Atrocious, Anomalous, and So Much More

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The best comment between the statuses of either the US or the Canadian economy comes from a Bank of Montreal Economist, Jenifer Lee. In referring to US economic growth in the first quarter she writes “the good news is its history.” The statement is as much applicable to Canada as well, as Stephen Poloz’s crystal ball should receive some credit for its foresight of an “atrocious first quarter” for growth. The US economy for the last 18 months has been the bellwether for global GDP growth, and since the energy sector began to tank in Canada around Q4 2014, The US relation to Canada has become even more important.

The numbers were a struggle as Canadian and US GDP growth in Q1 contracted at 6/10th and 7/10th of a per cent respectively, and although forecasted to be bad, the actual reported GDP arrived well below expectations. For Canada, it was the overbearing 30 per cent decline of the mining, oil and gas sectors. And although this blow comes very much as anticipated, awaiting the revival of the manufacturing sector is something that will not be realized in the short term. For Canadian growth to pick up absent of a revival in the energy sector, the health of the United States economy will ultimately be the be the decider for the overall economic health of this country.

US economic growth arguably sites more reason for caution. The two important factors of port strikes in Los Angeles and cold weather in the east were no doubt factors that weighed heavily on economic activity in January through March. And even though recent indicators have signalled a bit of a tide change for the better, devastating news this week of flood disasters in the US’s fourth largest city, Houston, will surely be yet another curve ball for the economy this year. It repeats the question, and whether it is inspired or not by an over focus from financial media, of when the US Fed will be able to raise interest rates.

Sound analysis on this topic suggests that the Fed raising rates is somewhat of a misnomer. The Fed does not want to jeopardize economic activity because of a restrictive rate environment. Instead a rise in rates will simply be an adjustment to current economic conditions. As good and likely as that sounds though, a very interesting interview from St. Louis Fed President James Bullard this week offered a contrary point of view. An insider to the Federal Open Market Committee, Bullard’s take was that the Fed must remain reactive and very sensitive to adjustments in the economy. According to Bullard, (and I summarize) the beauty of being data dependant is the Fed can literally take in all up to date information and decide on a moment’s notice when to raise rates. There is no telltale sign that says they should do it in June, July, or even September.

And this is where the market forces decide. We have the US dollar resuming yet another bull run. As we close the week, even with oil finishing up nearly 5 per cent, currencies and precious metals sit quietly against a market convinced action from the Federal Reserve is the most important aspect of financial markets entering the summer. This is in tune with a forecast that both the US and for that reason the Canadian economy will pick up too. Entering the summer months, this will advance the talk of a Fed rate hike; and as result, the rest of the dependent globe can follow.

Consensus Delayed, or Broken

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Markets have entered a state of flux. Without a doubt, one of the clearest trends in recent times has been the breakdown of the commodities super-cycle and a surging US dollar, a trend that now seems to be reversing. Further, the correlation and patterns witnessed in the markets over the last 9 to 12 months no longer seem to hold. Investors are without a clear safe haven as German Bunds, U.S. Treasuries, and the Dollar remain volatile, and tensions in the Middle East are maintaining a premium in the oil market. More importantly for investors, however, is determining their best guess for what the next action will be from the world’s major central banks, particularly the US Fed.

As legendary investor Stanley Druckenmiller recently remarked, you have to “focus on central banks and focus on the movement of liquidity… most people in the market are looking for earnings and conventional measures. It’s liquidity that moves markets.”

Liquidity seems to be the major factor concerning those invested right now. Large gyrations in bond markets and even precious metals have led to some significant moves over the past week with silver rising 6.25 per cent. But it’s the lack of liquidity that can see a wave of trades adjust prices significantly in a matter of minutes. The trend of a strong Dollar that witnessed steady appreciation with confidence the Fed would be first to tighten policy is currently on hold. And it continues to dissipate with the prospects for the US economy, which is looking questionable in the short term.

The probability of a June interest rate hike by the US Federal Reserve is diminishing with economic indicators that continue to show the US economy is failing to recover from the weak first quarter. The soft GDP indicators reported over the last few weeks and the mediocre payroll numbers reported for April have economists delaying their forecasts for when we finally begin to gain traction. As a result, the steam is coming out of one of the strongest US dollar rallies since the financial crisis, and before that, the tech bubble.

Ultimately, it is the lack of confidence south of the border that is affecting the resumption of the US dollar rally. If the economy, as now anticipated, is to pick up steam in the summer months and payrolls continue to advance with a jobless rate nearing 5 per cent, then talks will resume regarding a likely rate hike from the US Fed and the dollar rally can resume. However, if the US economy continues to exhibit mere mediocrity, uncertainty and directionless volatility seem the likely result. If so, this will be a benefactor for the precious metals, particularly with the lack of other safe haven opportunities.

Art, Land, or Gold

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The chief executive of the world’s largest asset management corporation made comments this week that suggested gold was passé. He said gone are the days where gold acts as the de facto store of wealth. Instead, those with excess cash flow are looking to acquire condominiums in international cities or are making a bid for contemporary art; however, gold is being viewed as nothing more than a relic of the past.

Blackrock’s CEO, Larry Fink might be regarded as one of the most sought after minds in international finance. And for a man that preaches a long term view that suggests all investors remain fully invested in the stock market, as that is the asset class that boasts positive returns over the long run, he is taking a rather myopic view on gold.

The rationale for owning precious metals like gold is simple when looking to acquire and retain wealth. Governments can confiscate land. Art is subject to fashion trends or current fads. But the allure of gold is something that has been time tested throughout history. It may go in or out of favor in the near term, and of course caries the characterization and negative stigmatization for those over focused on the asset known as “gold bugs,” but its relationship holds as a long term store of value, and a natural hedge to the world’s reserve currency.

The uptrend in the US dollar is only something that looks set to continue. To close the week the Wall Street Journal published an article that examined a world burdened with oversupply. Whether its commodity markets, laborers, or capital, there is no natural shortage in any of the aforementioned markets acting as a driver of demand. An oversupply in commodity markets is prompting selling pressure for the globe’s energy and mineral rich export countries. Youth and millennials despite advanced education struggle to make gains in competitive labour markets. And savers are essentially punished for being adverse to risk and thus are forced to accept a rate of return less than inflation.

Naturally this would create an environment where gold as a store of wealth struggles. Obviously gold is no longer the front-page asset that is garnering the excitement of investors because we are not in an environment where a level of overall risk requires increased diversification for alternative asset classes. Alternatively, the malaise of other financial markets has prompted investors (since 2009) to look elsewhere for returns and hence fears arise of bubbles in real estate and there are questionable valuations for modern art.

To digress, the luxuries of private versus public ownership in investment decisions are not made dependent on results in the next fiscal year or quarter. They are decisions that are based on the long term with only a limited number of shareholders to answer to. The same can be said for gold. Larry Fink may be right that overall market demand may be waning for the yellow metal as prices sits rather dormant. The point he is missing, or failing to comprehend is that gold has been around longer than the skyscrapers of Manhattan or the most recent piece of modern art.

To repeat: land is subject to taxes and confiscation. Modern art goes out of style. Gold is time tested and has remained coveted throughout history.

Dead Cat Bounce

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The US dollar index has fallen around 3 per cent since its high the beginning of March. This past week saw the best weekly performance for the Canadian dollar in the last four years. Obviously the two events are related as one currency’s strength is another’s weakness; moreover, the question is whether the Canadian dollar is rising on its own merits, the US dollar rally is over or taking break, or perhaps, a combination of both.

The strong rally witnessed in the Canadian dollar this past week was reaffirmed by retail sales numbers for the Canadian economy in the month of February, and core inflation jumping to 2.4 per cent annually in March. Not only do retail sales numbers suggest that the blow from an “atrocious” energy sector in the first quarter might be subdued (to borrow an adjective from Bank of Canada Governor Stephen Poloz), but also core inflation registering at the upper end of the Bank’s target decreases the likelihood of a subsequent interest rate cut. And it is both these factors that are obviously supportive of an economy that has been a far cry from inspirational.

As much as the aforementioned fundamentals can tell a story about the direction of currency markets, it’s difficult to deviate from the single most important factor in pricing the Canadian dollar over the last year, and that has unequivocally been US dollar strength. This trend has been challenged on multiple occasions over the last month, particularly this past week, which saw oil prices peak to their highest level in 2015. It was largely based of a report that production levels in the state of North Dakota (second largest producer by state in the US) had slipped from their peak. Coincidently, global oil production has risen to its highest level on record, over 1 million barrels/day more than February, and Saudi output was at its highest level in 30 years. However it was US benchmark prices for crude that led the global markets in regaining their footing.

The global supply story for oil has not changed. Especially from the standpoint that US production is not being cut back so much as active wells withholding production from the market, potentially awaiting higher prices, which could prompt a second wave of oversupply. This global commodity picture is one factor that could see the US dollar regain a second stage of selling pressure. The second is Europe.

This market is failing to get a grasp on the distortion being created from negative interest rates and how such a deflationary scenario is being created in Europe. The idea of negative interest rates ranging from lines of credits to business to 90 per cent of the mortgages in Portugal being based on a variable rate will eventually translate to real assets and their goods’ sector deflating. The Eurozone is transforming into a something from nothing economy. How growth and stability can be projected over the long term is a conundrum with interest rates where they are. If Quantitative Easing was an experiment in the US, it has become 10 times the gamble in Europe. As this risk plays out, it seems undoubtedly the US dollar will find a renewed round of strength.

The markets are setting the stage for dollar dilemma round 2. We have seen justifiable reasons for uncorrelated and negatively correlated assets rallying against the dollar, but the rationale is not convincing enough to buck the trend. An overused expression seems extremely applicable; simply put, this is a dead cat bounce.

Stuck in Purgatory

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Financial markets have been going through another wave of directionless movements as they obsess over the “will they or wont they” question as to when the US Federal Reserve will begin to raise interest rates. This uncertainty has in many instances led to range- bound volatility in a number of asset classes where we are not short of large price gyrations; however, markets like gold are caught in a defined trading range. In the instance of gold, on more than a few occasions we have seen a floor around $1,140 US per ounce to a ceiling around $1,300. It seems the days are gone where the story of record low interest rates or increasing inflation expectations will fuel gold’s next rally. As well, the lack of uncertainty stemming from likely economic outcomes and no real surprises to financial markets has seen the gold market remaining at bay.

Exceptions to this are of course the recent actions taking by the Swiss National Bank to end their peg to the Euro, but that one off event has now arguably been overlooked by financial markets and one still might wonder how well it taught a lesson to investors of the potential for a violent rebalancing in asset prices. The story has reverted back to record low interest rates from policy makers and a global economy that continues to lethargically move forward as it’s pulled along by a recovering US consumer.

The question regarding interest rates though is one that has almost become meaningless for two particular reasons. The first is that American central bankers are moving away from their forward guidance approach to financial markets. No longer do markets require reassuring of record low rates for years into the future in order to keep credit markets at ease, and provide fuel for the equity markets. Investors are beginning to take comfort in what they believe to be a domestically strengthening US economy without the life support of a liquidity backstop by the Fed. Central bankers in the US are attempting to withdraw themselves from the picture.

The second reason the interest rate discussion is becoming less relevant in the US is because the pace at which they raise rates will be of little to no impact on markets. A rate move at this point in the cycle is more of significance to providing a signal to markets that we are lifting off emergency level lows. It’s not to say, curtail reckless borrowing habits of US homebuyers or over-levered corporations.

All else being equal, considering a US Fed that begins to move interest rates in accordance with a gradually improving economy will have limited impact on financial markets. Interest rate policy will not be a determining story for asset prices like precious metals as it has in years past because the story has already been anticipated. Whether it creates more volatility when we finally see liftoff is another question as thinner trading volumes have made the gold market more vulnerable to dramatic moves; however, this steadfast trading range seems more and more likely to be tested in a to be determined scenario.

Out of Options

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As the euro makes its way towards parity, we are witnessing the sole desired outcome of the policy initiative of the European Central Bank and their member governments. It prompts the question whether this policy approach will render what Mario Draghi and his team of central bankers are attempting to achieve by following the actions of like institutions and endeavouring on a journey of quantitative easing. But as the European Union is governed by a number of sovereign governments that have autonomy over their own domestic policy, the lack of coordination narrows the scope of what targeted bond purchases will accomplish when compared to other monetary experiments like in the US or Japan.

For starters, when the Federal Reserve embarked on their quantitative easing policy, and purchasing government debt with newly printed US dollars, the US government was running a deficit close to 10 per cent of their GDP. They were in essence supplying bonds to the market, which helped to make the Fed successful. One of the greatest over exaggerations in the market was around why the Fed began their taper process and scaled back their monthly asset purchases. The misperception was routed in the fact that US Federal government was shrinking their deficit and issuing fewer bonds. A diminishing net supply was inevitably seeing the US Federal Reserve as less accommodative.

