On Tuesday, the International Monetary Fund (IMF) lowered its global Gross Domestic Product (GDP) estimates again; although at 3.4%, the world would see greater growth than the 3.1% achieved in 2015. While the IMF doesn't possess the greatest track-record on predicting economic developments, the point is that we’re looking at another challenging year where growth estimates are already retreating.
China announced yet another initiative to spark its economy while simultaneously trying to stop a run on the yuan, which might be too late. On top of it all, with the heavy lifting of defending a currency and sparking an economy, the Chinese must find a way to turn its stock market around.
In November 2013, communist China made it official in a communiqué, saying that the stock market would play a “decisive” role in its allocation of resources rather than a “basic” role, as it had been the case. Of course, while we lament China’s situation, we should understand it’s an export economy- their woes, in part are our woes as well.
As for the rest of the world, I did find it interesting that Germany and the UK are supposed to hold up; and it’s no surprise, France will lag. In fact, this week began with France announcing an economic emergency as its economy continues to stumble. While they aren’t going to hike taxes, the French government is seeking to pay small businesses $2,200 for each new hire that lasts more than six months.
We tried those gimmicks in America-it’s not going to work.
The fact is that France needs lower personal and business tax rates, and to hike the workweek to 40+ hours. By the way, if you think Bernie is sexy, consider what the socialists have done to destroy France.
Once again, the stock market was unable to sustain a big rally, pulling that Roman candle act where it soars into the air at the start of each session, looking majestic and feeling exciting before it rapidly dims-and fades away. Considering the slide in West Texas Intermediate (WTI) - Tuesday was impressive.
The scuttlebutt of a price war between Saudi Arabia and Iran has driven Brent Crude and WTI lower. If Iran is looking to dump its 36,000,000 barrels at a loss in a gambit to reclaim lost shares in Asia, then it could hasten the moment the Middle Kingdom wakes up to the fact this experiment is as dumb as the past oil embargoes that ended up killing the end-user and forcing them to speed up alternatives.
If the economy is slipping and if oil continues its march towards $20, then where does this put the Federal Reserve and how does Janet Yellen, articulate a change in strategy without spooking the markets? Sure, the Street wants to know the Fed isn’t so wedded to the idea of four rate hikes, but they ignore the obvious.
There are odds of at least one rate hike:
- January 1, 2016- 94%
- January 19, 2016- 69%
Small Cap Free-Fall
The Russell 2000 is being pummeled. The small-cap index has pierced all key technical support from moving averages to chart formations. I think 954 could be a solid support point; but at this point, this index has to turn to change the feel for individual investors. On the upside, 1050 might be the breakout point.
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