The sands are shifting. The status-quot is giving way to market forces.
Greece is going socialist or Marxist - and the economy is destroyed. Germany and the ECB will use them to set an example. Venezuela - has imploded, but just needs a bit more time to collapse. Russia is sinking - while it hopelessly uses its massive reserves to breath. They're losing their world power status and rebuilding can't begin until Putin takes a long holiday - for good. Oligarchs will buy his ticket and help him on the plane.
The debts of both Greece and Venezuela have to be written down, by way of a default or some back door deal. Either way, capital (money and talent) leaves, their markets are crushed. Banks are run. Game over. But the phoenix will rise. As it is finally going to do in Cuba.
Spain, France and Italy look at the carnage and are determined to take a different path. ECB draws the line and "does whatever it takes" to restructure their debts. Seeing how turning back from reforms has hurt Greece, the ECB uses this as leverage to force faster progress on reforms but makes the pill more easy to swallow by using the printing press. Together with Junker and the Economic Union, a new growth strategy is introduced. It involves reforms coupled with development funding. In combination with low interest rates and E-QE, Europe takes a turn and their currency strengthens - at least it stops weakening. This puts a floor under USA equities whose earnings are to hard to hedge otherwise with such a weak Euro.
USA firms see the potential in Europe and put their reserve capital to work overseas. Plus, this works as another form of hedge to exchanges. Look at the difference this made for Ford who manufacturers in the region. Rather than bringing reserves home, USA firms decide it is time to invest in Europe. The Federal Reserve and Congress encourage USA investment in Europe.
America's picture is changing. Exchange rates are hurting earnings. And, the oil industry is costing jobs faster than they're being created by the stimulus of low energy costs. In an effort to curb costs, there is further downward pressure on expenses, which doesn't help USA growth. Raising rates is a non-starter until late 2015 at the earliest. More patience becomes the new operative way of thinking. But we still need a new catalyst for growth in the USA! Something has to come out of congress that is positive for growth. Low rates, low energy help, but there needs to be a new picture that emerges for prosperity. I'm convinced it needs to be infrastructure - of all kinds - transportation, energy distribution (electric, natural gas and hydrogen), and a more secure Internet.
Along comes India. Cuba might have been enough of a boost to our economy, had it not been for all the other negative shots. But new hope for the world economy, including China, is going to have the taste of curry. I love curry! Bring it on!! They can take up some of the slack in materials - just in time to save miners from supply destruction. Same to be said of shipping!
I have to say, my compass has been spinning around trying to find North since 3Q 2014. And, I'm still working this out in my head. My investing starts with a macro-picture, so I've been having a very hard time lately with my compass spinning around looking for north. Frankly, if I had just followed the plan that I blogged about months ago and gone to mostly cash, I'd be a lot happier at this moment. Costly lessons, hopefully learned! At least it might be said that equities are looking more reasonably priced at this point. That is unless you think we're entering a bear market.
Do we need more capitulation before there is a massive turn? Or is there a lot more pain to come first? Couldn't tell you. Only the market can answer that for sure. Gotta love the intelligence of markets and chaos! That's one of the things I love most about capitalism.
It appears tensions are building in the bond market for some sort of big turn. It seems to me that another long super cycle of debt is coming to a head. The sub-prime and US mortgage debt bust triggered the last financial crisis, and the solutions for that bought some time, while simultaneously contributing to the much greater super cycle of sovereign debt - national debt. While the last crisis started in the USA, where we had the ability to move quickly and formulate a response, the next and larger crisis begins offshore. And by the time it arrives here the worldwide damage will already be so enormous that a USA response will be like one plane attacking King Kong or Godzilla.
Of course there must be a response. Mankind made this problem, so mankind can fix it. It is in our DNA to try! Maybe QE becomes QF. E does follow F. So maybe easing is followed by forgiveness. After all, what's the real difference between debt which Greece can't possibly pay back and debt it doesn't have to? In a word - inflation. Hmmm, now isn't that the solution everyone is looking for anyway?!!