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“The Fed is now hostage to Wall Street. If the stock market pulls back a few percent the Fed becomes frightened. In a way I suppose, the Fed is justified in that belief because it is responsible to a great degree for the elevation of financial asset values”. Jim Grant (Grant’s Interest Rate Observer). On Friday, Janet Yellen, the Head of the US Federal Reserve, will speak at their annual Jackson Hole Conference, (in Wyoming), and is widely expected to comment on US Interest Rate policy. With an election in November, September may be the last chance to raise rates before the traditional pre-election purdah, as the Fed tries to maintain the illusion of political neutrality. But will they take it? Opinion is divided on the subject, despite what some Fed officials say.

“All markets look liquid during the bubble (massive uptrend), but it’s the liquidity after the bubble ends that matters.” J. Schwager, Market Wizards. Anyone who is looking at Global Investing is now (post Brexit) having to confront the currency issue. To hedge or not to hedge? Let’s see if we can make any sense of the issue…The purpose of hedging currency risk is to isolate returns on the asset class from that of the currency in which they are denominated. It is vital to ensure that asset returns are not overwhelmed by adverse currency movements. The charts below show the Implied Volatility for the (U.S.) Bond and Equity markets respectively (both are annualised figures).

Wendell: [Viewing the desert crime scene] It’s a mess, ain’t it, Sheriff?Ed Tom Bell: If it ain’t, it’ll do till the mess gets here. from No Country for Old Men (2007)

“Following the British referendum to exit the European Union, the paper value of global assets briefly fell by about $3 trillion. This decline in the market capitalisation immediately garnered headlines, suggesting that some destruction of “value” had occurred. No. The value of a security is embodied in the future stream of cash flows that will actually be delivered into the hands of investors over time. What occurred here was a paper loss” John Hussman, weekly comment, 4/7/16.

“Live everyday as if it were your last because someday you’re going to be right.” – Muhammed Ali There appears to be trouble ahead – the Brexit Vote, the US Presidential election, and the tensions arising therein, have created a dangerously entrenched set of opposing sides. It is happening across the globe, with potentially de-stabilising effects on markets. There are a number of flash-points which bear close attention.

“You can’t cheat an honest man” – 1939 Film by W. C. Fields.

“The secret of success is sincerity. Once you can fake that you’ve got it made.” Jean Giraudoux We have seen a series of big rises and scary falls in the last year. Since the April 2015 highs, the market has gone nowhere, but very fast. As the market continues its most recent ascent, participants are getting increasingly nervous. As the chart below shows, Fund Managers have been hoarding cash, and according to Bank of America’s regular client survey, so-called “smart money” have been net sellers for 17 consecutive weeks ![Up Date: According to Lipper Fund Flow data, the selling continues, especially of equities: