EQUITY MARKETS GET WAKE UP CALL; GLOBAL ECONOMY STILL INTERCONNECTED
Klaus Schwab, founder of the World Economic Forum, prefaced the World Economic Forum’s 2014 Global Risk Report: “Our lives are changing at an unprecedented pace. Transformational shifts in our economic, environmental, geopolitical, societal and technical systems offer unparalleled opportunities, but the interconnections amongst them also imply systemic risks. This report aims to enhance our understanding of how a comprehensive set of global risks is evolving and how their interactions can lead to unexpected and often systemic impacts.”
The U.S. stock market had been cruising in overdrive, while economic reports from the eurozone, China, Russia, Japan, Argentina and many other parts of the world turned negative. It was as if the fact that we live in an interconnected global economy, as learned from the Great Recession, was being ignored. Following the release of the Federal Open Market Committee meeting minutes expressing concern that the global economy could negatively impact the U.S., the dollar and stocks began to go down while Gold saw a revival.
Despite this seemingly negative news, the stock market staged a rally Friday. Dennis Gartman, founder of The Gartman Letter, believes the bear market has just begun. “This is the start of a bear market. You stay in cash and you stay in short-term bonds and you don’t move out, this is a very difficult period of time and I’m afraid – and I don’t like to think about it – but this might be the very beginnings of a bear market that could last some period of time,” he warned on CNBC’s “Squawk Box” Thursday.
Federal Reserve Chair Janet Yellen is greatly concerned by the continued increase in income inequality in the U.S. “It is no secret that the past few decades of widening inequality can be summed up as significant income and wealth gains for those at the very top and stagnant living standards for the majority,” Yellen said Friday at a conference on inequality sponsored by the Boston Federal Reserve. Although Yellen said that to a certain extent the inequality is a result of hard work and risk taking, her concern is that “inequality of outcomes can exacerbate inequality of opportunity, thereby perpetuating a trend of increasing inequality.”