Well, that was quick. One day stocks are seeing their best day all year only to get completely wiped the next. As Ferris Bueller would say, "Life moves pretty fast. If you don't stop to look around once in a while, you could miss it."
Stock market volatility has clearly picked up from its lows reached this summer and is now back near its highs for the year.
Oil has now fallen below and is back near its lows from two years ago.
Jeff Rubin, former Chief Economist at CIBC World Markets, has long called for increasingly higher oil prices. Today he told subscribers that he’s now expecting oil to head dramatically lower (see interview).
After its precipitous decline and eventual bottom in 2013, gold has now found support at the 00 region for the third time.
Slower growth and the dollar’s strong rally over the last couple months has put pressure on gold, silver, and most commodities. The dollar has recently pulled back slightly from its highs as traders expect a slower liftoff on Fed rate hikes.
Currency expert Marc Chandler thinks this will only be temporary and says the dollar’s upward trend may last for several years (see interview).
Chris Puplava echoed this in his recent highly-detailed report, “The Perfect (Dollar) Storm” (see part 1 and part 2). Here's an updated chart he just sent me showing that the dollar has now definitively broken out of its multi-year base.
Numerous sites jumped on the recent IMF report saying that China has overtaken the U.S. as the world’s largest economy. If you may recall, the World Bank had predicted this would happen sometime this year using the same analysis, which is based on what's called purchasing power parity (PPP). Here’s part of an exchange we had with noted finance professor and China expert Michael Pettis out of Beijing on why this may not be as signficant as headlines are making it out to be.
FSN: Just recently, the World Bank said that China’s economy could overtake the US in size as early as this year. Given your outlook, do you think China is set to become the world’s largest economy?Pettis: "If it does it'll be temporary and then it'll fall back behind again. My skepticism about the [World Bank’s] PPP analysis—the purchasing power parity analysis—is that it really isn't meaningful at all except for economies that are comparable. And, in fact, generally comparing US GDP with China's GDP is not very meaningful because their economies are so different. So, if you were trying to compare the US and Canada, it makes sense because they are structured in very similar ways…but when you do a PPP analysis on China…the implicit assumption there, which is never explicitly stated, is that China's GDP is comparable to US GDP. In other words, the US constructs its GDP in a way that is broadly similar to what is happening in China, but…China's GDP is constructed very differently because of the failure to recognize bad debt. […] So I would argue that if you really want to compare the two you should adjust China's GDP not just for price differentials but also for the different way in which debt is being treated. And if you were to do that my suspicion is that you would probably want to reduce China's GDP numbers by anywhere from 20-30% to account for all this unrecognizable bad debt. So my big problem with the PPP study is that it makes a very powerful hidden assumption, and that assumption is that the two economies are broadly similar in the way they measure economic activity, but…that's wrong—they’re not. They're quite different and that's why the PPP comparison doesn't, to me, make any sense at all."
Here's the full interview if you'd like to hear it:
