The dollar continues to climb higher as capital floods to the U.S. This means lower commodity prices and lower inflation. Marc Chandler, well known foreign exchange analyst and frequent guest to the show, explained to us in 2014 why this may be a long-term trend lasting for several more years (see here). If you’re in the U.S., you may want to start preparing for that European vacation.
So far, January has not been off to a good start for the stock market.
After peaking in ’09, volatility has continued to see lower lows. We may have seen the inflection point last year. Large number of analysts and traders are expecting a pickup in volatility this year.
West Texas crude is now trading at /barrel, right smack-dab in the middle of Jeff Rubin’s amazing - call made on the show last year (see here) before it took the big plunge. Analysts are still divided as to the effects and whether this will lead to more harm than good for the global economy. Bulls and bears are predictably polarized on the issue as well. Expect to see more guests on the show to talk about the risks and investment opportunities this presents.
The high yield market continues to signal caution for investors. JNK has tried to rally numerous times since breaking down in July, only to get dragged down further each time oil goes lower. Still too early to tell if we're seeing stabilization. This is a red-flag for stocks (see here and here for more discussion on the high yield market.)
With all the risks out there, the one thing that has yet to disappoint of course is the U.S. economy. Longtime listeners will by now be very familiar with our reference of the LEIs (leading economic indicators), which are still heading higher. Once this and others start to rollover, start thinking “market top” and “bear market”. So far, we’re just not there yet with the big four economic indicators accelerating to the upside as well.
Source: Doug Short
Lastly, a consideration of debt burdens is important for long-term trends and big-picture outlooks. We all know about the massive levels of debt hanging over most countries around the globe, particularly the U.S., however Sober Look posted the following chart and comment with regards to the debt burden of U.S. households. Barry Ritholtz isn't so impressed, but it does appear we are seeing a bit of Dalio's "beautiful deleveraging":
"US households’ balance sheets remain relatively healthy as measured by the Financial Obligations Ratio (FOR). It includes the Debt Service Ratio (mortgages, credit cards, etc.) as well as 'rent payments on tenant-occupied property, auto lease payments, homeowners' insurance, and property tax payments'. As rental costs rise, FOR is expected to worsen."
Financial Obligations as % total disposable income:
Source: FRB
Jim Puplava will be providing his 2015 outlook this Saturday on Financial Sense Newshour and also looking at what other major analysts are predicting for this year. Be sure to tune in through our site here or subscribe to our podcast on iTunes by clicking here.