The constraint on the fiscal side is what is more than anything prompting negative yields or interest rates in European countries. And this isn’t to suggest that governments are exercising a modicum of responsibility or restraint; moreover, with a limited supply of sovereign debt to the market and the demand for higher rated bonds, prices are being driven higher and yields lower. The financial institutions alone in Europe require a certain level of higher rated liquid assets, and it’s exactly the reason when the ECB attempts to purchase German Bunds they’ll be in a bidding war with other institutional buyers.

The other factor that questions the policy approach breeds from the criticism a policy like quantitative easing has received. The cost is the imperfect wealth effect created by an overvalued stock market because asset prices are distorted by abnormally low policy rates. Particularly in the US where QE saw those invested benefit, but the average American that didn’t trust a market that recently shed half its price got left behind. And where corporations have the opportunity to invest in new projects and workers, they also benefited from the opportunity to take on new financing at extremely attractive low rates and simply return cash to shareholders through buy backs and increased dividends.

The European Central Bank has one transmission for policy and that is weakening the euro. The continent has disinflationary if not deflationary pressures currently. Growth is stagnant. Their fiscal authorities look hapless. The ECB can weaken the euro further so that foreign demand boosts their domestic economy. The US Federal Reserve and Bank of Japan have crossed the line in terms of coordinating fiscal and monetary policy. The ECB cannot. But now they remain engaged, like other central banks, in a race to the bottom, beggar thy neighbour policy.

A Deal to Make a Deal

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Greece can declare a small victory. As Prime Minister Alexis Tsipras stated Friday evening, “a battle has been won, but not the war.” Since their new government was elected with a mandate to better the terms of their bailout, they have now successfully dealt themselves more time to negotiate with other member European countries and the IMF. Whether negotiations will be successful four months from now and they will actually be able to deliver on their mandate against austerity is still to be determined. The headline “Greece Reaches Deal with EU,” which sent financial markets joyously higher was not based on a solution, but instead a deal to make a deal four months from now as we revert back to the oft to used expression of kicking the can down the road.

Credit can be given to Greece because they have managed to single handily isolate Germany as the ‘bully’ of Europe. Since this government was elected a little less than a month ago, their first condition for negotiations was to deal with European nations individually. Greek Finance Minister Yanis Varoufakis startled financial markets with the statement, “we will no longer negotiate with the Troika,” referring to the 3 member group of creditor institutions: the European Central Bank, the International Monetary Fund, and the European Commission. Instead, he chose to threaten their stability and expose their fragility, which ironically depicts the problems of the euro currency. The members are not united as they differ dramatically in terms of culture and politics, which questions why they also back a common currency.

This calculated move by Greece is what’s bought them more time to potentially break and renegotiate the terms of their original bailout. Single handily isolating Germany and gaining support from Italy, the third largest EU nation means that some of the institutions that originally dealt Greece their bailout terms are now fractured. Very simply, Germany now faces the challenge of keeping other influential voices like France and Italy united with their own. And that predicament seems to suggest Germany may be losing its hold on power in these negotiations, as was suggested earlier this month.

There are three possible outcomes for Greece’s negotiations with the other EU nations. The first is they simply leave the Euro. The implications of this are far reaching and a treacherous story from bank runs to a Greek government that is unable to raise revenues from credit markets. Second, Germany maintains a united voice through Europe and Greece’s new Syriza government is forced like past governments to accept the hand they were dealt. The third option, which became more likely on Friday, is Greece does manage some victories to ease the bailout terms and move away from austerity budgets.

This question is what will eased bailout terms actually achieve for Greece?

Some economists have actually argued that austerity in itself has been a myth for Greece. Because of the way bailout terms have been negotiated with low interest rates for a long enough time period, debt burdened Greece actually spends less than both Italy and Ireland on debt service payments (interest paid on their debt) every year. As well, because so little of their budget goes to servicing their debt this brings into question, how much austerity is actually being imposed or indeed avoided from the bailout?

