Central banks in the US and Europe have signaled the economic crisis of 2008 is over. Growth and sustained growth is able to be seen and the role of the Central Banks can be diminished. The Central Banks have used all the powers given to them to bring back economies to what is considered more normal – they have used 0% interest rates and larger than normal bond purchases. he signals now allow the banks to slowly but steadily raise interest rates.

In a column by Ian McGugan in the Globe and Mail, he discusses what the Central Banks are going to try to do without allowing for inflation to run up, without allowing for politicians to mess up their plans. In Europe, the Central Bank bought E$ 2.4 trillion ($3.7 trillion) in bonds. ECB President Mario Draghi wants to slow the bond purchases down and allow economies to do what they can do. The process is designed that hardly anyone notices until the process is well underway.

The big problems in Italy is the new Italian government whose economy is not returned to normal or even grown. In Europe, Germany has prospered.

In the US, the President gave a tax cut to corporations, which was designed to help stimulate growth except for the economy was close to full employment and the only thing it may do is increase inflation which increases interest rates. If interest rates go up to fast, money will move from the stock market to the bond market and mortgage rates will go up which makes it more expensive to buy a house.

If Europe decides to hold interest rates low, while the Fed increases them, investors will tend to move towards the US dollar which pushes down the Euro. In terms of exports, the US goods would be more expensive and Euro less which would frustrate the President’s America First trade agenda.

Mr. McGugan notes the iShares S&P Global Financials ETF which follows many of the global banks is lower. In addition the 10 Year US Treasury bond is a haven for investors when their is anxiety. The yield moves in opposite direction to the price and is a reliable measure of global sentiment. The yield is around 3%.

The yield curve, a measure between short and long term borrowing costs. An inverted yield curve, in which short term rates are higher than long term rates has historically been a strong signal of a recession. In mid June, the curve was flat.

This flattening of the yield curve lessens options for the Central Bank as the ability to profitability to borrow short term and lend long term is crimped.

If you add trade wars into the picture, the outlook is less than positive.

Linking to dividend paying stocks, with all investments there are trade offs and better options depending. The economy does not have defined walls but signals and then moves on to the next crisis or hopefully when governments do nothing or close to nothing. Investors continually look for signals and for dividend paying companies there is nothing better than a company saying it made a profit and can continue to pay dividends and likely raise them once again. Look at the big picture, try to understand it but make decisions based on how you see your part of the world.

There are more questions than answers, till the next time – to raising questions.