The world is on pins and needles awaiting the Federal Reserve. I know I know it seems like we’re always awaiting one decision or another from the Fed and this time is no different. This time we’re trying to figure out if Janet Yellen and her boys are going to raise interest rates anytime soon, and if so, when. The odds are on the first quarter of 2015, but with this I disagree.
There is no doubt that a sudden increase in the Fed Funds Rate, and thus overall interest rates, will spook investors. The evidence is obvious as each time we get any type of inflation scare, the markets plummets. With this I agree. Once rates start rising, the market will likely begin its long overdue correction and bear market, which will be ugly.
However, I don’t see that any time soon for one simple reason: we are still in a deflationary cycle and rates may not rise for several years!
We are actually witnessing two types of deflation right now. The first is what Facing Goliath – How to Triumph in the Dangerous Market Ahead is all about. The 90 million Baby-boomers are well past their spending age. People spend the most in their 30’s and 40’s, as family demands take precedence, and then taper off at around 50.
Of course we don’t just shrivel up and die at that point. We just don’t use 3 tanks of gas per week taking junior to soccer practice and piano lessons, buying them clothes they don’t wear out, while getting eaten out of house and home. We actually do enjoy 3 things after 50: Nice wine, fancier cars and more exotic travel. Sound familiar?
Currently we have only 65 million Gen-x’ers behind who can’t possibly keep up with the spending power of the 90 million Baby-boomers. That’s deflationary. Fear not for the long term of America though. The good news is that we have a powerful generation in the wings that will create another roaring 20’s. They are the Echo-boomers, the kids of the Baby-boomers, who are 85 million strong. The bad news is that they do not hit their peak spending years until 2023, which will start to get built into the stock market about 2018 and why the Fed has been so aggressive. We just have to get through the next 4 or 5 years, which will certainly be rocky if you are not invested properly.
The second deflationary pressure is emerging from a new industrial revolution….actually 5 new industrial revolutions occurring in nation: alternative energy – which can be immediately felt at the gas pump as we’re seeing gas under $3 a gallon which acts like a tax cut in the thousands of dollars for each American Family, biotechnology, health care, technology and transportation.
We get the benefit of all this at a time of low interest rates and energy costs, which means higher corporate profits. The market seems to understand all this which is why the Fed’s exit quantitative easing in recent months didn’t hurt investors. After the first industrial revolution started during the 1820’s, when we saw the transition to modern manufacturing, we had decades of growth, declining inflation, and a booming stock market. Of course when you’re in the middle of it, you don’t always see it. It took until the 1840’s for people to realize what started in the 1820’s!
Although I believe careful investors will be rewarded in this market, it will definitely be volatile. We’re late in the game for this bull market and the risks are certainly rising. If you are retired or close to it, the key is to be properly invested with a qualified retirement advisor. This will ensure you are looking at the big picture and getting the returns you “need,” but with the least risk possible, so you don’t get crushed during the next crash or correction. As you well know, you simply cannot replace this money….so you need a plan…for the good times and the bad…
…… and that’s where we can help. To learn more about The Springer Investment Approach, which is our powerful proprietary Investment Management Strategy designed to manage risk and deliver returns in any market, or to get a free second opinion on your portfolio simply reply to this email or give us a call for free consultation today.