Dec 10 2015
December 10, 2015

Market Update – Dec. 9, 2015

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In 2000 when the tech bubble burst the pain hit close to home and everyone knew it was a problem.  The 2008 housing bubble burst hit directly at our homes and we all were very aware of the problem.  Another bubble has burst but many have not yet realized it as a problem.  In fact, when you stop at the gas pump and gas is under $1.80 it looks like a great Christmas present.  The reality is that the commodity bubble has popped and many parts of the world are slipping into recession.  Brazil is reckoned to be in a depression.  The problem is the rapidly dropping prices of commodities like oil, gold, copper and many agricultural products.  The bubble was in a big way inflated by the voracious appetite of China as the expansion of its economy demanded fuel for energy and materials for construction.  China’s economy has been slipping amidst suspicion it might be a bigger slide than the government is admitting.  (The worsening economy is also a threat to the existence of the Chinese communist government).  Here in the U.S.  the slide in oil prices has forced the shutdown of a large part of the nation’s oil field production.  The energy industry had been a major driver of high paying jobs as the U.S. worked to pull itself out of a recession.  It now appears from remarks made by members of the FED that interest rates will be raised in the U.S. next week.  This comes as the EU moves deeper into a negative interest rate environment.  The dollar will be strengthened by the rising Fed interest rate making our exports more expensive to buy abroad and exports cheaper here at home.  In other words, we are importing inflation.  Industrial output in the U.S. appears to be in a recession.  The Santa Claus rally which typically drives U.S. stock prices higher is being marred by the dropping oil price.  We continue to maintain a large cash position in our portfolios with the expectation that the buying opportunity is ahead of us.

Here are the year to date market returns as I write this on Wednesday afternoon.

DJIA down 1.44

S&P 500 down .75%

NASDAQ  up 5.96%

Russell 2000 down 4.45%