A few years ago, there was a movie called Benjamin Button about a person living backwards from death to birth.  It starred the handsome Brad Pitt, he of Angelina Jolie fame.  In the story, there is a segment where the main character suffers an unfortunate accident.  The story goes on to account for every single action the character made and how it delayed his time horizon, which affected the characters timeline, which ultimately produced the problematic incident.   I bring this up because one can make a case that in many situations, lots of independent events are linked to produce an outcome.  Essentially, to see the world is to understand how small events in one area can affect larger countries even though they do not appear related.  Let's turn to the current market environment with this thought in mind.

As I am sure you are quite aware, global equity markets have been experiencing heightened volatility over the last few weeks.  There are quite a few important issues that are related here.  First, China's economy has a large export component, nearly 50% of all GDP.  China has made the domestic economy a focus, to reduce it's dependence on exports over the last decade.  Second, we all know about Mr. Trump's announcement of another 10% tariff on all Chinese exported goods to the United States.  Last Monday, China announced it would alter it's currency band of Yuan (Renmimbi) that is pegged to the dollar.  It was lowered to above the all important 7-1 ratio.  If you are not familiar with currency markets, when I say lowered, what I mean is that one U.S. dollar would exchange for more Chinese Yuan, in this case, more than 7 yuan to one U.S. dollar.  Currency markets also reacted to central banks across the globe further lowering their interest rates, which included India.  Currency markets affect interest rates, which affect the bond market.  In Japan, the Yen is considered a safe haven during heightened economic stress, so buyers bought the Yen, strengthening it agains the dollar (it means one U.S. dollar exchanges for fewer Yen).   Japan is an important country to look at when you consider the effect of weak monetary policy.  For more than three decades, the Japanese government has tried to help their domestic economy by keeping interest rates quite low, currently yielding a -.144% on the Japanese 10 year JGB.  As a result, their banking sector is under serious economic pressure as many smaller banks cannot make enough interest income from loans to be profitable or compete with the larger banks.  The larger Japanese banks have turned to global markets to find areas to make more interest income, especially in the United States.  Here is a very nice article from the WSJ which details this issue.  With the heightened volatility in the currency markets, scared investors rush into the bond market to buy Treasuries and other government bonds.  Bond yields fell, so much so that they broke the 1.7% level this week before recently rebounding.  Relatedly, stock markets were pummeled on Monday after all of these moves, with the Dow falling nearly a thousand points in one day.  You notice we did not bring up what is taking place in Britain either.  With a new Prime Minister, the always politically correct Boris Johnson, the deadline for a complete and hard Brexit is fast approaching, which is the end of October.  Investors see this as quite problematic, and the pound has been pounded nearly every day, as have British equities.  Logically, the political events in British and Europe naturally affect all markets as well.  So you can see, like Benjamin Button's situation, global markets are very much related.  It is important to keep that in mind, especially when looking for investment opportunities.

In the earnings season, global bank HSBC reported soft numbers, as did gaming powerhouse Take Two Interactive.  Disney was the headliner on Tuesday, in a disappointing way as integration with the Fox purchase plagued the bottom line.  Health care giants Becton Dickinson and Allergan showed strong profits, while giant Wynn Resorts put up a nice results.  CenturyLink pleased the street for the first time in probably a decade, while real estate giant Zillow showed the affects of trying to enter into the buying and selling arena.  In the energy markets, investors were roiled by the China devaluation situation, and oil prices suffered accordingly. For those of you who are self directed investors, it is pretty clear where value is becoming more evident.

Finally,  many long time readers are aware of the repeated difficulties I've had while traveling.  We will make our last sojourn of the summer and hopefully it will go better than some of the prior trips. I hope yours do as well.  Thanks for reading the blog this week.

Yale Bock, Y H & C Investments, its clients, and the family of Yale Bock have positions in the securities mentioned in the blog,  Investing in securities involves risk and the potential loss of ones principal.  Past performance is no guarantee of future results.  All investment decisions should be considered with respect to ones risk tolerance, return objectives, liquidity needs, tax considerations, and one's overall financial situation.  The fact that Yale Bock has earned the right to use the Chartered Financial Analyst in no way means or guarantee performance better than market indexes.