Turning Points: The Status Quo Is Changing

The status quo is changing markedly. Oil prices are heading south as the United States ramps up production and OPEC refuses to cut to compensate. Moreover, global demand is looking sluggish with weakening growth in Europe, Japan, and China. The weakening of Chinese demand suggests that there could be a regime change taking place whereby the global driver of commodity demand is declining at precisely the moment when the expansion of global supplies is finally arriving. The US dollar is rising and other major currencies are weakening. While some argue that the United States will experience a robust manufacturing renaissance, it appears the United States is only a temporary winner of a complex financial game played by politicians.

The markets remain at elevated levels both on a market-cap-to-GDP basis and a cyclically-adjusted-P/E (CAPE) basis. With Fed support for markets waning, the underlying health of markets and economies remains suspect. When all the facts are taken in combination, the case for a change in the status quo is gaining strength.

Here's a wrap-up of key issues affecting global markets for fundamental investors.

Currencies

• Why the United States has the strongest currency in the world. (Quartz)
• "Fears of a currency war in Asia are overblown." (The Economist)
• "Euro Wobbles on Chance of More ECB Action, Aussie Perkier" (Reuters)

Commodities

• ICSG anticipates supply-demand reversal in 2015. (DFX)
• "Why Iron Ore's Meltdown Is Far from Over" (CNBC)
• "Farmland Prices Drop in Parts of Midwest" (Wall Street Journal)

China’s Direction

• "China's Growth in Danger of Slowing More Sharply" (Financial Times)
• "End of the Road for Chinese Growth" (Business Insider)
• "China Economy Disappoints Again, Shares Decline" (Forbes)

Credit Markets

• "Junk-Loan Volume Plunges as Yields Rise: Credit Markets" (Bloomberg)
• "Traders' Credit Market Concerns Grow" (Financial Times)
• "New Bank Rules Distorting Europe's Credit Markets" (South China Morning Post)

Derivatives

• Financial Stability Board (FSB) issues report on the implementation of OTC derivatives market reforms. (Financial Stability Board)
• "Futures Markets Warm to Algos" (Markets Media)
• "OTC Derivatives Market Activity in the First Half of 2014" (Bank for International Settlements)

Energy

• "The Global Shakeout from Plunging Oil" (Wall Street Journal)
• "Prices, not OPEC, to Balance Oil Supply" (Financial Times)
• Major advance in commercial-grade energy storage. (Gigaom)

Euro Crisis

• "ECB Poised to Dash Bond-Buying Hopes" (Financial Times)
• "Eurozone Growth Figures: Germany Narrowly Avoids Triple-Dip Recession" (The Guardian)
• "The Euro Is in Greater Peril Today Than at the Height of the Crisis" (Financial Times)

Hedge Fund Money

• "Sotheby's Spent $20 Million to Wage War against Dan Loeb" (Business Insider)
• "Billionaire Investor Ray Dalio Says These Five Habits Made Him Successful" (Business Insider)
• "Hedge Funds Lose Money for Everyone, Not Just the Rich" (Bloomberg)

Interest Rates and Central Banks

• "In Change of Strategy, China Cuts Interest Rate" (The New York Times)
• "Fed's Bullard Continues Push for Interest Rate Hike" (St. Louis Business Journal)

Japanese Debt and Inflation

• "Stimulus Gives Bank of Japan Huge New Role in Markets" (Wall Street Journal)
• "Moody's Downgrades Japan on Concerns That Abenomics Could Be Failing" (Business Insider)
• "Japan Enters Triple-Dip Recession" (Wall Street Daily)

Stock Market

• Stock Market Cap to GDP is nearing all-time highs. (Advisor Perspectives)
• Interactive map of P/E ratios by country — pretty sweet. (StarCapital)

Follow the Bubble

• "Most Emerging Stocks Fall as Energy Shares Tumble on OPEC" (Bloomberg)
• "China 'Triple Bubble' Points to Long Slide for Commodities" (MarketWatch)
• "Why Can't the Fed Spot Bubbles?" (Forbes)

Time Capsule

Six years after the collapse of Lehman Brothers, it is a good time to reflect and perhaps gain some insight on the events leading up to and including tits catastrophic failure. In "Why Lehman Wasn't Rescued," we learn about the legal structures that prevented the government from stepping in and providing assistance to a private sector firm.

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All posts are the opinion of the author. As such, they should not be construed as investment advice, nor do the opinions expressed necessarily reflect the views of CFA Institute or the author's employer.

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