Do you remember the good old days? Those are the days when investors could feel real smart after buying any stock, mutual fund or home, and selling that investment for a profit.
You’ve probably noticed that things have changed. No one has a crystal ball, but that doesn’t mean we cannot study factors that may help to see around the next corner. We may be able to make judgments about what is likely or unlikely to happen. Once we account for the worst possible scenario that practice may help us to be better prepared for the known as well as the unknown.
Just as in a court of law, the burden of proof is on the plaintiff, the same relationship applies to sports competitions. The onus is on the underdog to prove that he is better than the reigning champion.
Here’s what we see when we put this concept in context of today’s market trends. “Since late last year, downward bearish trends have been prominent in a wide variety of risk assets. So even though bullish investors have had a nice run over the last two months… the longer-term, dominant trend is still bearish. That means the onus is now on bullish investors – to prove they have the confidence and risk-tolerance to break the established downtrend… to dethrone the bears,” explains Adam O’Dell, CMT, Dent Research on April 16, 2016.
The Next 30 Days An Uphill Battle
O’Dell goes on to say, “That means the onus is now on bullish investors – to prove they have the confidence and risk-tolerance to break the established downtrend… to dethrone the bears.”
A chart of the S&P 500 (SPY) should drive this concept home - as provided by Dent Research.
“Currently, in determination of the six-month trend, the reference price is taken from October 5, 2015, when the S&P 500 (SPY) was trading at $198. But over the next four weeks, that reference price will move up to $210 – a meaningful 6% increase. So for the S&P 500 to stay in a six-month uptrend, it must continue to climb higher over the next four weeks. No rest for the weary! Now, the S&P 500 doesn’t need to gain all that much over the next four weeks. But still, the onus is on the bulls to prove they have the will to bid prices higher,” according to O’Dell. What could be more telling here is that risk markets may have a much steeper mountain to climb. Unless bullish investors prove to have remarkable stamina and power, it would not surprise this observer soon that risk assets will be in bearish trends.
America Isn’t Going Broke
Two candidates running for the office of the president of the US are fond of employing scare tactics to get Americans to vote for them. Let’s take a moment to read past the headlines to separate the noise from the news.
As Bloomberg’s Noah Smith wrote on April 19, 2016, “There are sometimes good reasons to be worried about the U.S. national debt. The debt has to be serviced, and that requires collecting taxes, which distort the economy. If government debt gets so large that the only way to avoid a default is to hold down interest rates forever, those low rates can eventually have negative effects on the economy. In the worst-case scenario, investors can lose their confidence in a government’s ability to repay its debt, forcing the central bank to print money to fund the government, which raises the risk of inflation. However, the U.S. is nowhere near this point. The national debt is modest and sustainable, and the federal government’s borrowing has been remarkably responsible.”
Smith summarizes his points by saying, “For now the US is living in the greatest period of fiscal responsibility since the second Clinton administration.”
Please resist the urge to engage in unfounded hysterics. At the same time, as former CIA Director & Secretary of Defense, Leon Panetta said at the Thousand Oaks Civic Arts Plaza on April 12, 2016, now is the time to pay attention to who we elect as president.
Those in attendance were admonished not to be complacent in November with a whatever attitude in November. Panetta went on to describe the large number of hotspots around the world, where there are those who have no interest in playing nicely in the world sandbox.
As David Graham noted in the Atlantic on April 14, 2016, “Among the five remaining candidates in the race, there’s one former secretary of state. What about the rest? One has stocked his team with fringe anti-Islam elements and repeatedly invoked carpet-bombing in a nonsensical manner. One has premised his campaign on implausible walls, likely unconstitutional immigration measures, and illegal tariffs. One has made his work closing military bases in the 1990s a top credential. And the fifth has been pilloried for answers that were vague at best during an interview with the New York Daily News.”
Voters Must Care About Foreign Policy
In Panetta’s opinion, there are only two candidates that should be considered to hold the highest office in the land; Governor John Kasich and Secretary of State Hillary Clinton.
I enjoyed dinner recently with clients who have homes and business dealings in the US and Canada. One of the messages I got is that Canadians often consider the US the land of gangs and guns. As far as our next president is concerned, I learned that there are those in Canada who are hopeful we vote well. If we don’t and Donald Trump becomes President, I understand there is a movement already underway that will begin on Inauguration Day to build a wall at the US-Canadian border and make US pay for it.
Here are the opinions of other countries around the world.
Whether you are talking politics or counting your money, don’t get mad, get disciplined. It won’t get any easier, and the timing will never be better than now, to prepare for the good, the bad, and the unforeseen in 2016.
Securities and advisory services offered through National Planning Corporation (NPC), Member FINRA/SIPC, a Registered Investment Adviser. Investor’s Advantage and NPC are separate and unrelated companies. The opinions in this article are for general information only. They are not intended to provide specific advice or recommendations for any individual and do not constitute an endorsement by NPC. To determine which investments may be appropriate for you, consult with your financial professional. Please remember that investment decisions should be based on an individual’s goals. Time horizon, and tolerance for risk. Investment in stocks will fluctuate with changes in market conditions and indices are unmanaged measures of market conditions. It is not possible to invest directly into an index. Past performance does not guarantee future results.
Certain statements contained within are forward-looking statements including, but not limited to, statements that are predictions of or indicate future events, trends, plans or objectives. Undue reliance should not be placed on such statements because, by their nature, they are subject to known and unknown risks and uncertainties. The information presented here has been provided by HS Dent. HS Dent is an economic research company that uses various techniques to study the potential impact of various changes in demographic trends on our economy. No one person or strategy can accurately predict market movements. Securities and advisory services offered through National Planning Corporation (NPC), Member FINRA/SIPC, a Registered Investment Adviser. Investors Advantage and NPC are separate and unrelated companies.