Calling Jack Bauer, The Country Needs You
All eyes are on capitol hill’s fiscal cliff negotiations and America continues to be held hostage. You can almost hear the TV’s “24” countdown. The last few days have not been pretty for the fiscal cliff negotiations, yet the stock market continues to be resilient in what could have easily been a major sell-off of hundreds of points. The failure of the market to go down on this horrific news leads makes me to believe that once a deal is in place, a strong rally will follow. However, both sides could use a wakeup call from Mr. Jack Bauer.
Given all the obstacles in the market’s path, two positives stand out: First, over the last four to five years, over $500 billion has poured out of equity mutual funds, while over $1.2 trillion has flooded into bond funds. In the first ten months of the year alone, investors poured $272 billion into bond funds, while liquidating almost $100 billion in equity funds. October marked the seventeenth time in the past eighteen months of equity outflows and bond inflows, the highest since February.
The second is the continued sea of liquidity cast by Ben Bernanke and the Federal Reserve. This is a market fully addicted to continued Fed easing, and although this positive trend is definitely diminishing, it still has legs.
For the most part, investors remain fearful. The headline news only reinforces that fear: fiscal cliff, stubbornly high unemployment, sovereign debt problems in Europe, civil war in Syria, conflicts between Israel and the Palestine, Iran seeking nuclear weapons, etc. It is no wonder they remain largely under-invested in stocks. Equity exposure is at historic lows. As I have said, markets don’t crash when everybody expects them to, and right now everybody expects them to. Any reversal of this trend would be massive.
The longer term picture is easy to forecast however, as the demographic trends are crystal clear. As our 80 million baby boomers retire, they will be followed by only 65 million from generation “X” who earn half as much. When you add in the tax increases along with spending cuts, on top of these Baby Boomers aggressively saving for retirement and paying down their debts, you take huge swaths of money that might have been spent in America’s malls out of circulation. This forces businesses to have less reason to borrow to expand their operations in a period of lukewarm economic growth. These issues are well discussed in Facing Goliath – How to Triumph in the Dangerous Market Ahead, and it is critical that investors fully understand these concepts.
These are difficult times for savers and investors. After all, you can’t just sit in the bank, earning nothing, all the while waiting for Armageddon. There are plenty of opportunities in good and bad markets, if you know where to look, and that’s where we can help. Our “Invest for need, not for greed™” approach combined with our hands-on proprietary Top-Down Tactical™ investment management strategy can help you manage risk and deliver returns. If you would like to learn more and/or get a free second opinion on your portfolio, simply reply to this email, click our Appointment Request Form or call for a no-cost no-obligation consultation today at (916) 925-8900.