In today’s world, there’s an abundance of interconnected factors that can have a significant impact on your nest egg. Take a look at the recently ended Detroit International Auto Show for example.
It was fantastically successful and it came on the heels of a record-breaking year for auto sales. You’d think that would motivate a large number of financial analysts to be bullish on the auto industry, right? Especially with the price of gasoline far below $2 per gallon and interest rates hovering near 2%.
However, that’s not the case. One of the reasons for the short-term negative sentiment is the apparent economic slowdown in China.
Which, of course, translates into lower than anticipated overseas car sales by our domestic automakers.
But that’s only a part of the story. A Chinese slowdown also means a lower demand for oil. And now, at a time when Iran can legitimately re-sell oil on the worlds markets, the dominoes are falling.
The addition of Iranian oil creates a greater glut, which contributes to the domestic decline in production, which contributes to a slowing domestic economy.
Yes, it’s complex, but it’s all connected in this world of instant, 24/7 communications. When something occurs halfway across the world we know about it immediately. And it often has an impact on our daily lives and our finances.
The investment world has historically gone through various unpredictable cycles, much like our Michigan weather. I believe, in the not too distant future, that we’ll look back at January and clearly see that it marked a transition, just like a sudden change in the weather.
There’s no shortage of events that have contributed to the recent downfall. Our domestic politics, for example are nastier than I can ever recall. As previously mentioned, China’s economy is beginning to slow down, causing their stock market to plummet.
Whether they’re real or imagined, North Korea’s nuclear claims are in the headlines and putting many countries on edge. And tensions are even greater in the Middle East with sanctions lifted against Iran and their oil once again hitting the market.
Meanwhile, I believe interest rates are among the most overlooked factors contributing to global uncertainty. European banks are softening interest rates at the same time our Federal Reserve is raising them.
By no means am I an expert on international banking, but with the financial world so globally intertwined I cannot see how both European bankers and our own Federal Reserve can be right. They’re moving in opposite directions on interest rates. Somebody’s got it wrong.
We are in the midst of a financial storm (world events) at a time when the financial world is changing seasons (interest rates). So what should you do?