Written by Keith Springer 3.28.13
Just a few short years ago, a banking crisis in Europe would have triggered a major sell-off in our markets, but that’s not what’s happening this time. Who would have thought that a European banking crisis would be good for us in the U.S? With America standing alone as the world’s financial safe haven, money has been flocking into U.S. assets. Although, given the major problems we also have, perhaps America is simply the least ugly girl in an ugly beauty pageant, as I discuss in Facing Goliath – How to Triumph in the Dangerous Market Ahead.
Another positive for stocks is that earnings season is fast approaching. The market has been mostly sideways the past several weeks, largely from the last “post-earnings season nap”, but investors will soon wake from their slumber and buy or sell depending on how earnings go. Expectations are pretty subdued for this quarter’s corporate earnings, just as they have been almost every quarter for the past 5 years. If the trend continues as I expect, they will surprise to the upside.
Of course, the biggest boost to stocks continues to be the Fed’s endless stimulus crusade. Artificially low interest rates are doing exactly what Bernanke and his financial puppeteers envisioned: boosting the housing market and creating a wealth effect where people feel richer and therefore spend money and buy stocks, mostly because there is no place else to go with their investment dollars. Be warned, any hint that quantitative easing will be tossed into the toilet bowl, and the market will go along for the ride.
At a recent press conference, the Fed downgraded their growth forecasts downward due to the sequester. What I find most interesting is how little they feel the impact will be, only about a loss of 0.1%. Here are the new projected GDP expectations:
Does our beloved Helicopter Ben know something that he is not telling us? If they’re right, then stocks are going higher, albeit much more selectively and with increasing risks. As a scholar of the depression, Ben Bernanke is so fearful of repeating the Federal Reserve mistakes of 1938, that he is going to print money until the cows come home. For you history buffs, the recession of 1937-1938 was triggered when the government tightened too soon, causing the second leg of the Great Depression and another 50% stock market crash. By early 1937, the economy had come back to 1929 levels, even though unemployment remained high (just slightly lower than the 25% rate seen in 1933). Sound familiar?
No one can argue that all looks good on the surface. But, at what cost Uncle Ben? He likes to say that inflation is squat, but does he not eat, drive, or turn on the heat? Sure it looks good on paper, but the standard of living for most Americans has been dropping for over a decade. At some point they will have to let our supposed free-market capitalist system find its own balance, as it was designed. This will certainly be healthier for us all in the long term, but when it happens it’s going to feel like Armageddon, so be prepared.
For now, the market waters appear safe enough to be invested in, and we will be adjusting portfolios accordingly.
I still expect a fairly good size correction this summer, but if you are invested properly in a portfolio that is designed to get the best returns with the least risk possible as our investment approach is designed to do, you can smooth out the bumps and avoid sleepless nights. Unfortunately, most investors today are perfectly positioned for yesterday’s market, so take this time of relative tranquility to make sure your finances are positioned properly…
…… and that’s where we can help. To learn more about our powerful proprietary Investment Management Strategy which manages risk and delivers returns in any market, and/or get a free second opinion on your portfolio, simply reply to this email, attend one of my free investor Workshops, or call for a no-cost no-obligation consultation today at (916) 925-8900.