2015 Year in Review – Looking Ahead to 2016

“2015 Year in Review – Looking Ahead to 2016”
Ty J. Young Editorial

2015 had BIG stories with a big impact on the markets and on your money. As the New Year approaches, what can we expect in 2016?

2015 in Review

I. China’s Market Meltdown
1. Dropped their rates: In an effort to stop their massive market sell-off, China lowered interest rates.
2. Currency devalued: The Communist Party stepped in to try and stabilize the economic meltdown with an artificial currency devaluation. Instead, it destabilized markets further as global investors (which means American investors) finally began to realize that the Chinese market does not trade as freely as they hoped.
3. Affected the American Stock Market: At the time of this writing, the Dow was down about 300 points for the year. Whether it finishes up or down, it had major losses in August directly related to the Chinese market collapse.

II. Commodity Collapse (A leading indicator of economic performance)
1. Commodity pricing dropped 34%: The S&P GSCI (Goldman Sachs Commodity Index) dropped 34% this year. This measures all of the commodity pricing globally (gold, iron, ore, timber, oil, natural gas, copper, etc.). The index was down 80% from its peak, and reached its lowest reading since 1999.
2. Oil prices collapsed: Oil led the drop in commodity prices with a historic decline. Oil has gone from $98 to $35 so far in 2015. Oil is usually a leading indicator of where the stock market could be heading. A massive increase in production, thanks to American entrepreneurship and in spite of the government, helped drive prices down globally. This had a positive impact for consumers, with gas dropping below $2 a gallon! Still, sustained lower prices usually mean negative headwinds for the markets.
3. Lower demand, slowing growth: A drop in the price of commodities can have many factors. A drop in most commodities, across the board and over a sustained period of time, usually means economies are slowing or contracting.

III. The Fed raises rates
1. The end of ZIRP (Zero Interest Rate Policy): Surprisingly, and in the most limited way, the Fed raised interest rates off of zero, raising the benchmark rate by a quarter point.
2. Strengthens dollar: The dollar was already strengthening against other currencies globally. Raising interest rates will have an even greater effect, compounding the strengthening effect on our currency.
3. Signals belief in U.S. economy: Although it seems the Fed made this move more so from public pressure than their actual belief in the U.S. economy, it does have the effect of showing that we are finally past the crisis strategy of 2008. No one knows what will happen when all of the liquidity from the Fed’s actions are deployed into the economy, since we have never tried such an “easy money” experiment before. Raising rates had to happen eventually, and doing so helps us return to a more free market-driven rate policy.

2016 Expectations

I. China will remain “the elephant in the room.”
1. Chinese growth is slowing: Regardless of what the Chinese propaganda purports, all indicators suggest the Chinese economy will most likely continue to slow.
2. Slowing growth bad for emerging economies: Without China to buy their oil, or timber, or copper, many emerging economies will begin to slow or fall into recession. This will likely have a domino effect.
3. Drag on U.S. stocks: U.S. companies tied to China or global trade, which is a lot of U.S. companies, could see a drop in their bottom line. This means a lower stock price as we saw in August 2015.

II. Worldwide recession?
1. Commodity deflation: The collapse in oil, copper and other commodities listed above has signaled we are in deflation. The significant drop in demand means very simply people do not have the money to buy things.
2. Currency devaluation: Another signal – central banks in major economies have been lowering the value of their currencies (to make their economies more competitive).
3. Slowing global growth. Slowing commodity demand dramatically affects producers, such as oil kingdoms in the Middle East, Russian oil exports, copper and other commodities in emerging economies like Brazil. Everyone seems to be facing a lack of demand, in many cases over-supply, and only one policy response of devaluing the currency. Those are very strong signals of a recessionary environment.

III. Will the Fed hike rates?
1. YES they will: If U.S. growth remains at 2% or higher, despite how anemic the number is, the Federal Reserve has clearly sent the signal they are prepared to return to normal policy making regarding interest rates. This is a positive development. You could see several small rate hikes over the course of the year.
2. NO they won’t: Growth below 2%, and rate hikes could stop. It would not be surprising to see additional QE (Quantitative Easing) if we have 2 quarters or more below 2% growth. Former Fed Chair Ben Bernanke has even suggested they may use negative interest rates to fight off the next crisis. We believe that’s a bad idea.

In Summary

There is so much that can be discussed regarding 2015, and so much to look forward to as 2016 approaches. Technology has made more and more of the world’s events available for us to hear and read about each day on phones, tablets, TVs, etc. Despite the headlines, there are a lot of positives out there. Positives occur in your everyday life, in your personal interactions and with your retirement and savings portfolio as well!

The beauty of the products we use for our clients is that global events like the ones listed above can play a much lesser role in your decision making. You do not have to time the market. When the market goes down, you don’t lose anything. When the market goes up, you participate in those gains. You may not be “as right” as your friend in the performance of your portfolio. But you will not be wrong because you won’t lose money when your friend sustains a market loss.

