Financial Industry Insights from Advisors Asset Management

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Washington Uncertainty Adversely Affects the Markets

Over the past month, commodity prices have continued to decline, falling 5.0%. Similar to what has been observed in the equity markets, commodity prices are reacting to uncertainty surrounding Washington, D.C. Worries about the fiscal cliff and the debt ceiling are creating problems for investors. Given the polarization in the political class, the potential for a fiscal accident is increasing – which could seriously damage investor sentiment. Since commodities are sensitive to economic growth, these worries tend to adversely affect this market.


We do expect that the fiscal situation will be resolved at some point and that the worst may be avoided, but into year’s end, uncertainty will continue. One of the characteristics of a polarized political environment is that both sides tend to over-estimate their mandates after elections and thus overplay their positions. Thus, there is some risk of harm to the economy coming from the fiscal situation. This fear is weighing on commodity prices, especially energy and industrial materials.


At the same time, both the European Central Bank (ECB) and the Federal Reserve (Fed) remain committed to expanding their balance sheets. It appears that the Bank of Japan (BOJ) may step up its efforts as well. Japan will be holding elections on December 16 and it appears that Shinzo Abe will likely be the next prime minister. He is calling for the BOJ to expand its balance sheet until inflation reaches 3%. Although the BOJ is legally independent, in reality, it is much less so than other G-7 (the seven largest industrialized countries: the United States, Japan, Great Britain, France, Germany, Italy, and Canada) banks. Since the yen is usually the fifth most-held reserve currency, further balance sheet expansion will tend to undermine confidence in reserve currencies and support commodity holding as a store of value.


China has announced its new Standing Committee of the Politburo which removes one of the unknowns that the commodity markets have been facing. Chinese economic growth appears to be improving which should be supportive for commodity prices. However, we still don’t know what new policies the new leadership in China will deploy, so markets will probably take a wait-and-see approach.


Ultimately, we expect that the major central banks will continue to undermine investor confidence in their currencies, and this factor will be supportive to commodity prices over the long run. Over time, we expect commodities to become the definitive store of value.



This commentary is for informational purposes only. All investments are subject to risk and past performance is no guarantee of future results. Please see the Disclosures webpage for additional risk information at For additional commentary or financial resources, please visit

The information contained herein is obtained from Confluence Investment Management LLC and believed to be reliable. The information is not warranted as to completeness and accuracy and is subject to change without notice. The foregoing has been prepared solely for informational purposes and is not an offer to buy or sell or a solicitation of an offer to buy or sell any security.

Advisors Asset Management, Inc. (AAM) and Confluence Investment Management LLC are not affiliated and the views expressed in this commentary are not necessarily that of AAM.
Confluence Investment Management LLC is the Portfolio Consultant to the Confluence Utilities Portfolio. The Portfolio Consultant is not an affiliate of Advisors Asset Management, Inc. (AAM), the sponsor of this trust.




Effective, June 10, 2016, please note that Gene Peroni left Advisors Asset Management (AAM) to become President of Peroni Portfolio Advisors, Inc. Peroni Portfolio Advisors, Inc. ("PPA") is an investment advisor independent of AAM.