Mixed Economic Signals Positive Sign

May 06, 2016

Low oil prices, while bad for some, are a spur in many ways—reducing the cost of goods while leaving cash in consumers’ pockets.

Almost ubiquitously, commodity prices are down. Natural gas, palladium, platinum, cotton, corn, rubber, wheat, cattle, steel and other industrial metals all have experienced price declines over the past 12 months.

Even stocks are well off their 12-month lows and trending upward.

Taking Correlation Into Account

In psychology, there is a concept called compartmentalization. Our brains have the ability to segregate thoughts from one another. And this is also how financial markets around the globe are often interpreted.

But times have changed, as globalization mixed with the advent of technology make the world a whole lot smaller, rendering it much more difficult to compartmentalize what happens in China from what occurs in France, for example.

If anything, the correlation of global markets is not to be overlooked.

That is not to say that all markets go up together, or the converse. Rather, we cannot analyze any one market segment without viewing circumstances from many others. Any form of macro prediction in a sideways-growing economic environment seems, at best, innately thin and fragile.

Facing The Certainty Of Uncertainty

So what are investors to do in such a climate of uncertainty? How does anyone find ground to stand on in an environment that yields no clear-cut path? Such questions have plagued investors for centuries. The answer is actually quite simple.

In markets that show both positive and negative indicators, we become confused. The same occurs in life itself: We are innately programmed to react in moments of great pain and pleasure, but these times of moderation baffle us.

Yet moderation, if one takes a step back, is the goal.

We want the world economies to give both good and bad signals. For example, the Unemployment Act of 1946 calls for price stability. And while we do not have inflation perfectly pinpointed exactly where we desire, it is neither negative 12% nor positive 20%.

This is a good thing, in that we are actually achieving our goal of moderation: nothing too high and nothing too low.

Mixed signals in economics are the desired outcome. In that way, difficultly in reading the tea leaves is the best indicator of all and any assessment of the current global economic situation must therein be a positive one.

The world economies are exactly where we want them to be: messy! And reaching this point after the tremendous downturn in 2008 is a significant signal of strength.

Jonathan Citrin is a financial advisor, media commentator, and international speaker and author on mindfulness and finance.

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