What’s the biggest issue?……Interest rate hikes, oil prices, or China?

What’s the biggest issue?……Interest rate hikes, oil prices, or China?
By Ty J. Young Editorial

In June we reported:

“The 3 major things to look for when [interest] rates do finally go up:

1) Dollar strengthens
2) Market [weakens greatly]
3) Economic fundamentals to remain broken – rate hikes will not undo the damage of the last 6 years, it will take some time to heal the decoupling of main street and Wall Street. Where should you be when rates are hiked, the correction finally comes, and the market pays the piper?”

Interest rates are no longer influenced primarily by market forces, but the voting blocs in the Federal Reserve. Many thought we would see an interest rate lift-off announcement this week – but they still didn’t pull the trigger.

What about oil prices? Are they affecting your money? Three market factors are placing downward pressure on oil prices:

1) Strengthening dollar
2) Declining demand
3) Massive expansion in energy production, specifically here in the US.

This is predictive of slowing and/or negative growth, but declining gas prices may save you money at the pump.

But it is China we warned most about, saying this in July:

“….To put it simply, Chinese credit risk is 5 TIMES worse than where we were right before the banking collapse and financial crisis of 2007/08. These numbers have US analysts very worried. This is not a Gold commercial – this is happening right now.”

Our China concerns continued unabated this week –

1) 27% drop in the Chinese stock market since the high, 8% drop on Monday alone.
2) Most analysts see more downward pressure and more room to drop. ( http://news.yahoo.com/rollercoaster-china-stock-market-more-room-drop-071444449–finance.html ).
3) Volatility is rampant across all Chinese indices.

So the biggest issue???? Still China.

Buying opportunity? We don’t think so. We consider this Chinese stock market collapse, combined with slowing growth, a reason for caution. Is your retirement money exposed to the constant changes in the global economy? Do you want your money protected against losses? Call our wealth managers today!

Greece is in the news… but China is the elephant in the room.

“Greece is in the news….. but China is the elephant in the room.”
By: Ty J. Young, Inc. Editorial

The circumstances surrounding the Greek financial crisis seem to change by the hour, but the basic contours of the problem are simple: whether the Greeks will remain in – or out – of the Euro ( http://www.bloombergview.com/articles/2015-07-06/greece-hits-the-self-destruct-button ).

If the Greeks exit the Euro:

1) Other debt-ridden Eurozone countries could exit as well, effectively unraveling the Eurozone.
2) Euro weakens vs. dollar…..bad for US exporters.
3) New Greek currency would have little value vs. the dollar
A) Great for travelers.
B) Wildly cheap vacations to Greece.

If the Greeks stay in the Euro:

1) Other debt-ridden Eurozone countries could demand the same deal that Greece got……to paraphrase Margaret Thatcher – “…this will work until they run out of other people’s money.”
2) Euro weakens vs. dollar –
A) Bad for US exporters
B) Good for travelers – slightly cheaper vacations to Europe.

Very likely – this constant back and forth will continue well into the future, with no resolution of staying in or out – just constant loans, loan forgiveness, and bailout funds, so that the political leadership can “…keep kicking the can down the road.”

But the far bigger issue, the proverbial “Elephant in the Room,” is China!

In the last 30 days we have seen unprecedented moves in Chinese markets –

1) Chinese stock market composites are down 24-30% (by comparison that would be a 4000 point drop on the Dow).
2) Over $2 trillion (US) has been lost in investor wealth during that same time frame (by comparison 10 times the GDP of Greece).

Chinese credit expansion is at 200% of GDP. By comparison, the US market right before the sub-prime collapse was only at 40%. To put it simply, Chinese credit risk is 5 TIMES worse than where we were right before the banking collapse and financial crisis of 2007/08. These numbers have US analysts very worried. This is not a Gold commercial – this is happening right now.

Despite these headwinds and market turmoil – all of which impact US markets and your retirement portfolio, we live in the greatest country in the world, with the greatest markets, and the greatest currency in the world. The S&P has historical returns of 10% – you can earn a large percentage of that return without risk in the stock market. Contact us now and find out how your retirement savings can be protected from this global market turmoil we see in the news. Call and talk with one of our advisors today!

“Rate hikes will create winners and losers…..the question is when are they coming?”

“Rate hikes will create winners and losers…..the question is when are they coming?”

By Ty J. Young Editorial

The Wall Street Journal reported on the Federal Reserve’s June meeting and indicated that rate increases will be coming at a slow pace.

“Economic conditions are currently anticipated to evolve in a manner that will warrant only gradual increases in the target federal-funds rate,” Fed Chair-woman Janet Yellen said in a press conference following the Fed’s two-day policy meeting. http://www.wsj.com/articles/fed-signals-rate-moves-before-years-end-1434564343

Rate hikes, at whatever the pace, will create some winners and losers:

The losers included the:
(1) Federal Budget (borrowing costs go up),
(2) the US stock market (increased costs, decreased earnings), and,
(3) emerging economies (cost of living goes up in poor countries).

The winners included the:
(1) US Dollar gets stronger,
(2) global stocks (US demand for foreign goods will increase because of stronger dollar), and……
(3) insurance companies (higher interest rates increase profits)!
http://www.bloomberg.com/news/articles/2015-06-16/who-wins-who-loses-when-fed-raises-rates

So the bigger question is, when are the rates going up???

The Fed signaled in forecasts released after the meeting on June 17th that rate hikes may be forthcoming in the near future. As reported, “….in forecasts the Fed released…..about its interest-rate outlook, 15 of 17 officials said they expected to start raising short-term interest rates before the end of 2015.” Although the release included remarks that the “…current zero interest rate policy remains appropriate,” Fed Chair Janet Yellen also hinted they are nearing their target for 2% inflation, and that benchmark, along with an improving economy, would provide the impetus for raising rates in the future – http://www.bloomberg.com/news/articles/2015-06-16/who-wins-who-loses-when-fed-raises-rates

We have stated on Cavuto of the FOX Business Network that we are contrarians on “when” the Fed will raise rates. Most analysts are predicting this September, 2015, and the article above suggests it. But the monthly jobs reports, the unemployment rate, and most importantly – GDP growth – ALL and more will have an impact on when the Fed raises rates. It is likely an action taken in early 2016. The 3 major things to look for when rates do finally go up:

1) Dollar strengthens
2) Market correction likely
3) The economy will remain stagnant – will take time, hard work, and discipline for our economy to recover.

Where should you be when rates are hiked, the correction finally comes, and the market pays the piper?