It’s a new year and everyone wants to know what’s next. My best answer is you can expect volatility from every direction imaginable. Upward volatility may cause some investors to think everything is beautiful. As long as things are going up in value everyone wants to believe financial heaven is on the road ahead. But when the road ahead turns nasty, that’s when everyone goes into panic mode. What I want you to avoid is complacency. Put your plans in place to get ready for downward volatility. Otherwise you may experience regret. Regret is a gift that keeps on giving.
As we watched Donald Trump become President Elect market futures went downward. The next morning it looked like he was the Second Coming. Everything’s going to be better than ever. On CNN Money, September 15, 2016, Trump pledged 4% economic growth. We all clapped. Now before you drink the Kool-Aid let’s look to see how realistic that might be.
The study of demographics in my opinion can help you determine what is Live and what is Memorex. The research reveals the buying patterns of ordinary consumers based on age. From 1946 to 1964, for example, baby food sold really well as 76 million Americans where showing up around the USA. Such purchasing behavior won’t be “dialed up or toned down through economic policy,” explains Rodney Johnson, Senior Editor, Dent Research. Look at your own situation. After the kids go to college and never come home to live, what becomes the primary driver in your checkbook? You need less stuff as you discover you haven’t saved enough money to retire in dignity, so saving often becomes a higher priority than spending.
As we look at 2016 we see how much the Fed worried about raising rates. “Without strong economic growth or inflation, there was no reason to push up short-term rates. The longer the Fed waited, and the worse the economy performed, the lower long-term interest rates fell. But as we entered the third quarter, the Fed started talking about higher rates anyway, and then Trump happened. So, rates climbed, more or less putting us right back where we started the year,” submits Rodney Johnson on December 29, 2016. Johnson went on to say, “Fed governors expected the U.S. to be growing by 2.5% to 3% by now. That didn’t happen. GDP increased 0.8% in the first quarter, and 1.4% in the second. We jumped 3.2% in the third quarter, but the annual pace will most likely still come in around 1.9% or so. That’s not enough to excite anyone, and probably won’t change in the next 12 months.”
There are two things that haven’t changed and won’t change that drive economies around the world. They are also very difficult to control; populations and productivity.
With the Dow near 20,000, investors are licking their chops for business-friendly messages. Rodney Johnson calls this “a case of buy the rumor and sell the news,” on January 3, 2017. The Donald is known to be business friendly. With Rex Tillerson, CEO of Exxon as his Secretary of State, former governor of oil-land Texas, Rick Perry as his Secretary of Energy, and fellow billionaire, Carl Icahn appointed to the task of whittling down government regulations, Trump calls for cutting personal and corporate income taxes, bringing jobs and overseas corporate profits back to the USA.
"We expect the 2017 stock market to be bumpier than it was in 2016," says Edward Kohlhepp Sr., owner and president of Kohlhepp Investment Advisors in Doylestown, Pa., and head of its investment committee, on December 30, 2016. He went on to say, "The Trump rally is showing signs of fading," says Kohlhepp. But while he does not classify the current high market valuation as a "bubble," he notes that he would not be surprised by a 10 percent to 15 percent correction. If such correction were in this range you may weather that just fine. But suppose the correction is off the charts? How might you stay in the money if the correction is in the ridiculous 50-90% category. How might you put your storm watch on notice in preparation for that calamity?
Countries including the USA are experiencing unprecedented debt burdens, low productivity, and aging populations. As I am fond of saying, the genuine ‘trump’ cards are Mother Nature and Father Time. The markets may continue north in the short term. Once savvy investors recognize there is no easy answer to the many situations we face, things could turn very ugly very fast. Financial engineering may be no different than being told by the movie classic, The Wizard of Oz not to pay any attention to the man behind the curtain. In the absence of real growth, the stock market may be in an irrational bubble.
‘The debt ceiling is on the cards to be raised this March. Do you think the Republicans will back just any tax cut or infrastructure bill without considering how fast that will get us from $20 to $22 trillion in debt – or by past trends and our estimates of $40 trillion by 2024? Yes, the federal debt has been doubling every 8 year,” says Harry Dent. Is it reasonable to you that scape velocity will happen anytime soon?
“We’re deep into this economic winter season,” says Harry Dent, Dent Research on January 2, 2017. As we’ve seen for some time, legislators and central bankers will keep trying to move the pieces around the chessboard, but it won’t do much good. I guess that’s one more thing that will never change.
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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 in our economy. No one person or strategy can accurately predict market movements.
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