Through the recent quantitative easing announcement, the ECB has created some stability for the euro market for the time being. This allows investors to focus on geopolitics instead of the economic stagnation of the Eurozone witnessed through the second half of 2014. As the Germans are and will remain the largest creditor, they will always remain at the table for debt talks. But the question should be asked, without a united institution representing the lenders, what’s their tipping point for keeping Greece in the euro?

The pending answer to that puzzle will keep markets volatile end edgy for some time.

A Long Bridge to Where?

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A Long Bridge to Where?

“The best the ECB can do is to buy time in the hope that other policy-making entities with better instruments will step in, both at the national and regional levels”

-Mohammed El-Erian, Former CEO of PIMCO

There was certainly no shortage of action in the markets this week. Following a week when the Swiss France made a 30 per cent move in a matter of seconds, it would have been hard to believe we could match the week prior in terms of volatility and excitement. We are currently witnessing an undeniable shift in monetary policy. Six years since a financial crisis, and just recently the consensus was for an improving economy and a rising rate environment, but instead we are now seeing round two of central bank stimulus with a number of G20 central banks participating.

The surprise for the markets this week was provided by the European Central Bank. Somehow the ECB was able to deliver investors an open ended stimulus program that exceeded expectations. The oft-quoted Mario Draghi line from the summer of 2012 pledging to do whatever it takes to preserve the Euro finally came to fruition. The ECB President, Mr. Draghi and his team of central bankers delivered a US Fed style open ended stimulus aimed to buoy risk assets and support the sovereign debt markets of member nations. The question is, will it work?

The shortfall with Quantitative Easing in the United States was very simply the fact that there were no complimentary fiscal policies. Too many analysts and commentators concentrate on the actions of central bankers and whether or not there policies are justified. This is the wrong question to be asking.

A prime example of this was the Swiss National Bank’s decision last week to abandon the peg. Their balance sheet had grown so exponentially, and would have been under even more pressure to support the Franc given the action seen in the Euro this week. Abandonment was more an inevitability than a decision. And in the United States, 2008 and 2009 saw credit markets freeze and a slow response in terms of fiscal policies. The Fed bought time for the economy by keeping rates near zero, keeping downward pressure on long term debt markets, and an imperfect response, but created a wealth effect in the equity markets to hope for increased consumption and spending in the economy.

Similarly, the Europe Union will see similar outcomes, but faces similar challenges. Moreover, the situation there is posed as even more challenging given already politically unpopular and unfavourable policies and social unrest. One common example of this, and has been evident through the Euro Crisis is small businesses through Europe cannot get affordable credit and loans because the financial institutions don’t want the risk. The transmission of the process undertaken by the ECB to the financial institutions to the lenders is broken, and that’s just one task to fix.

Mohammed El-Erian’s quote above addresses the shortfall in the ECB’s policies. Many have referred to these coordinated actions by central banks as building a bridge to nowhere. I don’t like to be that pessimistic. But the point is that monetary policy will not be a sufficient solution to spurring economic activity should they not be accompanied by policies from fiscal and regional levels of government. Time will tell if my views will have to shift.

Cutting Their Losses, Early

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The Swiss National Bank (SNB) shocked currency markets Thursday of this week with a policy decision that crippled the Euro-Franc cross. Their announcement sent the franc soaring 30 per cent against the euro before settling lower, (still 16 per cent stronger) into the end of the week. This was as the SNB abandoned their 1.20 franc peg they’ve been defending since September of 2011, coincidently when the gold market peaked at over 1,900 USD per ounce. The decision by the SNB has far reaching implications for not only financial markets, but also for when policy becomes exhausted and policy makers themselves are rendered helpless.

The move in the Swiss franc really demands the attention of investors as it is one of the biggest, if not the biggest, single day move from a liquid western economy’s currency in modern time. Beyond the questions of the stability of financial markets and the overleveraged and crowded trades that amounted to millions of dollars in losses for investors, there are the direct losses to Swiss businesses and the Swiss economy as their exporters are heavily linked to and trade with a European market. As well, the price adjustment in the franc reminded all investors of a bid for haven assets as even gold ended the week 4.5 per cent higher.

The SNB’s decision to abandon the peg to the euro ultimately came down to necessity. The commonly watched EURUSD is down over 15 per cent over the last year, and pressure on the euro continues for multiple reasons. The first is simply the threat of deflation to the Eurozone. Stagnant growth and the trap of weak business investment and broken fiscal and monetary policy have the region looking hapless. Then if we include the probability of the European Central Bank embarking on an episode of quantitative easing and factor the likelihood of a Greek exit from the currency union, there are many downward pressures on the euro.

