The Fed Says It’s Bad Out There, Stocks Say It’s Good
Investors are confused. The Fed says the economy is still “very challenging” (that’s political speak for “bad”), millions remain under or un-employed, wages are stuck at 1992 levels, yet the stock market is not plummeting like everyone thinks it should be. What gives?
Of course much of the cause for this economic downturn continues to be demographics, the rapidly aging of ours, and the entire developed world’s populations, which I discuss in depth in Facing Goliath – How To Triumph In The Dangerous Market Ahead. However, there are several not so obvious themes helping stocks right now that could buy prices for longer than you think, that is until our massive debt catches up to us.
Investors are overwhelmingly pessimistic. The AAII Investor Sentiment Survey measures the percentage of individual investors who are bullish, bearish, and neutral on the stock market. Currently the long term average shows that that only 39% are bullish while 61% are bearish or neutral. During a bull market , those #’s are reversed. Very simply, markets do not crash when everyone expects them too.
Corporate earnings are strong. Companies are quick to adjust to the slowing economy, rapidly laying off unneeded workers and adjusting their output to meet demand. In addition, the incredible low rates orchestrated by the Federal Reserve allow them to refinance debt at historically low levels. This has allowed companies to become much more efficient and productive.
Energy costs have plummeted. Due to the massive discoveries of oil and natural gas inside the U.S., so large that some say we will be the new Saudi Arabia in a few years, energy costs for American factories are the lowest in the world . But there are 100 additional ways that energy supply is improving and demand is falling.
Productivity is accelerating. U.S. corporations have been introducing new technologies and cutting costs faster than at any time in history which has caused corporate profitability to soar. This, combined with low energy costs, means manufacturing jobs will be coming back to the US.
The U.S. remains the sole superpower. The peace dividend continues to pay. Two decades after the fall of the “Evil Empire”, the U.S. still faces no major enemy with none on the horizon either. If reasonable heads were to ever take over, defense spending could be cut by half.
Inflation and interest rates stay low. With wages in check, commodity prices falling, and demographics dictating that deflation will rule the day for another 10 years, the lack of inflation could be the wildcard that surprises everyone.
Although these positive themes could create a best case scenario, my friend John Thomas, The Mad Hedge Fund Trader has taught me one thing, all that is forecast never happens, and all that happens was never forecasted.
My belief is that the market will continue to go higher in the face of all this pessimism or as they say, climbing a wall of worry. Once the public fears that they will get left behind and jumps on the bullish band wagon, the market will then have its overdue and devastating bear market, probably sometime after the first or second quarter of next year. Of course no bell will ring when it’s over, so prepare your finances now.
The key is to be properly invested so you are getting the best returns, but with the least risk possible. The Springer investment approach is designed to do just that by managing risk and delivering returns, in any market.
…… and that’s where we can help. To learn more about our powerful proprietary Investment Management Strategy and/or get a free second opinion on your portfolio, simply reply to this email, or give me a call for a no-cost no-obligation consultation today at (916) 925-8900.
P.S. If you have a question, feel free to call me at the office.