Socialism And Equity Markets Don't Mix Well

The “risk-on” mode was back in the markets today as equities rallied, with the S&P 500 jumping 2%. But the global rally didn't spill over into Brazil, where the stock market took a hit on Dilma Rousseff’s gains in the polls.



As a result, Brazil’s currency came under pressure once again. It’s not clear how much more the currency can depreciate before inflation becomes an issue.


Japan’s trade report came out this morning showing imports and exports both rising more than expected. The trade deficit worsened, however.

China’s gradual slowdown (discussed yesterday) can be seen in the nation’s interest rates. The interest rate swap curve shifted lower and has become even more inverted over the past month. Inverted yield curves usually indicate an impending slowdown.


People wonder why the Eurozone’s growth has stalled again. Just take a look at the banking system.

Canada’s reliance on energy exports has not positioned it well for the current environment.


Now back to the US, where Goldman Sachs sees stronger dollar and tighter credit markets pressuring GDP growth.


Perhaps. For now the trade-weighted dollar rally has been quite modest by historical standards.


And US credit spreads widening seen recently is dwarfed by the moves over the last couple of decades.

Unless we see much bigger adjustments here, it’s hard to imagine a major impact from these factors on the GDP growth. However, more uncertainty/volatility, such as we saw last week for example, is another story.

US consumers remain jittery. As expected, households actually paid attention to last week's market volatility and the Ebola fears. As many have pointed out, some of what we've heard last week was blown out of proportion. But any increased uncertainty, perceived or real, can have an immediate and a very real impact on the economy these days.


On that note, the Ebola scare drove a great deal of the volatility last week. Here is the count of Ebola references on Twitter vs VIX.


According to MarketWatch, “67 economists were asked whether yields would rise. Every single one was wrong.” Note that I was in that camp as well – particularly after I saw what happened during the “taper tantrum”. Treasury yields are this low now because of the global economic environment rather than the situation on the US.

US existing home sales report came in better than expected (though still below last year's highs). This is encouraging.


Now some food for thought. As we compare hardcore liberals and conservatives on their views of media sources, it seems that everyone trusts the Wall Street Journal and nobody trusts BuzzFeed. Here is how it breaks down for other media sources.