Don’t Screw Up and Keep Your Retirement Years Golden!
The Outlook For Stocks, Bonds, Gold, The Dollar and Real Estate
As we get deeper into 2015, many investors remain concerned for a myriad of reasons. Much of their uneasiness stems from the painful memories of the last stock market crash and the belief that the Federal Reserve’s stimulus programs will cause more harm than good….eventually. Not helping matters much has been the stock market’s uninspiring action so far this year. We have seen a massive increase in volatility which has yielded little in investor returns. Below is what to expect for the rest of 2015.
Stock Market: We will likely look back at the end of the year and see a good year for investors, although with increased volatility and risk. This is not going to be an easy year for investors as we will likely see several scary corrections and possibly even a “see in May and walk away” year. Although by year end, we will probably see that economic forecasts for the year were probably on the low side.
The wildcard is interest rates. If the Fed raises rates, stocks will drop. We’ve seen proof of this every time investors get a whiff of even the slightest chance that rates will rise sooner than expected. Right now the estimate is for a rise in the Fed Funds Rate in September. Anything earlier could prompt a correction. Janet Yellen in her testimony on Tuesday said that they will maintain patience on interest rates, which tells me they are in no hurry. Given the lack of inflation and slower global demand, I don’t expect any rise in 2015.
There is much concern that global demand is slowing, and for good reason, but the massive stimulus moves by the EU and BOJ will counteract that. Therefore, earnings forecasts are too low as well, and should surprise to the upside sending stocks higher. The last five or six years, we have had the most dramatic earnings growth increases in history and that trend will continue.
One of the main reasons has been the Fed’s low interest rate policy, which Europe and Japan are now copying. Everybody was concerned that it would generate rapid inflation. However, we have seen the opposite occur with two types of rapidly expanding deflation.
The first type of deflation was created by the rapidly aging 90 million baby boomers. As they passed their peak spending years, they were replaced by 65 million from “Generation X.” This is hardly enough to replace their purchasing power, which is forcing prices for practically everything to lower.
The new American Industrial Revolution causes the other kind of good deflation. We are in the midst of a revolution in technology, biotechnology and, of course, the headline grabbing energy sector.
Oil is plummeting from a new and improved drilling technology that is finding ways to extract oil and gas from huge proven reserve fields, something that was once thought impossible. The U.S. energy revolution will be one of the biggest factors for America for the next 10 or 20 years. We turn from a net energy importer to an exporter. Cheap energy also has one tremendous side advantage: peace in the Middle East. Imagine no more wars for oil and a shrinking defense budget. This would be hugely positive for risk assets, such as stocks across the board!
This is all good news— for the economy as a whole, as well as for you and me. Yes, some oil companies will suffer and some workers will lose their jobs, but the enormous benefit of thousands of dollars getting into the pockets of consumers, as well as corporations saving tens of millions of dollars in production costs is staggering! This has the effect of a $1.2 billion tax cut.
This massive deflation also creates cheap money, forcing companies to buy back their own stock or other companies. There is currently over $3 trillion sitting in corporate cash right now earning absolutely nothing. This will reduce the number of shares and or boost earnings per share, all without creating new business.
All of this points to a good year for U.S. stocks, but it will not be easy. The demographic headwind will be a major drag on the economy until approximately 2022. That’s when the 85 million echo-boomers hit their peak spending years. After that, you’ll be able to buy anything again and make money.
Bonds: Rates look like they are going even lower. Even though America is starting to rebound, the global slowdown will keep rates at zero in Europe and Japan, forcing money into the U.S., which will keep rates low. If you are a bond investor today, you are getting the royal shaft by not keeping pace with inflation, and getting back 60 to 80 cents worth of purchasing power at maturity for every dollar you invest.
Gold: Gold will get a little boost from the massive money printing of Euro’s and Yen, but not enough for investors to profit. Gold is an inflationary hedge, nothing more; with no inflation it will be going nowhere fast.
U.S. Dollar: The U.S. dollar will be a major story this year as it gets increasingly stronger due to the enormous Japanese and European stimulus programs. Printing money hurts our economy as we saw in America a few years ago. That tide has turned. This is the time to plan your trip to Europe.
Real Estate: There is a long-term recovery in real estate underway, but the easy money has been made over the past few years, unless you live near Palo Alto. From here on, I expect a slow grind up with minute gains until that demographic headwind turns to a tailwind in 2022.
Investor Strategy: “Invest for need, not for greed!™” If you are close to retirement or already enjoying your golden years, you cannot replace this money nor can you afford another 5 or 10 years to get it back if you lose it. Risk management is paramount. Although your portfolio is the cornerstone of your financial plan, a successful retirement starts with proper planning.
Work with a qualified retirement advisor who can create a customized master retirement plan for you and your family . It should incorporate a retirement income analysis, retirement tax strategies, Social Security optimization, a sequence of distribution and marginal tax distribution strategy, and builds a portfolio that gets the best returns with the least risk possible so you are prepared for the good times and the bad.
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