Markets are on edge. This type of volatility is wrenching. It weighs on professional investors, it interjects more emotion into the investment process, while elevating stress, and causing people to lose sleep. The above is natural as money is made or lost at an outsized pace in hourly timeframes. This phenomena is measured by the VIX index which has surged to over 40 this week (was 15-25 the majority of the past couple of years).

When you are stressed, tired, and emotional, you don’t think or research as clearly. Things get missed.

There was some subtle news in the past week about August 10th being a key date for the People’s Bank of China with respect to making a decision on rate hikes. Stories were out last week from Xinhua news (which is a government mouthpiece) that predicted yesterday would be a key date to hike interest rates or reserve requirements. August 10th has come and gone without a rate hike. The Chinese currency (yuan) has been allowed to appreciate to all-time highs. The market may start to gain conviction that the China rate hike cycle which has been in place since last year, is over. This would be positive from a liquidity and market sentiment standpoint and would also lessen the chance of a hard landing in China dragging down global GDP growth.

In addition to this potential positive, we have other good news which has been ignored such as:

  • Initial jobless claims getting down to 400k for three weeks in a row which is the best showing all year save a 4-5 week period in March.
  • Retail sales hanging in with strong results from Kohl’s, Macy’s, and Ralph Lauren this week.
  • Oil and gasoline prices coming down.
  • The ECB willing to get involved in direct sovereign debt purchases to avoid a crisis.

These positives, have in our view, been ignored. With markets dominated by fear we continue to see investment opportunities in US and international stocks.

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