I’m rejoicing at the recent all time highs in the stock markets. The money gained is real. But I’m also cautious. Let’s stay diversified and careful. We don’t really know what will happen. We need to be emotionally prepared for a downturn, even if it’s slight. Remember, for us, downturns are when investments go on sale. In my professional life, every decline in the stock markets has been a opportunity to create greater long term gains.
On Wednesday, the government auctioned off $12 billion in U.S. Treasury 30 year bonds for the astoundingly low interest rate of 2.172%. These are taxable bonds. This means that the investors in these bonds expect essentially no economic growth in the U.S. in the next thirty years.
Consider what 30 years of “steady state” economic growth would mean.
The Great Capitulation. That’s a great description of what appears to be happening. Low interest rates are now being accepted as the inevitable environment for the near and distant future. It feels like the stock markets of the world will benefit from central bank support now and forever.
Capitulation is what market bottoms and tops feel like. The contrarian in me is creating an urge to go out and short the bond market. Had I done that in the past seven years I’d be totally wrong. But now…I’m wondering. And watching.
The fading middle class is the dominant social issue of our era, and will somehow affect our investment choices.
This article is by a leading economist. My thought is that the fading middle class is the dominant social issue of our era, regardless of politics. It is CERTAIN to have an effect on the financial markets, but what that effect will be, we cannot know.
I continue to find lessons and indicators in the Brexit experience.
- In general, economically and culturally, Asia is rising. Europe is in decline.
- Immigration is a big issue globally. Britons feel swamped by unfettered immigration from Europe. That strongly affected their votes. I’m perceiving that the immigration issue was bigger by far than economic questions.
- Social anger is increasing. Many people feel they have lost ownership of government and are at risk of losing their cultural identity. Results: anger, alienation, separation, and fear. This was apparent in the “Brexit” vote. It is also apparent in the current angry American presidential campaign.
- Low and lower interest rates. Brexit demonstrates yet again that any crisis is a giant gift to the Federal Reserve. At this point the Federal Reserve can keep interest rates as low as it wishes for as long as it wishes, and blame Brexit.
Here’s my article in the Salinas Californian, to discuss this further.
As we prepare the 2nd quarter’s reports and I study the financial markets, I’m reminded yet again that intelligent persistence is a core virtue of successful investing. My son Eric, who is on our board of directors, recently sent me this link, and I think it’s very relevant. Press on regardless.