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A Bird's Eye View Blog

Fireside Charts 10.10.18

by : BCM Investment Team | POSTED: Oct10, 2018 | CATEGORY: Fireside Charts, Equity, Economics, Market Highlights

The rising bond yields we have recently talked about will mean higher federal interest expenses. The latest weapon in the Chinese trade war arsenal is energy – the Chinese have halted all crude oil imports from the United States. As we noted in our 3Q 18 Commentary, 2018 has been a tough year on Emerging Market stocks. Lastly, investors are dropping Italian debt as German industry output unexpectedly falls for the third month in a row.

 

1. To explain, the VIX measures the stock market's expectations of volatility implied by the S&P 500 index's options. The SKEW index also uses the same options to measures the chances of a large loss (2x or more standard deviations) occurring.

 

 10.10 chart 6

Source: SSGA, As of 10/9/18

 

 

2. Rising interest rates, if they climb too far, too fast, will affect the equity markets.

 

10.10 chart 4

Source: WSJ Daily Shot, As of 10/8/18

 

 

3. Is it still too far, too fast?  Don't forget QE reversal....

 

10.10 chart 5

Source: WSJ Daily Shot; As of 10/9/18

 

 

4. Too few realize the size and scope of our government's annual budget deficits...

 

10.10 chart 7

Source: WSJ Daily Shot, As of 10/10/18

 

 

5. With this kind of deficit spending, even if rates remain relatively low, the U.S. Government will have to spend higher and higher percentages on servicing the debt.

 

10.10 chart 8

Source: WSJ Daily Shot, As of 10/10/18

 

 

6. One of China's main weapons in a trade war is an outright or defacto currency devaluation.

 

10.10 chart 10

Source: WSJ Daily Shot, As of 10/10/18

 

 

7. Another "weapon" in the trade war.  If China bought more of its oil from the U.S., the trade deficit with China would shrink commensurately.

 

10.10 chart 3

Source: WSJ Daily Shot, As of 10/9/18

 

 

8. Is this due to the aggregate effects of tariffs, the trade war and the escalation fears?

 

10.10 chart 12

Source: WSJ Daily Shot, As of 10/10/18

 

 

9. China's foreign aid spending is concentrated in Africa and their  influence is growing...

 

10.10 chart 11

Source: WSJ Daily Shot, As of 10/10/18

 

 

10. Buying opportunity or trying to catch a falling knife?

 

10.10 chart 2

Source: WSJ Daily Shot, As of 10/9/18

 

 

11. Europe, including its largest economy, is slowing down.

 

10.10 chart 1

Source: WSJ Daily Shot, As of 10/9/18

 

 

12. Is the U.S. like Italy or vis-versa? As Italian government deficits widen, the markets are becoming increasingly concerned. Who will buy all this debt in either country?

 

10.10 chart 9

Source: WSJ Daily Shot, As of 10/10/18

 

 

 

3Q is upon us and we believe the current market environment is not as rosy as you may think. If you assume a global perspective, look beyond our nations' borders! The leading economic indicators for all of the Organization of the Economic Co-operation and Development (OECD) countries were in poistive territory at the start of the year. Now, we cannot say the same for many of these countries, including several in Europe.

 

 

 

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Disclosure: The charts and info-graphics contained in this blog are typically based on data obtained from 3rd parties and are believed to be accurate. The commentary included is the opinion of the author and subject to change at any time. Any reference to specific securities or investments are for illustrative purposes only and are not intended as investment advice nor are a recommendation to take any action. Individual securities mentioned may be held in client accounts.