Being the lone Super Power is difficult. The United States is both admired and resented around the world. Mutual trust has faded. The world is a dangerous place. Although GEOPOLITICS have been an issue all year, investors largely ignored the threats. For instance, the DOW Jones Industrial Average recently hit 17,000 for the first time in history despite growing tensions in Ukraine, Gaza/Israel and Iraq. US safety and stability continue to strengthen demand for American investments. We don’t see this changing anytime soon.
Recent market jitters don’t come as a surprise. In fact, we’ve been preparing for them since the Spring. It’s actually more surprising how long it’s taken for the Market to care about tensions overseas. The US economy has developed a bit of immunity to global issues. But Europe is stuck in a difficult spot because, not only do they share borders with Russia, but their economies are intertwined as trading partners. The German stock market has plummeted 10% in a month. Germany is the growth engine for the European economy.
While the US is quite isolated from Russian economics, Europe is not: One third of Russian energy goes to Europe. American energy independence is highlighted during current geopolitical environment. This is a key factor as to why the US Market has held in so well. The price of crude has barely budged this summer, in fact, it’s actually declined. This is encouraging for American consumers and great for the US economy. Energy independence is the single most important development of this young century. It will have a profound impact on the American way of life.
You know what else is doing well in 2014? The Bond Market. Quality US bonds have performed extraordinarily well as interest rates continue to fall. Global investors have been flocking to US assets throughout the year, buying US Dollars, Bonds and Stocks. The 10-Year Treasury yield is below 2.4% for the first time this year pushing bond prices to new highs. Stocks generally struggle in August and September. The recent weakness is quite normal and healthy.
In this election year, it’s easy to be a frustrated American. Our political process in Washington seems broken. But taken in context to the rest of the world, our problems have much simpler solutions. The stars and stripes do stand for something. It’s worth protecting and can never be taken for granted. Being a Super Power isn’t easy but it beats the alternative.
Have a nice weekend. We’ll be back dark and early on Monday.
By: Mike Frazier