The Swiss franc faces the same appreciation pressures as almost all other currencies that trade directly against the euro. In order to defend their peg they’ve been maintaining for over the last three years, they had to expand their balance sheet (print francs) and buy euro denominated assets. The balance sheet of the SNB relative to the GDP of the Swiss Economy has expanded so drastically they are now the largest of any western central bank at around 80 per cent. By comparison, when the US Federal Reserve saw balance expansion to 4 trillion USD during the process of Quantitative Easing, their balance sheet to GDP ratio was around 26 per cent.

The threat for the SNB was that the size of their assets on their balance sheet would soon dwarf their economy, and their large proportion of assets denominated in euros would too heavily impact their economy from fluctuations and volatility in the euro exchange rate. As is the case with most exchange rates pegs, the market forces will eventually takeover and the outcome that the policy makers had been trying to avoid (like an overly strong franc) becomes reality.

As we see central banks like the ECB and Bank of Japan make moves that increase their influence on financial markets via balance sheet expansion, questions center on the idea of stability. Furthermore, was the market action Thursday a “one-off’, or are we amidst an environment that is setting itself up for snap price adjustments that leave investors too slow and unable to react?

A Longer Term View

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Following a year where US equity markets found the ability to overcome a Russian invasion of Ukraine, a tremendous decline in oil and commodity prices, and policy uncertainty in the major economies of the European Union and Japan, investors have to question whether the same resilience can hold through 2015. Renowned bond fund manager Bill Gross asked a similar question this week in his monthly investment outlook, taking a look at the year ahead and then suggesting we are now at an inflection point where the western world’s troubles of slowing economic growth can no longer be solved with debt creation and money printing. Consequently, 2015 will be a year for losses in most asset classes as capital looks for a new harbour that can produce positive returns.

The first full trading week of 2015 certainly complemented this story quite well. Violent selloffs in North American equity markets recorded the worst start for North American stocks since 2008. But it begs the question whether markets are destined for a year of negative returns as Mr. Gross suggests, or can they overcome the crippling factors of deflation in Europe and a weakening emerging market picture along with declining commodity prices.

It’s difficult to imagine in such an interconnected global economy how the US is able to decouple itself, and avoid the perils of economic headwinds originating from outside North America. It is a much different scenario than a few years ago when North American markets were much more vulnerable to fragility of the European economies and the systematic risk of a sovereign debt crisis. Turmoil in peripheral European countries seemed to reap much more havoc than the effect we’ve seen recently. Perhaps that was because of the interconnectedness of the debt crisis. Whereas today, Greek snap election called for later in January do not raise as much fear because bailout loans to the IMF are close to being paid back and Greece’s problems too many extents have been contained to Greece.

But as the European deflation fears once again present themselves (as was reported midweek for the first time in 5 years), the idea of a system wide issue now comes forward again. Mario Draghi and European Central Banks ultimate challenge will be preventing a deflation scenario in Europe, and time does seem of the essence. There has been no change to the fact that unemployment rates remain elevated across the peripheral Eurozone and particularly for the younger demographics. Investment suffers not only from the prospects of subpar returns, but also from the perspective of currency risk as the euro lost approximately 13 per cent in 2014. The paramount example is that German 10 year bunds are yielding less than half a per cent as the trend continues lower. Growth prospects continue to diminish.

Whether or not the North American markets perform in the short term will be determined by investors comfort with their volatility. At this point, six years into a bull market, it’s about the longer term view. Above all else, the number one consensus call a year ago as 2014 began was that interest rates in the US were going to begin to creep higher. And perhaps to the surprise of many, longer term bonds were one of the best performing asset classes of the last year. The consensus was wrong. Interest rates were supposed to move higher because of improving prospects for long term economic growth. Instead, they moved in the other direction.

With all the caution and some pessimism from respected analysts such as the aforementioned Mr. Gross, gold is catching a bid and is moving somewhat in tandem with a stronger US dollar. This could very well be that the US dollar is in for a rest and a bit of a pullback from recent levels which would add to gold’s punch. The biggest worry going into the second half of 2015 could very be the rekindling of the sovereign debt crisis and this time it will be much more difficult to paper over.