What the bond market just told us.

When the interest rates for short term Treasuries is higher than that of long term Treasuries, that’s “an inversion of the yield curve”. All inversions do NOT lead to recessions but all recessions are signaled by inversions. It took about 28 months before the recession predicted by a 2005 inversion emerged in 2008. What’s important: we are in the late stages of a delightfully long economic upturn. A normal, natural, and temporary recession is out there somewhere, and possibly will happen within the next three years. https://www.bloomberg.com/opinion/articles/2018-12-03/u-s-yield-curve-just-inverted-that-s-huge

Somehow we all muddle by…

One of my mantras in my investing career has been “Somehow we all muddle by”. In other words, the millions of people in the financial markets usually (but not always) make markets repair themselves, recover, and eventually reach new highs. This last week has been a classic example: last week the chairman of the Federal Reserve boosted stock markets in 30 seconds by hinting that interest rates might not continue to rise. Yesterday President Trump indicated a cessation of the trade war with China, sending markets rocketing. Lesson: the tiniest hint of whatever investors are seeking can change financial markets in a blink. This is why I don’t trade options. https://www.washingtonpost.com/world/asia_pacific/after-trump-summit-no-mention-in-china-of-90-day-deadline-or-trade-concessions/2018/12/03/1e9cc71e-f6dd-11e8-863a-8972120646e0_story.html?utm_term=.2a3d3af9edab

A recession is out there somewhere, just probably not yet.

In the midst of what may or may not be a more substantial downturn in global stock markets, there’s a lot of fluff in the financial media. Most of it is just plain guessing. My take, for what it’s worth, is that a cautious approach is warranted but we don’t really know what will happen. The current downturn hasn’t become large enough to convince most investors to be afraid, and remember there’s always (unfortunately) the prospect of an instantaneous Fed bailout. Our current Fed doesn’t seem to behave the same as it did a decade ago, which is good and healthy. Looking a bit longer term, the yield curve seldom lies. What’s it saying right now? Read this:  https://www.guggenheiminvestments.com/perspectives/macroeconomic-research/next-recession-update-yield-curve-doesnt-lie?utm_source=pardot&utm_medium=email&utm_campaign=recession%20dashboard%20update&utm_content=macroeconomic%20research

Are higher interest rates becoming a long term trend?

This study suggests that rates could go higher. That’s tough on real estate, hard on bonds and perhaps, short term, tough on stock markets as well. To put it in context, we’ve had historically absurd low interest rates for years now. To quote this well-written essay: “Bottom Line: Incoming data continues to support the Fed’s basic forecast that rates need to climb higher. I think the data increasingly supports the case that rates need to move in a restrictive zone before the Fed can breathe easier, but much depends on the evolution of the inflation data.” https://blogs.uoregon.edu/timduyfedwatch/2018/10/07/jobs-report-clears-path-for-the-fed/

Time to be cautious! Oh, wait, we’re already cautious…

As the accompanying article by Mark Hulburt points out, the emotional consequences of downside losses in a bear stock market are often greater than investors predict. As a result, these investors are usually reluctant to “buy cheap’ in the midst of a chaotic downturn. An even greater motivation is that bear market losses are..well, losses! Nobody enjoys that. With stock markets currently at all time highs, it’s time to be extra careful, even though we can’t really predict when bad news might strike. We’re already allocated with a potential bear market in mind. But when a downturn DOES occur, we won’t be able to predict in what market segments losses will be greatest. More on that later. https://www.marketwatch.com/story/now-is-not-the-time-for-stock-investors-to-ignore-the-next-bear-market-2018-10-01

Celebrate! Economically, half the world is now middle class or more!

Wonderful wonderful news! “In the world today, about one person escapes extreme poverty every second; but five people a second are entering the middle class. The rich are growing too, but at a far smaller rate (1 person every 2 seconds).” There is much yet to accomplish but the system is working.https://www.brookings.edu/blog/future-development/2018/09/27/a-global-tipping-point-half-the-world-is-now-middle-class-or-wealthier/

Caution, yes. Fear, no. Predictions of financial doom are seldom worth the worry.

“The end is nigh!” I’ve heard this lots over the years. So far it hasn’t been true. Although there have been hard times, we’ve always come back. Yes, there IS an awesome amount of debt out there. Yes, a downturn is inevitable, although the statistics aren’t saying that it’s imminent. And, yes, we’ll almost certainly recover from that downturn. So why do experts make such predictions? Because they are very successful at attracting attention. In other words, marketing. With all that in mind: caution, diversification, discipline, and courage.https://www.aol.com/article/finance/2018/09/23/expert-warns-next-economic-downturn-will-be-worse-than-the-great-depression/23539032/

Stock markets at all time highs!

This week we’ve seen US stock markets climb to new records, despite trade wars, political chaos, and overvaluation. The data says we’re at high risk, and the stock markets keep going up! The tactic of selling out and going to cash has been a miserable failure in the past. What has worked best has been the choice to simply keep our portfolios very diversified, allocate conservatively, and be patient.


The Asian stock market downturn is probably not permanent.

Yes,Asian stock markets are being damaged by the nascent trade wars. At some point they are going to be bargains. My thought is that due to Asian growth and American confusion, the 21st Century is possibly going to be the Asian Century. That may happen with lots of volatility and angst. With that in mind, we’re already buying more, in small amounts and diversified. Our expectation in these high risk venues is to outperform the U.S.’s S&P 500 in the long run ten year time frame. https://www.bloomberg.com/news/articles/2018-09-12/asian-stocks-are-caught-in-the-longest-sell-off-in-16-years?cmpid=BBD091218_MKT&utm_medium=email&utm_source=newsletter&utm_term=180912&utm_campaign=markets