Q4 ’15:   Uncertainty

The world is in a state of confusion, reflected in markets across the board, which went nowhere for all of 2015 (see BloombergThe Year Nothing Worked”). The new year started off with a sharp, but historically normal, selloff in stocks (Dow -13%, S&P -11%). Market fundamentals suggest more downside but the selloff precipitated a level of pessimism usually only seen at significant market bottoms.

Some good things are happening…notably the global climate agreement and the nuclear deal with Iran. At the same time there is plenty to be concerned about.

Global deaths from terrorist activity rose 80% in 2015 to the highest level ever. And the long running conflicts in the Middle East have boiled over into a geopolitical bar fight. Refugees from the conflict have thrown the European Union into chaos. The long overdue correction in China threatens to swamp the global economy. Disputes over the South China Sea and North Korean provocations are simmering in the background.

In the U.S., mass shootings (4 or more casualties) occurred on a daily basis in 2015. Black communities (Black Lives Matter) are venting their anger at aggressive police tactics that leave too many of their young men dead. A victim cult is roiling campuses with demands for “safe spaces” where they won’t be subjected to anything that offends them (see “The Real Victims of Victimhood”). And in this presidential election year the usual hyperbolic political rhetoric has ramped into outright hysteria.

If you’re not confused, you’re not paying attention.

Is this the calm before the storm? Or is this an ugly but relatively stable transition to a new normal? Stay tuned.


Financial markets are now all about the Fed, which finally began raising the Fed Funds rate for the first time in 7 years (1/4% in December). Market commentators are endlessly opining on what the Fed did, might do, might not do, should do, must do, must not do…”how could they; it’s madness,” “how could they not; it would be catastrophic.”

Market participants are equally confused. Credit Suisse recently posted a piece based on a survey of clients in the U.S., Asia and Europe entitled “Client perspectives: lost and bearish.” The bottom line…”Never have we seen so many clients who just do not know what is happening…” This pretty much sums up the state of the marketplace.


Fed confidence notwithstanding, the economy is pretty uninspiring. Job growth has been steady but the economic value of the jobs created is a fraction of the value of jobs lost. The result is stagnant growth in wages along with steady increases in cost of living…persistent, low-grade stagflation for wage earners!

Investors increasingly need to take a global view of economic developments. Monty Guild, President of Los Angeles based Guild Investment Advisors, offers an expanded and generally upbeat perspective on the global economy.

“Many market participants look at manufacturing data to get a picture of the economy…So when manufacturing data is slowing in the U.S., Europe, and China, some uninformed and shallow researchers begin to panic.

Of course it is slowing down and it can slow more in coming years. Why? Because China especially, and the developed world as well, are not on a manufacturing trajectory to economic growth. Software, services, consumer spending, and technology are all the drivers of these economies. China is in the midst of an epochal transition from an economy driven by manufacturing to one driven by the domestic consumer…

Accordingly growth is in these areas, and there is no problem with the economy if it shifts partly from metal fabrication to services and software. The changes require investors to decipher which metrics to follow in order to understand the new economy.


America was treated to a rare example of balance and honesty in a public figure when Pope Francis descended on the mad state of American public life, sending a breath of fresh air across the toxic landscape, and a brief pause in the relentless focus of our media on dysfunction and catastrophe.

The enlightened Pope gave American politicians an example of honorable public discourse. He demonstrated a combination of balance, compassion and integrity along with a deft political sensibility that communicated readily across the political spectrum to all but the rabid ideologues on the extremes. His well considered positions on divisive social issues demonstrated compassion and inclusiveness without compromising his core beliefs.

I hope that some among our political elite actually took note of the Pope’s demonstration and committed themselves to a higher path.

Beltway “wisdom” is that this is a naïve and foolish sentiment. I think the American people are weary of beltway “wisdom” and hungry for some integrity in our political process.

In fact, it is the virtually universal disdain for the corrupt and inbred beltway culture that has resulted in the election of two consecutive unqualified candidates as President, in a desperate attempt by the American people to choose a leader who will bring real change to Washington. Frustration has now turned to anger, manifest in the popularity of Fascist leaning Donald Trump on the right and Socialist Bernie Sanders on the left.

Meanwhile, actions in Washington continue to erode any remaining semblance of our government as a representative democracy. E.g. After several failed attempts (due to widespread bi-partisan opposition) to extend and expand the profoundly un-American Patriot Act, the deed was accomplished by slipping the Cybersecurity Information Sharing Act (CISA) into the must-pass 2,000 page year end Omnibus spending bill so it could become law without debate.

So who is benefiting from our national dis-integration? For a clear and concise picture of what is really happening behind the scenes, read Bill Moyers’ recent essay “The Plutocrats Are Winning.”


The “Arab Spring” inspired civil war in Syria along with the dismantling of neighboring Iraq created the perfect environment for the rise of ISIS, a medieval Islamic cult with 21st Century social media skills. ISIS is eager to provoke another U.S. invasion of the region so as to usher in The Day of Judgement (Armageddon) and the Final Victory of Islam. This of course has Republicans clamoring for…you guessed it…another U.S. invasion in the Middle East!

President Obama is trying to keep the U.S. out of it, but at the same time has ordered Special Forces “advisors” into Syria after repeatedly stating unequivocally “no American troops in Syria.” For those with memory of Vietnam, this will sound very familiar.

Ironically, the U.S. is huddling with Iran and Russia to coordinate a campaign against ISIS, even as both of those nations continue to pursue multiple agendas in opposition to the U.S. And President Obama’s nuclear deal with Iran is now a done deal, freeing up $100 billion in frozen assets for Iran. Our allies in the region, the Saudi’s in particular, are extremely unhappy over both of these developments, and are trying to galvanize opposition to Iran by inflaming regional sectarian conflicts. And for the icing on the Mideast FUBAR cake…U.S. ally Turkey’s President Erdogan recently praised Hitler’s Third Reich as “an example of effective government.”


The best opportunity these days, as it has been for quite some time, is to play defense and try to avoid losses. Continuous central bank intervention has rendered market fundamentals irrelevant, so it is difficult to take a position in anything with any degree of confidence. Bonds of all stripes are the most important area to avoid. The U.S. dollar and the U.S. stock market, especially stock in large cap global companies that can move assets globally and are in a position to take advantage of the massive growth in Asian markets, are generally seen as the preferred safe haven. These assets are currently in a correction and may soon offer a buying opportunity.

Precious metals, a traditional safe haven, have been constrained by deflationary pressures but when that cycle completes, which could be very soon — even as soon as right now — precious metals will provide excellent safety and value.

With no reliable fundamental drivers and so many potential triggers for turmoil, expect volatility and BE CAUTIOUS. Lost opportunity is far easier to endure and recoup than lost capital.