5. Market Update
Europe 2015 = Problematic
China GDP Miss + Market Crash
sources: HiddenLevers, NPR, Marketwatch 1 2, ZeroHedge, BBC, Economist, Forbes
- German rates at 0
- Swiss rates negative
- Swiss ditch Euro peg
- Euro below 2012 low
- Greece deteriorating fast
- EU QE looming
USA Decoupling
6. Market Update: Goodbye Fed, Hello ECB
sources: HiddenLevers, Financial Times, Businessweek
- 85b usd monthly bond buying
- began at market bottom, led to rally
- treasury yields rose, driving money into
market
- stimulus impact on inflation debatable.
- 60b usd monthly bond buying
- begins at market top, likely no equity pop
- hopes to drive up yields on German Bonds,
and people to take risks – hiring, spending
- BIG QUESTION: Enough to fight deflation?
Fed ECB
7. Market Update – Ebola Pandemic
sources: HiddenLevers, Barrons ,
USD chart tells many stories
1m: Euro in serious trouble
1y: USD strong post QE
5y: Japan QE gave USD legs
10y: USD at top of range
Macro Snapshot – USDiesel
USD +16%
past surprise: US shale revolution
- decreased trade deficit
- increases oil supply
future surprises: - Fed hikes rates
- ECB begins QE
USD even - China de-peg
Oil –52%
USD +16%
EUR –16%
JPY –16%
8. Macro Snapshot
Oil-gold ratio spiked to fifth
highest level ever
Typically corrects quickly:
- Does oil spike from here?
- Or does gold crash from here?
5th highest level ever
Swiss Central Bank shocked the
world (and bankrupted FX
traders) by ending peg to Euro
Gold and silver seem to be
acting as safe havens for now
10. GOOD: ECB Successful QE
source: HiddenLevers, Financial Times,
ECB action avoids deflation in Europe
ECB program
30% smaller
than Fed QE
Fed hands tied
on rate hike
Crude Oil
stabilizes
at 50ish
EURO
stabilizes
at 1.20ish
noticeable
unemployment
decreases in
Europe
11. BAD: US Avoids EU/Japan Crisis
already baked in
US inflation
below 1%
more upside
surprises on US
budget deficits
decoupling continues but EU/Japan hinder growth
markets flat to
mildly down
source: HiddenLevers, Census.gov,
Japan +
Germany #4 + #5
US trade
partners
GDP wash
less trade but
stronger
internals
EU more trade
than
CAN/CHINA/MEX
12. UGLY: US Succumbs
retail sales
already trending
down
Fed out of
bullets – can’t
return to QE
US unable to avoid first world problems
Oil punches
through 30usd
source: HiddenLevers,
Not as severe a
crash as 2009
expect all time
lows on US
Treasuries
USD + sentiment
touching long
term resistance
14. Oil: Global Picture
sources: Economist 1 2
EU + Russia
+ Japan:
Growth
Near 0
China + India
growth heading
sub-7%, can’t
carry world
Africa rising,
but from
tiny base
USA! A rare
rich country
with growth
15. Oil: Addiction Getting Cold
source: Our Finite World , Oil & Gas Journal, EIA
Total US miles driven
down 3% from 2007 peak
while GDP up 9%
Less driving + better mpg
oil demand down 11%
from peak
US economy energy
efficiency picking up
US fuel economy rising
sharply since 2010
BTU/$GDP down 7%
since 2010
16. Oil: Production Getting Hot
sources: EIA, DOT
Oil production approaching
1970 peak
OPEC determined to bankrupt
US shale industry
Supply is up… But we are well below
shale breakeven price:
$50-80usd
20. Deflation + Commodities
Oil crashes are not predictive of
equity market crashes
Fed unlikely to raise rates,
considering other
central bank moves
ECB QE unlikely to work at market topIsolated oil crash priced in.
Further crash = deflation