-What’s next for Stocks, Bonds, Real Estate and the Economy
Stocks continue to trade based on the possibility of further Federal reserve easing and a full blown QE3. When Bernanke hints at more easing, stocks soar and when he suggests the economy is strong enough to not need it, stocks sink. Of course it should be the other way around. I expect the economy to weaken in a few months as the effects of QE2 wear off and as QE3 slowly turns from fantasy to reality. Plus, this is an election year – and do not underestimate the power of an incumbent president seeking reelection.
Investors should prepare for a market peak later this year or early next year due to:
- Bull markets typically average 39 months, and we are in month 38
- The 4th year of a presidential cycle is typically strong
- QE3 will boost inflation too high for further easing, and after the election, there will be little political will to increase the deficit for more
Home prices continue to edge downward slowly, even though the economy is as strong as it has been for years and mortgage rates have been at historic lows. Now that the robo-signing scandal is resolved, the massive backlog of 1.6 million potential foreclosures will accelerate again this year. This will keep home prices flat, to down, for years to come. If banks start to sense that holding back foreclosures is a losing game with no sign of a rise in home prices, they will rush to start dumping them onto the market, and the vicious cycle continues.
Starter homes will do the best as the echo-boomers, the baby boomer’s kids, enter their initial home buying stage in large numbers around 2015. Mid and upper level homes will remain under pressure. It’s a good time to buy a home to live in, but not for investment purposes. If you need a home loan or to refinance, let me know. We do mortgages for our clients.
An economy needs more spenders to grow. People spend the most in their 30’s and 40’s, with peak spending occurring around 48 years old. The populations of the entire developed world are aging fast, and by year end all baby boomers will be past 50. Add this demographic challenge to an already massively over-indebted population with no spending power, and we have a colossal headwind for our economy for several more years. That’s why unemployment remains stubbornly high. We just don’t need as much stuff produced as we used to.
Economic stimulus can mask it for a while, but eventually the government will be forced to stop borrowing to print new money and the weight of the debt service becomes too great for the economy to bear. These very issues as well as investors strategies, are at the heart of what Facing Goliath: How to Triumph in the Dangerous Market Ahead is all about.
Managing money, especially your own, is a daunting task. There are plenty of ways to make money in this market and the dangerous market ahead, but the key is to do it without all the risk. Most certainly avoid Buy-and-hold (“buy-and-hope” – hope is not a strategy) and focus on an actively managed, tactical approach for your finances which takes advantage of what the market gives you and focusing on the sweet spot in the market which is income oriented investments such as corporate bonds, dividend stocks and preferreds. Of course, If your portfolio does not need the risk then don’t take it and concentrate on investment vehicles with a guarantee of principle and income.
…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.