cold smoke mountain topWell, Q3 Was A Humdinger.

It began with the first International Monetary Fund (IMF) default by a developed country (Greece) and finished with Hurricane Joaquin possibly headed toward the east coast. In between, China’s stock market tumbled, the Federal Reserve tried to interpret conflicting signals, and trade growth slowed globally.

After such a stressful quarter, we may see an uptick in the quantity of alcoholic beverages consumed per person around the world. That number had declined (along with economic growth in China) between 2012 and 2014, according to The Economist.

No Grexit – for now

Despite defaulting on its IMF loan, rejecting a multi-billion-euro bailout plan, and closing its banks for more than two weeks, Greece was not forced out of the Eurozone. Instead, Europe cooked up a deal that left the IMF unhappy and analysts shaking their heads.

The Economist reported the new deal for Greece was an exercise in wishful thinking. The problem is the deal relies on “the same old recipe of austerity and implausible assumptions. The IMF is supposed to be financing part of the bailout. Even it thinks the deal makes no sense.” It’s a recipe we’re familiar with in the United States: When in doubt, defer the problem to the future.

A downturn in China

Despite reports from the Chinese government that it hit its economic growth target (7 percent) on the nose during the first two quarters of the year, The Economist was skeptical about the veracity of those claims. During the first quarter:

“Growth in industrial production was the weakest since the depths of the financial crisis; the property market, a pillar of the economy, crumbled. China reported real growth (i.e., after accounting for inflation) of 7 percent year-on-year in the first quarter, but nominal growth of just 5.8 percent.”

That statistical sleight of hand implies China experienced deflation early in the year. It did not.

On a related note, from mid-June through the end of the third quarter, the Shenzhen Stock Exchange Composite Index fell from 3,140 to about 1,716, according to BloombergBusiness. That’s about a 45 percent decline in value.

Red light, green light at the Federal Reserve

Green light: employment numbers. Red light: consumer prices, inflation expectations, wages, and global growth. Late in the quarter, the Federal Reserve decided not to begin tightening monetary policy. According to Reuters, voting members of the Federal Open Market Committee (FOMC) decided uncertainty in global markets had the potential to negatively affect domestic economic strength.

They may have been right. The Wall Street Journal reported, although unemployment remained at 5.1 percent, just 142,000 jobs were added in September. That was significantly below economists’ expectations that 200,000 jobs would be created. The Journal suggested the labor market has downshifted after 18 months of solid jobs creation.

Global trade in the doldrums

The global economy isn’t as robust as many expected it to be. According to the Business Standard, the World Trade Organization (WTO) lowered its forecast for global trade growth during 2015 from 3.3 percent to 2.8 percent. Falling demand for imports in developing nations and low commodity prices are translating into less global trade. Expectations are trade growth will be 3.9 percent in 2016, which could help support global economic growth.


Data as of 10/2/15

1-Week

Y-T-D

1-Year

3-Year

5-Year

10-Year

Standard & Poor’s 500 (Domestic Stocks)

1.0%

-5.2%

0.3%

10.5%

11.4%

4.8%

Dow Jones Global ex-U.S.

0.7

-8.6

-10.3

0.8

0.0

0.9

10-year Treasury Note (Yield Only)

2.0

NA

2.4

1.6

2.5

4.4

Gold (per ounce)

-0.5

-4.9

-5.9

-13.7

-2.8

9.4

Bloomberg Commodity Index

-0.7

-15.8

-25.7

-16.1

-8.7

-6.9

DJ Equity All REIT Total Return Index

1.5

-3.3

9.2

9.4

11.6

6.8

S&P 500, Gold, DJ-UBS Commodity Index returns exclude reinvested dividends (gold does not pay a dividend) and the three-, five-, and 10-year returns are annualized; the DJ Equity All REIT TR Index does include reinvested dividends and the three-, five-, and 10-year returns are annualized; and the 10-year Treasury Note is simply the yield at the close of the day on each of the historical time periods. Sources: Yahoo! Finance, Barron’s, djindexes.com, London Bullion Market Association.

*The Standard & Poor’s 500 (S&P 500) is an unmanaged group of securities considered to be representative of the stock market in general. Unmanaged index returns do not reflect fees, expenses, or sales charges. Index performance is not indicative of the performance of any investment.  You cannot invest directly in this index.

* The 10-year Treasury Note represents debt owed by the United States Treasury to the public. Since the U.S. Government is seen as a risk-free borrower, investors use the 10-year Treasury Note as a benchmark for the long-term bond market.

* Gold represents the London afternoon gold price fix as reported by the London Bullion Market Association.

* The DJ Commodity Index is designed to be a highly liquid and diversified benchmark for the commodity futures market. The Index is composed of futures contracts on 19 physical commodities and was launched on July 14, 1998.

* The DJ Equity All REIT TR Index measures the total return performance of the equity subcategory of the Real Estate Investment Trust (REIT) industry as calculated by Dow Jones.

* Yahoo! Finance is the source for any reference to the performance of an index between two specific periods.

* Opinions expressed are subject to change without notice and are not intended as investment advice or to predict future performance.

* Economic forecasts set forth may not develop as predicted and there can be no guarantee that strategies promoted will be successful.

* “Q3 Was a Humdinger”

Sources:

http://www.economist.com/news/leaders/21656662-whatever-its-outcome-greek-crisis-will-change-eu-ever-europes-future-greeces

http://www.worldbank.org/en/publication/global-economic-prospects/regional-outlooks/Global-Economic-Prospects-June-2015-East-Asia-and-Pacific-analysis#5

http://www.economist.com/news/business/21659754-booze-around-world

http://www.economist.com/news/leaders/21657806-deal-between-greece-and-europe-averts-one-disaster-and-hastens-next-pain-without-end

http://money.cnn.com/2015/07/13/news/greece-deal-banks-closed/

http://www.economist.com/news/finance-and-economics/21657816-growth-really-7-year-right-target

http://www.bloomberg.com/quote/SZCOMP:IND

http://www.economist.com/news/finance-and-economics/21664153-case-raising-interest-rates-worryingly-hazy-more-red-lights-green

http://www.reuters.com/article/2015/09/19/usa-fed-idUSL1N11P0NL20150919

http://www.wsj.com/articles/u-s-adds-142-000-jobs-in-september-1443789134

http://www.business-standard.com/article/news-cm/wto-reduces-world-trade-growth-forecast-for-2015-to-2-8-and-2016-to-3-9-115093000751_1.html

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