Assessing the Year 2015 So Far
In the midst of the stock markets early 2015 gyrations, the Swiss National Bank's decision to "de-couple" the Swiss Franc from the Euro emerged as the most significant market event of the year so far. We'd have to place the stock market's down days down the "significant" list so far, with the continued lower yields on bonds taking second place to the "Swissie's" dramatic move. Third place goes to commodities' continuing decline, the poster child of commodities' woes being, of course, oil.
Stocks
We discount the importance of stock market actions to date, because it simply hasn't been all that big of a move. If and when the price of the Dow and the S&P approach 10%, we may revisit this. Meanwhile, we've keep an eye on the NYSE and the Small Cap Index for hints at whether we can expect any further weakening in the big averages.
Commodities/Oil
We've already said all we're going to say about oil (HERE and HERE), but those comments do tie in to commodities in general, which continue to weaken. Such weaknesses demonstrates weakness in the economies of much of the rest of the world, with the U.S. seemingly the lone hold-out. After President Obama boldly declared in his State of the Union address that the U.S. economy - due of course to his brilliant policies - has turned the corner and is now firmly on the road to increased prosperity, our propensity has been and will be to keep our eyes peeled for signs of coming weakness. Politicians' pronouncements on the economy not only primarily serve their own interests, but when stated boldly call out red flags.
Currencies/The Swiss Franc
The Swiss National Bank's shocking announcement that they would no longer "peg" the Swiss Franc to the Euro sent markets into a tizzy last week. We understand that continuing the peg had become a costly affair for this relatively small central bank. Short-term, abandoning the peg will provide relief. What we don't know if whether there is a longer-term strategy here, and what that might be. We could speculate, but choose not to do so right now. The following is as good as any other assessment we've read so far:
Well, that's one assessment of where we stand so far in 2015.
Stocks
We discount the importance of stock market actions to date, because it simply hasn't been all that big of a move. If and when the price of the Dow and the S&P approach 10%, we may revisit this. Meanwhile, we've keep an eye on the NYSE and the Small Cap Index for hints at whether we can expect any further weakening in the big averages.
Commodities/Oil
We've already said all we're going to say about oil (HERE and HERE), but those comments do tie in to commodities in general, which continue to weaken. Such weaknesses demonstrates weakness in the economies of much of the rest of the world, with the U.S. seemingly the lone hold-out. After President Obama boldly declared in his State of the Union address that the U.S. economy - due of course to his brilliant policies - has turned the corner and is now firmly on the road to increased prosperity, our propensity has been and will be to keep our eyes peeled for signs of coming weakness. Politicians' pronouncements on the economy not only primarily serve their own interests, but when stated boldly call out red flags.
Currencies/The Swiss Franc
The Swiss National Bank's shocking announcement that they would no longer "peg" the Swiss Franc to the Euro sent markets into a tizzy last week. We understand that continuing the peg had become a costly affair for this relatively small central bank. Short-term, abandoning the peg will provide relief. What we don't know if whether there is a longer-term strategy here, and what that might be. We could speculate, but choose not to do so right now. The following is as good as any other assessment we've read so far:
We have already speculated the Swiss made this move for one of two reasons. First, they may have decided the amount of euros necessary to purchase (and thus the amount of francs created) will go exponential this coming week when the ECB goes full on QE (printing). We also know that euros already make up more than half of their balance sheet. The other possibility is they know the Greek election is coming up, (the Greek banks are already experiencing bank runs) and they see the very real possibility of the Eurozone fracturing or even dissolving. Another possibility is maybe they just decided “their first loss is their best loss”? Maybe they have watched as the core of Europe has asked for their gold back and understand that “trust” amongst central bankers is waning? Maybe they simply decided to front run the obvious and necessary re set and do it on their own terms? It is very hard to say what exactly the motivation was, the important thing to understand is their action has started a re set in motion which will not be stopped! In plain English, the Swiss just yelled FIRE …while standing in the exit!Perhaps the most important take-away here would be that the fundamental structure of the long-standing financial and monetary system of the world, which has been in place since the end of the Second World War, may now be not just changing but may also be unraveling at an accelerated pace. This without it being all that clear in what direction things are heading. All this at the same time that countries' fates become more and more tied together. So these changes, should they continue or accelerate, may have an impact that few have anticipated and for which fewer are prepared.
Well, that's one assessment of where we stand so far in 2015.
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