The Economy: The Fed reports after their meeting tomorrow. We’re going to press without waiting for what will be a non-event. There will be no follow-through to liftoff. Whatever is announced will be more pablum in a global economy awash in oil, terrorism, illegal immigrants and the rants of the U.S. presidential election. The slowing global economy was confirmed by Goldman Sachs who put an unheard of “sell” recommendation on Caterpillar. CAT is a blue chip and core holding for many portfolios. The sell recommendation comes as Goldman evaluates the global slowdown and sees tough times ahead. The slowdown in China just got more interesting with the head of the Chinese Bureau of Statistics arrested for corruption. Think scapegoat. Somebody other than those responsible, has to answer for the fakery and quackery that passes for economic data out of the Celestial Kingdom. Don’t be surprised to see China revise their numbers downwards before drastically devaluing the Yuan. How this plays out in Peoria is anyone’s guess. While U.S. policy makers are resolutely positive about our economy, the folks we talk with are more hesitant and concerned. With the exception of those at the defense department trough, no one is saying, “We’re gonna have a great year and we are hiring like crazy to ramp up for it.”
Food for Thought: Stocks continue to entertain. … better than any roller coaster at 6-Flags … better than canyon carving on a hot sport bike. Most investors have held on through the turmoil. So far. We continue to advise that you have an exit strategy in these interesting times. Call it a “Rubber Band” stock market. One day’s extreme snaps back the next day … only repeat the extreme again. This has been going on for a month now. Will this volatility dampen out and end, or will it continue until things fall apart? If you believe that “the markets always come back,” ask yourself how long you’re willing to wait. 2-years? 5-years? 10-years? The stock market crashed in 1929 and didn’t make new highs until the 1950’s; 20+ years later. Or take a look at Cisco (CSCO). This Dot-Com darling is still down 70% from its high in March of 2000. Some folks have been waiting for 16-years for Cisco to “come back.” Don’t let fear and greed blind you to the need for a sound game plan. Your 401k is particularly susceptible to this mistake. 401k providers and administrators do not provide investment advice. You are on your own. Take a look at your 2015 year end statement and understand what you own. All account statements are notoriously confusing. If you need help, ask. Like your second grade teacher used to tell you, “There are no dumb questions.”
The Economy: Oil has been the headliner for the past week as its crashed through $30/barrel. Today it closed at $28+ after trading through $27/barrel. That’s down from $125/barrel in 2012. Like it or not, it’s still a petroleum fueled world out there. So enjoy these low prices while they last. Most of the Middle East producers, let by Saudi Arabia, are the lowest cost producers. Some are in the $10/barrel range. We may see a spike down below $20/barrel, but even the Saudis are feeling the pain at current prices. So if we do spike down, it probably won’t last. Many analysts see low prices as a matter of supply; not demand. While the global economy may be slowing, the low prices are the result of over production. Many believe that the Saudis are trying to drive the U.S. shale producers out of business in order to recapture market share. With the end of sanctions against Iran, we’ll see additional Iranian production adding to the glut. How long the present situation lasts is anyone’s guess. The Middle East is more unstable now than it’s been in years. The slightest whiff of trouble could send oil prices soaring again.
Food for Thought: Stock markets have had their worst January in memory. Some type of a correction was long overdue. The speed of the decline has shocked many investors who’ve become accustomed to markets that only go up. Diversification is of little help when the baby is being thrown out with the bath water. Pretty much everything is down and selling crescendos seem like an everyday event. But we encourage investors to keep things in perspective and not panic. We expect to see stock prices rebound in the near-term. This may present an opportunity to lighten up on some of your positions. A retest of the lows is likely. Patience. We have been advising you to have an exit strategy. Now is the time to implement it. If your advisor is not having this conversation with you, contact us for help. Fundamental to estate planning is having an estate to plan around. Don’t turn your 401k into a 101k through benign neglect.
The Economy: “The New Normal” was a phrase that was coined in the aftermath of the 2008 Financial Crisis to describe the new world of global economies. Slow growth was one of the characteristics of The New Normal. Eight years on, The New Normal remains intact as global economies labor under excessive debt, zero interest rates, beggar-thy-neighbor currency wars and heightened geo-political tensions. From China to the EU to the US, economic growth has been cut in half despite unprecedented Central Bank intervention. Yet, data shows the U.S. economy expanding across most of the country. After a decade of focus on Central Bankers as Masters of the Universe, attention appears to have moved back to global politics. Chinese territorial expansion is on a collision course with US hegemony. Russia is reasserting its historic role as a global power. Sovereignty concerns in the EU have been renewed by immigration issues. After decades of socialism and multiculturalism the right is on the move. Expect slow growth to continue.
Food for Thought: “The Big Short” is in theaters. It’s a must-see for all investors. While it lacks the humor of “The Wolf of Wall Street,” it makes the point that patience pays in investing. Particularly if the investment is out of favor. The Gloom and Doom crowd has everyone’s attention at the present time. Don’t allow your focus to be distracted. Many investors assumed that the Fed was through with the markets once the rate hikes started. This is not the case. With the 10% correction in full swing, Fed Governors across the country have been talking the market up all week. It has worked just as it has in the past.