A slew of economic data from China has come in ugly. Factory activity is dropping at the fastest pace in more than six years, and the country has resorted to devaluing its currency — in other words, beggaring its neighbors — to shore up its exports and help its growth.
Oil prices have sunk, meaning both cheapo road trips and sagging global demand.
Stocks seem really expensive on the basis of some historical measures. Really expensive. Bonds are expensive too. As well as assets in a bunch of other classes. What’s an investor supposed to do?
For some time now, financial markets have outperformed the real economy. Of late, the real economy has outperformed financial markets. Maybe there is some appropriate mean reversion going on.
It’s quiet out there. Too quiet. No, really quiet. And it has been too quiet for too long. When was the last time this kind of thing happened? 2011? That’s a long time. Who can trust things being quiet for that long. It’s like when your dogs stop making a racket for 20 minutes. Maybe they are sleeping. Or maybe they are in the midst of perfecting a catastrophe.
Here’s another thing: If things are going wrong, rich-country central banks and governments have little spare capacity to fight off nasty trends like deflation, economic contraction, and market gyrations. They’re heavily indebted. And interest rates cannot go much lower. That’s a reason to be pessimistic.
Is mercury in retrograde? I bet it is. Oh, never mind.
Also, sometimes markets just do stuff.