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June 08, 2015

June 08, 2015

Notable Trends in Global Markets

Let’s look around the world at a few big trends.

Trend number 1: inflation is coming back in the U.S. and in some countries where the currencies are falling — and this means interest rates, if not rising worldwide, will rise in the U.S. and decline more slowly elsewhere.  Higher interest rates are immediately bad for bonds, which we expect to do poorly.  Higher rates may eventually be bad for stock prices if they continue to rise.  We believe that the U.S. will begin a new rising interest rate cycle, and this will be bad for the U.S. stock market after the rises continue for a few quarters.  Many think that there will be one interest rate increase, and then no more.  This may be the case, but if it is, will be flying in the face of history.

Our advice:  We have cut back or hedged part of our U.S. portfolio, and will recommit to more U.S. stocks after a correction, which may occur in the fall of 2015.

Trend number two:  Russia is acting aggressively again, and this spells trouble for Europe and for the world.  The U.S. and European governments have little or no plan to solve this problem.  Russia is a failing government: bankrupt due to lower commodity prices and a strong Dollar, as well as an incredibly ineffective economic regime.  In Russia, there are no incentives for entrepreneurs to build something new, and a highly corrupt central government aids and abets cronies in looting national resources.

Putin is using the old ploy of distracting attention from the economy and corruption with a war to stimulate national pride in spite of the hardships that the Russian people are experiencing.

Another big question is whether Europe will see a Greek agreement in the month of June.

Our advice:  The European Central Bank’s three-month-old QE program is good — but not good enough to cause investors to ignore the slow-moving Greek train wreck, Russian aggressions and posturing, and a weak banking system that has not yet been put on a really firm post-crisis footing.  Rallies in Europe due to a Greek agreement will be an excellent opportunity to take profits in Europe.

In Yesterday’s Commentary, We Also Discuss:

  • Some exciting announcements at Google’s annual development fest.
  • Immunotherapies in acquirers’ cross-hairs?
  • Putin under scrutiny.
  • Market summary.