We are well into the last quarter of the year and corporate earnings season is demonstrating some telling signs of the overall state of the economy. Some sectors are chugging along just as usual, but things do not look good for some sectors such as Cons Disc or Industrial. The adjusted EPS numbers continue to temper investors’ emotions and stopping them from dumping the stocks and anemic growth. Meanwhile, M&A deals have been roaring as the companies flush with cheap access to cash continue destroying shareholder value. M&A deals always increase late in the cycle as corporate boards flush with cash try to bump their falling revenues and earnings with desperate need to prop up stock prices. These moves are as predictable as they come.
On the central banks front, its business as usual. Lots of circular reasoning and lost credibility from the Broken Fed as they fail to raise rates again while passing hawkish and dovish comments every other day. In central bank world, devoid of any reason and completely disconnected from reality, everything appears normal. Current expectations remain that the Fed will raise the rates in December (based on bond market probability matrix). However, it was very interesting to note that Yellen used the words “high-pressure economy”, which is an indication that the rise in interest rates may not be as rapid as previously perceived and/or showing some doubt on even raising rates. Any increase in interest rates will bring immense turmoil into the markets as it has a cascading effect on bond markets, stock markets, currency markets and the commodity markets. All eyes will be focused on the Fed.
Other central bankers seem to be heading the other way as they are more in tune with the problems in their respective economies. The Bank of Canada, for the first time in a while gave some clear indication that the monetary policy could see further easing – potentially a rate cut from the current 0.5% in their October Policy Report.
I continue to watch from the sidelines and hoard cash waiting for the fat pitches. I am the least bit interested in staying fully invested here and make a measly 1% or 2%. I continue liquidating more of my riskier assets and purchase hard assets instead – which should provide some shelter and see benefit during the coming turmoil.