August 23, 2015

Bad Company

This has been a challenging week for the stock markets around the world and as yet another media frenzy challenges the collective patience of investors and observers alike it’s the latter that is usually hard at work discrediting individual companies such as this week’s shaming of Amazon (AMZN) for having a corporate culture that is too aggressive. Never mind that calling upon disgruntled employees to generate an article smells like an agenda, Amazon has well over 150 thousand employees worldwide and certainly among them there are those for whom the job isn’t a fit as well as those for whom it is. I can understand, while disagreeing with the argument, that work place behavior within an environment that sells for profit might appear unsavory to some. But in my experience many tedious jobs, for which my own has been cited, are not often not seen that way by those who are engaged in what I call a “labor of love”.  

So while the global markets are in turmoil I think there is more to be gained by following events such as:

China continues to seek ways to address the slowing of its economy. There is no suggestion yet of a recession, but the continuing decline in oil prices does suggest some credibility in economic predictions that mostly lean to a slowdown with a growth rate higher than the  western democracies but significantly lower than the average over the last 10 yrs. Some signs of stabilizing will have to be realized before the markets can truly calm down. In the meantime I have lightened up on emerging market exposure in accounts.

The Federal Reserve Board continues to show ambivalence among its members. Interest rates are going to rise, but in the meantime the Federal Reserve is sending mixed signals that aren’t helpful in the pursuit of market clarity. Since it’s been nearly 8yrs of no Fed activity many on the sidelines are predicting a rate hike in September. It can be said that the stock markets were ill positioned for such a move, therefore this week’s decline makes more sense, even if still uncertain.

Oil prices are obviously poised to outpace the normal bounds of necessity. And while I’ve spent much time writing about the potential benefits of lower energy prices, the current speculation of prices into the 20’s is bothersome. Maybe it’s because of the continued potential for manipulation on the Futures market or maybe it’s more for its contradiction to historical changes in the price of oil. I’ve watched those prices closely as an indicator of both global growth and inflation for 30 years during which the culprits to volatility were easy to trace. Recession made oil prices decline and wars, or threats thereof, made the price rise. The Middle East which has been a strong voice in the OPEC consortium has historically favored keeping prices low, in western logic to keep the consumer hooked. Only signs of stronger global growth will stop the current trend.

War posturing is currently in the news regarding the rising tone of rhetoric passing between North and South Korea. More than Ukraine or self-inflicted challenges facing Greece, I think this development is worth paying attention to, not because war is inevitable but because it could bring the type of distraction the current global market rout is hindering.

Much will be discussed over the weekend about what the market did and little about why. Picking on corporate America at the expense of following genuine news is consistent with the emotive style of our news services and in my opinion is getting tiresome. The markets are correcting and there are increasing signs that risk is showing some value. As of today all three major indexes are negative for the year. So far it is both brisk, since people jump to sell but procrastinate to buy, and widely felt in all sectors. I’ve ben raising cash and will look for opportunities to allocate it.