Listening for the Rhymes in Our Global Economy

Mark Twain once said, “History doesn’t repeat itself, but it often rhymes.” Dawn J Bennett wrote that we heard the rhymes loud and strong last month in the break of the news of renewed easing from the People’s Bank of China and the European Central Bank and in the market’s reaction.

FactSet said that blended earnings declined 4.6% in the third quarter; if this trend continues, this will mean we will have had back-to-back quarters with a decline in earnings for the first time since 2009. If we look ahead into the fourth quarter, nine companies have issued declining earnings-per-share guidance and to date only one company has issued positive guidance meaning the year is unlikely to improve.

“This data seems to point toward the conclusion that the U.S., and in fact the global economies are in the contraction phase of our current business cycle,” said Dawn J Bennett of Financial Myth Busting. “And since the philosophy of the central banks seems to be doing whatever they can to paper over the impact of that contraction, we saw last week that the PBOC and the ECB announced that they would be printing yet more money to ease the natural effects of that contraction. The markets shot up on that news, a few winners disproportionately impacting the indices to lead to a massive rally.”

However, it’s important to remember that stocks as a whole tend to decline during a recession. For the last few years, hedge funds, mutual funds, ETFs have been performing poorly. According to recent reports from Reuters and the Wall Street Journal, adjusted third quarter revenues for Morgan Stanley fell 42 percent.

Dawn J Bennett said, “A change is coming—history does tell us that change is inevitable—but with change comes opportunity, especially for those that listen carefully for the rhymes.

Read the full article by Dawn J Bennett here: