Busch: Investment Maytag Cycle

The global markets on a distinct three month pattern that begins with earnings and ends with policy makers.

As a purveyor and observer of newsflow, there appears to be a distinct pattern to our investment world right now.

Not surprisingly, it is a quarterly time frame.

One, we get real news on earnings and outlook from companies. Two, we get the interpretation and clarification from analysts/strategists on what these numbers mean for each sector and the economy. Third, we get economic data to support or negate this viewpoint with economists providing their outlook. Fourth and finally, we get policy makers such as the Fed/ECB/BOE and Congress/White House/Parliaments detailing their plans and actions to help stimulate or restrain certain participants or aspects of the economy.

Wash, rinse, repeat.

While this may not be shocking news to anyone, I think it is helpful to restate the obvious to clarify where we can go from here. The 2nd quarter was extremely difficult due to number 4. The sovereign debt crisis in Europe was handled poorly and massive uncertainty was created.

The European Debt Crisis - See Complete Coverage
The European Debt Crisis - See Complete Coverage

This had a negative feedback loop to the economic data that was coming out as the US economy appeared to be slowing.

This brought out the Seinfeld (double-dippers) economists and strategists predicting the inevitable decline the US surely must experience.

Now, we are back to the beginning of the cycle.

The earnings are beginning to be released and the early numbers are showing a better than expected outcome. Also, the early outlook provided appears to be better than expected. (Follow all the Earnings News here on CNBC.com)

Alcoaand CSXare good examples of this and we’re already seeing articles/analysts stating this is a positive signal and may signal broader economic growth. Today’s US trade data show stronger than expected imports due to stronger than expected consumer demand.

This furthers the new narrative.

Not surprisingly, the US equity marketshave rebounded from their lows last week and continue to push up. From here, we’ll have to see whether the markets can develop a consistent narrative to this new theme for it to drive a Risk-On scenario. This would lead to higher equity prices, lower US government bond prices, improving sovereign risk/debt, and likely a weaker US dollar with Australia, Canada and Brazil outperforming.

Andrew B. BuschDirector, Global Currency and Public Policy Strategist at BMO Capital Markets, a recognized expert on the world financial markets and how these markets are impacted by political events, and a frequent CNBC contributor. You can comment on his piece and reach him hereand you can follow him on Twitter at http://twitter.com/abusch.