Stock Market Analysis – at Thanksgiving time

Thanksgiving is upon us, and I hope most earnestly you have plans to celebrate with friends and family! And even though it is a great time to slow down, eat some turkey and make a list of all the things we are thankful for, the stock market may not make that list for some.

The stock market has experienced many periods of growth which were then followed by collapse during 2015. In time of perceived recovery, investors are encouraged and become optimistic, but are only to be dismayed when it collapses again.

Fortune magazine predicted a rough ride for stock market investments in January 2015. The article cited the causes as falling oil prices and a likelihood that interest rates would increase – or based on the fear that they would increase. (1)

One of the best arguments for why 2015 will be bad for the market is that stocks are really expensive. These days, the preferred measure is the Shiller P/E, which is named after the Nobel Prize winning economist Robert Shiller and compares stock prices to the past decade of corporate earnings. By that measure, the market is at 26, well above its 130-year average of 16, and close to where the market has cracked in the past. In mid-2007, the Shiller P/E topped out at 27.5. Of course, the Shiller P/E hit 42 in early 2000. So it’s been higher, but not often.” 6 reasons why stocks may tank in 2015, by Tom Huddleston, Jr. , Stephen Gandel

Now, almost a year later, their predictions seem to have played out as predicted.

In light of this, how does a wise investor respond?

Lou Carlozo, wrote “10 Stock Market Predictions for 2016”.(2) In this article, he describes the issues he believes will cause problems for the U.S. stock market in 2016. A few of them are:

  1. Continued decreases in the price of energy.
  2. The emergence of “bear market thinking” (more sales than purchases of stocks).
  3. Overpriced stocks leading to decreased enthusiasm for investing.
  4. Bonds will not maintain their value. Very simple – interest rates are at nearly zero and can only increase – with a mainly negative impact on bonds.
  5. The perceived value of buying a home will fall – because millennials don’t seem interested in buying homes.

This may sound quite daunting as we head into the holiday season, but it is a good reminder that active strategies are needed in order to help deal with the level of risk.

I want all of us to have a good Thanksgiving and Christmas season – and to have a prosperous 2016. I am passionate in my work as a Seattle conservative investment manager, so if you would like to discuss these thoughts or potential investment options, please contact me at ben@reppondinvestments.com.

Citations:
1. http://fortune.com/2015/01/06/stock-market-suck-2015/
2. http://www.gobankingrates.com/investing/10-stock-market-predictions-2016/
Investment advisory services offered through Reppond Investments, Inc., a Registered Investment Advisor in the State of Washington. Ben Reppond and Reppond Investments Inc. do not provide tax or legal advice. Please consult a qualified professional for assistance with any tax or legal issues.

Will the U.S. Economy Collapse Under the Weight of its Debt?

“The U.S. national debt shot up $339.1 billion last week — the largest daily increase in the national debt in history, according to Treasury Department data,” according to Gregory Korte in USA Today (1).

How many people are paying attention to this?

In an interview with BBC News, billionaire and money manager, Jim Rogers, stated that the entire US economy will collapse under the weight of its debt. Rogers further says the U.S. has been piling up debt for the last 50 or 60 years at an ever-increasing rate, with no apparent plans to pay it back (2).

According to the USA Today article, “The increase is largely a matter of accounting, in that the Treasury Department had been using ‘extraordinary measures’ to artificially hold the total U.S. debt under the debt limit imposed by Congress. So on paper, the national debt had been frozen at $18.1 trillion since March, as the Treasury instead deferred payments to pension funds and borrowed from reserve accounts in order to keep the government running.

But once President Obama signed a suspension of the debt limit into law on Monday, the Treasury Department was able to borrow new money for spending Congress had already authorized — averting a potential debt crisis as its accounting measures began to run out.”(3)

I believe this means that the U.S. government has no way out. Our government has made forward commitments without a plan to pay for them, and now does not have the political will to do what is necessary to stop the runaway train from going over the financial cliff.

The U.S. is not alone. Other countries like Japan, Greece, Italy, Portugal, Ireland, Belgium, Spain and France also have extremely high levels of debt in relation to their Gross Domestic Product (4).  However, none seems willing to do what is necessary to stop uncontrolled spending. Jean Claude Juncker, former President of the European Economic Council and former Luxembourg Prime Minister said, “We all know what to do, we just don’t know how to get re-elected after we’ve done it.”(5) At least he is honest.

So, what is the average person to do?

We feel helpless to stop those bent on feathering their own nest while ignoring the signs that their actions are leading to our own destruction.

There are four kinds of risks that lie ahead for the average investor: Stock market risk, Interest rate risk, Inflation risk, and Infrastructure risk.

However, there are strategies you can implement to help protect against these risks – as much as possible. And through my work as a Seattle conservative investment manager, I’ve compiled free resources and seminars for people to help protect themselves and their money.

Citations
1. http://www.usatoday.com/story/news/politics/2015/11/04/national-debt-sets-one-day-record-after-debt-limit-suspension-becomes-law/75173708/
2. http://jimroger.blogspot.com/2014/01/economic-collapse-is-coming.html
3. http://www.usatoday.com/story/news/politics/2015/11/04/national-debt-sets-one-day-record-after-debt-limit-suspension-becomes-law/75173708/
4. http://www.economicshelp.org/blog/774/economics/list-of-national-debt-by-country/
5. http://www.bbc.com/news/world-europe-27679170