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Why have markets lately been trending higher? There are two developments which investors perceive as an overall positive for the US economy. 

China’s economy is slowing down, the United States economy appears to be slowing as well, company earnings are being revised downward, and global caution seems to be rising. Is a recession just around the corner?

I’m in Asia today and writing this brief note at 4:00AM local time Thursday as I monitor what’s happening in financial markets. 

Scary

I am asked regularly to comment on why I think markets are volatile. The easy answer is China trade and interest-rate policy. This certainly makes sense but is only half the story. The reality is that volatility is more of a systemic issue than many people believe.

Why are the markets so volatile? We believe there are three basic reasons.

Oil prices continue to be under pressure on concerns about global growth and end user demand. Prices have fallen and energy costs are declining for both consumers and businesses. It is logical to ask what the impact of falling prices might be on the overall economy