Having once fooled myself (for about three decades) that I (or anyone) can truly predict the future, I continue to make it abundantly clear that yours truly has no certainly (or anything remotely close to it) on what may happened in financial markets (and neither does anyone else despite all the hype to convince you otherwise). I can, however, make some observations (hopefully 32+ years of real experience allows me to make good educated “guesses”).
Having noted this is now my 33rd year in and around the financial arena, I do think there’s some assumptions we must accept (like it or not).
- To focus mostly on old-style technical and fundamental analysis in a new era of financial markets never seen before, would be like showing up to a gun fight with a peashooter. The public and so-called professional community, continues to arrive at decisions using processes that are outdated and useless in the financial world today. This is not to say that for day trading for instance, using technical analysis is not useful. However, in the end, just about all individuals have no shot anymore trading because so many others are “infinity” bigger and far more powerful than they are (and have information long before they do) . But the desire to gamble (Wall Street created the word speculate so not to have to call it what it is – gambling!) is so powerful and will continue to cause many to lose over time despite all the commercials that lure them in to think they can be the exception to the rule (this is a typical one as in reality IMHO, it’s just a pipedream).
- Not only are the financial markets dramatically different, but so is the economic, social and political world we live in today. Whether you agree or not with me that we’re entering the worst ever social, political and economic period in America’s history, it’s undeniable that how many factors that once played a role in financial markets are now just “ancient history”.
- I wish I could state that the financial services industry is better place today than when I first entered in back in 1984. But I can’t. This is not to say that we simply throw a blanket over everyone in the business; but by-in-large, there remains far too many unfavorable factors (and characters) despite a clear improvement in the powers-that-be to regulate the industry. It is why I wrote “The Seven Deadly Sins of Finance” and make “A Biblical Perspective on Matters of Finance”, the backbone of my own practice. This by no means makes me a Saint (God knows I wasn’t and I share that in my book, “Confessions of a Former Wall Street Whiz Kid”); but while I don’t have “humble” completely spelled (no one ever gets it 100% right except one, and they crucified Him for it), I continue to work hard on the “ble” part.
Okay, now that all my invites to Wall Street Christmas parties have been ripped up, let me just provide a few observations for the one or two people still reading at this point.
Without a doubt, stocks and bonds make up (by far) the largest percentage of a typical American portfolio. While there are many factors influencing their direction, I do believe there are three critical factors. And how they play out will be what most likely influences where stock and bond prices head from here.
1 – As noted earlier, the times are changing and nowhere is it like night and day to previous financial eras than what Central Banks have done. Borrowing an old Star Trek slogan, Central Banks have gone where no man has gone before. And no one (and I do mean no one), including the Bankers themselves, have any real idea how this all ends up.
One thing is certain, this race to zero interest rates and below, has given a “perceived floor” to stocks and bond prices to the point where many feel stocks and bonds “can’t miss”, as long as Central banks keep doing what they’re doing. The irony in all this is, they continue to do it because what they have done up to now – hasn’t done what they thought it would up until now. Crazy, no?
2 – Thanks to near zero (and negative) interest rates, untold millions of investors have had to resort to chasing yield. The chase has led many of them to areas and products they may not have gone to back in the “good old days” when the banks pay real interest rates (and even kicked in a toaster if you left your money with them long enough). The stock market overall has also benefited because of dividend yielding stocks being purchased. But unlike bonds and CDs, the principle and the dividend is at risk (but most don’t truly appreciate this as a real possibility).
3 – The only game in town belief. A common question asked by anyone who even considers being “All-In” on stocks and bonds is no longer a “brilliant” idea says, “What do I do with my money if I sell – interest rates are near zero? Might as well leave in in the market and see what happens.” Sadly, most of those replying have no written plan or strategy to sell at any given point. The financial services industry, who thrives on capturing assets and holding onto them while they collect fees for doing so, is thrilled that many of their clients have no exit strategy. Both the public and so-called professional community just “hope” to get out at the right time. Hope is a wonderful spiritual” strategy but a “destined for trouble” investment one.
While there are other fundamental factors influencing stock and bond prices, these three are the “linchpins” to what has held it up until now.
Can this continue on? Absolutely. If there’s one hard lesson I learned, it’s that markets tend to go a lot further in one direction than we ever first thought.
Keeping in mind I’m out of the prediction racket, and the fact that no two people are exactly alike (the two twins I work with proved that), I don’t have any “cookie cutter, one size fits all” opinions (so commonly tossed around in the financial world). Each person must weight individually all the possibilities and the ramifications from their choices. What about me?
Being a live chicken versus dead duck is a worthy slogan given I personally believe one or more of those linchpins will eventually give way and we will indeed be in the midst of America’s worse ever economic, social and political era.
To those who laugh at me in the foxhole, I only hope you are among the very small minority who end up getting out while the going was indeed still good.
If you’re one of them who hope to “time” your exit, 32+ years as taught me to think of the man who invented “Preparation G” when it comes to timing.
U.S. Stock Market – Outside of the three factors I detailed above, there’s little holding the stock market up IMHO. Not only are valuations high and earnings not likely to expand anywhere near enough to support higher multiples, but all sorts of weak economic indicators abound. There’s plenty of room in the foxhole.
U.S. Bonds – I have suggested them to be the “lesser of two evils” for quite some time. It would come as no surprise to me for that to continue at least into early 2017. But here too, I find myself choosing to sound like this.
Gold – The one market that continues to do the best impression of the old Timex slogan, “Takes a Licking and keeps on Ticking“. Despite being out of the metals and mining “racket” for nearly three years, it didn’t stop some poor soul from writing a “not so nice email” to me, during the latest “pullback” in gold and ripping into a previous commentary of mine (which I had thought about not publishing so not to end up having one of these “types” bothering my staff and I) as if I’m somehow to blame for a decline in prices. Funny, he hasn’t written now with gold higher again.
Again, I’ll simply say most of my own and family investments are in gold, two metals-related mining shares and cash. My mantra is simply “I rather be a live chicken then a dead duck”.
“Set your hearts on his kingdom first, and on God’s saving justice, and all these other things will be given you as well. So do not worry about tomorrow: tomorrow will take care of itself. Each day has enough trouble of its own.” Matthew 6:33-34