The Fed Can’t Keep Winter Away Forever
- Still Bullish on America
Stocks are telling us one thing, and bonds quite another; which when combined is flashing a warning light. Stocks have been holding up fairly well as 72% of stocks have beaten their earnings expectations, and as ECB President Mario Draghi promises to restart the printing presses in the wake of a worsening European situation. On the other hand, Treasury bonds are also rallying with the 10 year yield now at 1.40%, an all-time low. We all know from hard earned experience that stocks and bonds never go up together for more than short periods of time. Without a QE3 from the Fed and another LTRO from the ECB, winter will come early this year.
Clearly, stocks have rallied because traders believe that Ben Bernanke and the Federal Reserve will launch QE3 at its upcoming August 1st meeting. Bonds have been rallying because they think it won’t. Only one of these markets is right, and it’s usually the bond market. Bernanke knows that he is down to just one, and possibly two silver bullets left. Therefore, he is more likely to use it as a catastrophic hedge to prevent a crash rather than to keep the markets at a high level. That means the Fed won’t be able to take further easing action until early next year, at least until after the presidential election. By then, with the “fiscal cliff” and the slowing economy high on the list, things will be more in need of a stimulus. For this reason, Ben Bernanke is not likely to waste his ammunition now.
Of course we all know that it is an election year. Remember, it is up to the party that is out of power to portray conditions here as terrible as possible so they can get elected to get them corrected. It’s the party in power’s job to convince us how much things have improved so we stay with them. The lies, misinformation, and ridiculous comparisons can make life complicated, frustrating, and difficult for investors.
It’s going to be very tough going for a while, and making sense of it all is a full time job. That’s where we can help. Even though times are difficult and dangerous, you can’t just keep your money in the bank earning nothing. There are plenty of ways to make money in this market and in the dangerous market ahead, but the key is to be tactical, not buy-and-hold, and to do it without all the risk.
Managing money, especially your own, is a daunting task….. 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.
Bullish On America
Just because I am bearish on stocks does not mean I am bullish on America. Quite the contrary. I have been professionally managing money for over 28 years, since Ronald Reagan was president, and I was bullish for 25 of them. Unfortunately, we are just in a slow period. It happens and it always will. Just like the seasons, we are simply going through winter and will eventually get to summer in a few years!
There is no doubt that the fiscal cliff of increasing payroll and capital gains taxes, the expiration of the Bush tax cuts, and the simple fact that the majority of the U.S. population and developed world is not only over-indebted, but now well past their peak spending years (all of which is discussed in Facing Goliath – How to triumph in the dangerous market ahead), will cause serious headwinds. 65 million Gen Xers cannot make up the slack for 80 million baby boomers. The good news is that the U.S. still has a reasonably positive demographic trend upcoming in a few years as 90 million Echo-boomers come of spending age, which is the best in the developed world. This will lead to a new era of prosperity for America in the 2020′s. Many economies such as Russia and Europe suffer from horrendous demographics. China’s “One Child” policy will kill them in about 10 years, while Japan is very simply a bug in search of a windshield.
For the long term, the good old U.S. of A. is still the world’s shining light. We are dominant in the field of technology and our economy can evolve faster than anywhere else on the planet. With a $16 trillion GDP, ours is three times the next two biggest of China and Japan and 4x Germany’s! Our per capita GDP is over 12x China’s. That means it takes 12 Chinese workers to produce an hour of output compared to our one. This is why America’s per capital income stands at $48k, compared to only $4,200 in China, with many Chinese having to work a 70 hour week to take this home. The Chinese aren’t stealing our jobs, they’re doing our work!
To put it in perspective, the biggest selling luxury car in China is a GM Buick. IPhones, Ford Mustangs, and Katy Perry songs are just starting to pour into a newly freed Libya. Cubans and Iranians are erecting illegal satellite dishes so they can watch CSI and John Stewart. Over 70% of the drinkers of Coca-Cola are outside the US and McDonald’s has 10,000 hamburger stands abroad. Microsoft Windows operating system runs 90% of the world’s computers. The city of London alone has 19,000 people a month joining Match.com. Six out of ten of the world’s best universities are here, matched only by Oxford, Cambridge, Tokyo University, and Beijing University.