It’s interesting that every analyst is justifying last weeks drop due to the interest rates rising and/or tariffs. In my humble opinion the universe does not work in one to one mechanics. It is a combination of correlations that appears to spark events.
So while interest rates rising a big talk today, we have to consider that interest rates HAVE been rising since the end of 2016 with Janet Yellen, who has continue to announce that their will be rate rises coming. During this period the market has keep increasing. So I have a hard time believing interest rates are the reason why the dip.
What I would like to entertain is to take the view of outside of the USA. It is a global economy. Many people appear to not look at the past to see what trends we can find.
The Rule Of Flight To Quality:
It’s fairly obvious when a country is at war, the money flee’s that country. You can see this in countries today whose people appear to be uncertain. The money flows out and into what they believe is safe.
This is one of the reasons in Miami, Florida and southern Florida there was a small spike in real estate sales in 2016. It appears that the people were moving their savings away from specific countries and into a bit more safe investments. But the real estate cycle is not something I wish to elaborate on this post today. That will be looked at more likely into 2032.
What we should consider is what happened in the past. When there were wars, money fled. Also, when there is problems, money will try to find safety to not get stuck.
Herbert Hoover Said It Best:
“During this new stage of the depression, the refugee gold and the foreign government reserve deposits were constantly driven by the fear hither and yon over the world. We were to see currencies demoralized and governments embarrassed as fear drove the gold from one country to another. In fact, there was a mass of gold and short-term credit which behaved like a loose cannon on the deck of world in tempest-tossed ear.”
Herbert Hoover, Memoirs, Volume II Chapter 7, page 67
There Is A Movement Of Capital Looking For Safety:
Notice the DOW high on 10/3/2018. We had an uptrend right into October for the Dow. The long term trend, even after the dip in January 2018 is moving higher.
Now take a look at international markets such as the DAX (Germany Stock Market). It appears we have a down trend of their market. Could capital be fleeing the emerging markets?
images from market watch
There is usually more than just one to one relationships. I am surely missing many other factors going on globally right now that have to do with uncertainty. But it is interesting to see how the markets play out on a global scale. If one wants to see where the US stock markets are heading, we will surely need to look at the global markets and see where capital is flowing.
I guess that’s why they say “Follow the money”.
A look Into the Week
It appears this week of 10/18 and 10/19 may have something coming. As we move into the elections this November, it is creating alot of uncertainty around the global markets. No one is playing nice and uncertainty is not a friend of the markets.
So let’s see this week and what may or may not happen on 10/18 or 10/19.