Global Uncertainty

Here are some figures that shed some light on the current state of global uncertainty. As of January 14, 2015. See illustration graph below.

In a world with historically low interest rates, long term bonds can be very risky as they lose value if interest rates rise. But, for the past six months, interest rates have fallen.   The return from July to January for Long Term Bonds is around 16.5%!

In a world with historically low interest rates, short term bonds that are not very risky do not produce much return.  The return from July to January for Short Term Bonds is around 0.4%!

We get conflicting information about the US Economy, but many have believed that things are getting better because unemployment is falling and confidence is improving--except wages are not increasing and the labor force is shrinking because people are giving up looking for work. The return from July to January for the S&P500 US Domestic Market Index is 1.2%.

We hear that things are not so good in Europe and Asia as well as being not so good in Emerging Markets.  The return from July to January for the World (International) Stock Market excluding the US is a NEGATIVE -12.2%. (More than 10% declines are categorized as "corrections".)

If you combine the US Market and the World (International) Stock Market for a Global Combined Stock Market, the  return from July to January was a NEGATIVE -5.9%.

If you look at the important Global Oil/Energy sector, the return from July to January is a whopping NEGATIVE -28.9%. 

Last January in 2014, NOBODY predicted falling interest rates and such a dramatic drop in Oil prices. Very few, if any predicted a negative return for international stocks.

Conventional wisdom indicates that falling energy prices should be good for the world economy--but many fail to realize that a great deal of economic growth has been fueled by capital investment in energy exploration, production and delivery. With falling oil prices, that investment is grinding to a halt--putting severe pressure on economic growth. 

Conventional wisdom would indicate that housing should be booming with interest rates so low. But, many fail to realize that housing tends to fall in value when interest rates rise, so buyers are wary of losing their equity if prices fall after they buy. 

Conventional wisdom tells us that growth should be accelerating--that we should finally be recovering from 2009.  But, many fail to realize that all of the Central Banks around the world continue to tell us that the global economy is too weak to support "normal" interest rates. Perhaps, this is as good as it gets in this "cycle"--after all, we are now 6 years away from the "bottom". We may actually have peaked and are on our way to the next "bottom". Certainly oil and commodity prices are telling us that.

We are sailing in "uncharted waters" and nobody is completely sure of what the future holds. When sailing in "uncharted waters" it is rational to be cautious--with your spending and your investments. 

Remember that investing Principles are always more important than Predictions--stay focused on the long term with a conservative, well diversified, risk managed, portfolio. And, don't use past performance by itself as a reliable indicator of the future.