Posts

Showing posts from January, 2016

Balancing The Crude Oil Market

Image
One of the most fundamental economic questions about markets and their interworkings surrounds the theoretical concept of an equilibrium. For mathematical economists, the question may seem weightier indeed, but for the run-of-the-mill topographical observer, the phenomenon can play a role in the everyday decisions of an investor and a consumer. Equilibria exist in all systems. One of the most popular may be studied by a physicist concerning pendulums and Newton balls, but to an economist, the forces of supply and demand, price and quantity come to mind. As a quantifiable framework, price and quantity can be shown by two sets of equations and set equal to each other. In the same way, investors can abstractly think about the amount buying and selling going on in the marketplace, knowing that intraday trading is just another method of finding the equilibrium.

Many weaknesses pervade the type of static equilibrium analysis that we employ. Who really knows if the equilibrium that we just c…

The Small-Cap Solution To A Recession

Image
Losses across the globe continue to infest the unnerved prospects for global economic growth this year. Stock markets continue their decline into a bear market which is incomparable in length and magnitude to any major periods of 2015. Despite gains earlier this week, more sliding in major market averages today reconfirms the heavily bearish sentiment that plagues traders and their wallets. The Dow Jones Industrial Average, already down 8.5% on the year, fell -222.77 points (-1.38%) to land below the 16,000 point mark. The S&P 500 following large cap stocks fell a total of -1.09% a trend that has continued through the beginning of January. The Russell 2000 small-cap index dropped a little further at -1.50%. Smaller equities have performed worse than their large cap peers since the March of 2014 in a trend that has set spelled danger for new start-ups and IPOs.

While advancement from the S&P 500 can typically define a solid bullish trend, a helpful confirmation can be the growt…

Global Risks from the World Economic Forum

Image
Investors, companies, governments are always looking ahead. These entities devote millions upon millions of dollars of capital towards the resolution of the future because it scares us. We get scared in groups, and that fear feeds other groups because humans have this superficial trust in one other in risky situations. The recent sell-off of the global markets is just one example of our unconscious belief that others may be right. Large-scale reaction to risky and stressful events can also be seen in the surprisingly large approval rating of Donald Trump's suggestion to "ban all Muslim immigration into the United States." All presidential candidates, like Trump, participated in a healthy, indirect discussion of ideas in response to the risks posed by a large migration seeking to disperse themselves among the developed economies. This moratorium on international issues could be represented by an impressive gathering in January, and every January, called the World Economic…

Confirmation Is The Key

Image
Last year's stock market brought up major questions surrounding the sustenance of the broad bull market advance that had begun after the financial crisis. With dropping oil prices threatening the energy market and deflationary pressures leaving the Federal Reserve in tough positions, many investors were stuck between believing in a long-term trend of growth or coming to terms with the inevitability of cyclicality. Don't get me wrong; the last statement should not lead you to believe that I think the market is dropping into a trough because that may or may not be the case. What seems true, though, is that these bulky sell-offs are communicating the popular bearish feeling in most sectors of the market. Perhaps truer than any presumption made by analysts is the 2199.95 point gap between the closing DJIA price today and the high over the past 52 weeks. That's an average of an 11% discount across the major industrial shares that make up the index. Another fun fact, today's…

Global Weakness Strikes The New Year

Image
The year of 2015 took investors through a wild roller coaster ride of extreme volatility complete with extra screaming from the oil and gas industry. Many analysts labeled the past year as the end of the bull market that had benefitted from the overextension of selling after the crisis. Just about seven years after the start of the Great Recession, mood swings start to become evident once again. The beginning of the new year tells no different story. Despite stabilization today, the Dow Jones Industrial Average has already lost almost -5% for the year. Pent up global pressure once again mires any hope of U.S. equities lifting off ground zero. A combination of political and economic trepidations has compromised any short-term optimism that was present in the market. North Korea's claim of testing a hydrogen bomb contributed to a Chinese stock rout that sent tremors through the rest of the world. For the year, the S&P 500 is down -4.88%, the Euro STOXX 50 is down -5.90%, and the…