The market took another beating this past week with the 6th straight week of losses. All three major indexes are down more than 4 percent over the last month due to concerns that the U.S. economy is stalling. Stocks have been falling since April as a response to the negative reports in housing, manufacturing and employment. Some other factors that are leading to the extended period of losses are rising fears regarding the debt ceiling deadline as it approaches in August (with both parties apparent procrastination, this fear increases), and the continued uncertainty on the part of businesses to invest current capital in our economy.
I have several people I follow in the industry that I believe to have great insights regarding the markets, and I have read a few points this past week that I agree with and wanted to share with you:
US treasuries are a terrible investment. This is a medium to long-term call. In the short-term, we will likely see some strength in treasuries as stocks sag. This should not be mistaken for anything other than investors foolishly running into a burning building.
Get used to higher oil prices. Just like gold, the fundamentals point to a reset of what is thought to be the “normal” price. Even if we see a recovery in the economy, oil and gold will likely not fall back and remain at pre-crisis levels. The world is a different place now. With massive debts and shifting economic strength to the east, it appears we have arrived at a new “normal” that will likely take years to shift again.
QE3 may not come by name, but Americans can be sure to have their pockets picked. Whether it comes as no coin pocket in your new pants (article in Business Week regarding clothing), or a larger dent in the bottom of your peanut butter jar, we will see price inflation and continued Fed intervention in markets. There is plenty of research to show what choices governments have when facing massive debt. A new piece of research from Carmen M. Reinhart from the National Bureau of Economic Research shows the few options for debt: 1. Economic growth; 2. Austerity; 3. A sudden burst of inflation; 4. Default/Restructuring; and 5. A steady dose of financial repression accompanied with a steady dose of inflation. According to Ms. Reinhart, financial repression is a subtle type of debt restructuring which includes direct lending to the government by captive domestic audiences (such as pensions), explicit or implicit caps on interest rates, regulation on cross border capital movements, and generally a tighter connection between governments and banks. Any of this sound familiar? Not only have all of them happened in U.S. history, but we are seeing some now and should prepare for more.
I continue to monitor the different sectors of the market and remain confident in my investment strategy as a trend indicator (both positive and negative) for investments. While the news may feel bleak, I am currently seeking new buying opportunities as the market moves into “over-sold” territory.
Do you have an investment strategy that will eliminate emotion from your decision of when to buy or sell? Call me to schedule a free review of your current investment portfolio – 913.693.7918.
John P. Chladek, MBA, CFP® is the President of Chladek Wealth Management, LLC, a fee-only financial planning and investment management firm specializing in helping families and couples who are not yet retired realize their financial goals. For more information, visit http://www.chladekwealth.com.