.1% YTD
- Russell 2000 -3.3% YTD
Overall Sentiment: Neutral to mildly Bullish
Investors now turn their focus to corporate earnings, which will start to pick up next week.
Have a terrific weekend.
HeffX-LTN
Paul Ebeling
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