Call us now to find out how you can best shield your retirement money from the global volatility we have seen every year and will inevitably see in 2016! 877-912-1919

( http://www.nbcnews.com/business/energy/too-much-energy-if-it-burns-its-selling-fire-sale-n403801 )
( http://www.marketwatch.com/story/bernanke-says-fed-likely-to-add-negative-rates-to-recession-fighting-toolkit-2015-12-15?dist=afterbell )

The Fed Raised Rates a Quarter Point… Merry Christmas

“The Fed Raised Rates a Quarter Point … Merry Christmas.”
Ty J. Young Editorial

The Federal Reserve raised interest rates a quarter point last week on December 16, 2015.  Markets dropped significantly the week before and again saw a huge -367 Dow drop on Friday, December 18.  The move to increase interest rates seemed to be priced by the market, and other factors – not the rate hike – seemed to cause the noticeable volatility (oil, Asia, others).

Is this an early Christmas gift?  In many respects, yes.  There is short-term pain, but long-term gain with starting to return interest rates to normal market conditions as opposed to serving the political interest of easy money and an artificially inflated stock market.  So yes – you benefit from a free market in assessing stock value, not a government-controlled market that sets the rate based upon government policies.

I. Short-Term Pains of a Fed Rate Hike:

  1. Cost of doing business increases: Loans, insurance, credit cards and real estate market will all see a bump up in costs related to interest and financing.  Therefore, your daily costs and your budget will take a hit.
  2. Economic growth stifled: Growth, which is already slow, will slow further.
  3. Stock market could suffer: Economists, such as Robert Schiller, have indicated that markets are overpriced by as much as 30%. The linchpin of the historic market move upward since the collapse in 2009 has been cheap and easy money.  The ZIRP (Zero Interest Rate Policy) has driven investors into the market in search of yield.  Although a quarter point bump in interest rates will have minimal effect long term, it does send a market signal that things are changing in Fed Policy, and that could have a negative effect on stocks.

II. Long-Term Gains of a Fed Rate Hike:

  1. Strengthens dollar: Strong-dollar policy is a Reagan-styled strong America policy.  Raising rates helps the dollar gain strength through market conditions –  a natural, not artificial, increase in dollar strength.
  2. Inflation slowed:   We have clearly had inflation over the last several years in 2 areas which affect people the most – food and housing.   For that reason, raising the rates can help tamper those soaring costs.
  3. Savers earn more: The Fed raising interest rates will likely have a positive effect on bank savings, CD’s and other bank accounts which rely upon a healthy interest rate environment to grow in value.
  4. Stock prices legitimized: A healthy stock market depends on market pricing that accurately and legitimately reflects value. When you have zero-percent interest rates, you have investment decisions that do not reflect the reasonable market value of a particular stock.  Your portfolio is strengthened when rates reflect the market and are not set by policy makers.

Despite the potential for causing short-term pain to U.S. consumers, the long-term policies which will have the greatest positive effect for your portfolio can simply be stated.

  • Interest rates need to be driven by market conditions.
  • Those market conditions will legitimize the pricing of your investments.
  • That, in turn, helps maintain a healthy economy.

The Fed is finally taking small steps in the right direction.   Call now to find out ways to take advantage of the rising interest rate environment and protect yourself from potential market losses by using our principal protection investment strategy. 877-912-1919

(http://www.marketwatch.com/story/us-stocks-poised-for-another-day-in-red-after-oil-asia-tremors-2015-12-18)(http://www.realclearmarkets.com/articles/2015/12/21/the_fed_is_driving_america_toward_
recession_101927.html
)(http://www.cnbc.com/2015/07/01/robert-shiller-stocks-pricey-heres-what-to-do.html)

 

 

 

 

 

 

 

 

Is 2008 Happening Again?

“Is 2008 Happening Again?”
Ty J. Young Editorial

The 2008 financial crisis seems to loom over this generation like no other financial event.  No one seemed prepared for it and those who predicted it were not in the mainstream.  Many factors seem to be suggesting that it is certainly possible to see another financial tsunami hit the markets.   The question is, are you protected when it does hit?  Let’s look at 2008 versus now…

1. OIL
Price of a barrel of oil was dropping fast: The price of oil dropped 23% from the high in June of 2008 through the first week of September.

That was then, this is now…

Price of oil dropping even faster: The price of oil has now dropped almost $70 and roughly 66% from its high in November of last year.

2. REAL ESTATE
Real estate prices were rising until the recession of 2007: Real estate values appreciated 36% between 2003 until the recession started in November of 2007.  Although it began to decline, real estate values were still up 17% over the 2003 low.

That was then, this is now…

Real estate prices rising quickly: Unlike 2008, we have not had the start of a recession or a drop in real estate prices…yet.  The current upward trend is at 17% over the last 3 years… similar to when prices soared over a 4 year period prior to the 2008 financial collapse.

3. BANKS
Banks accounted for 43% of U.S. GDP: GDP represents everything related to the economy – all money, transactions, loans, insurance, economic activity… you name it.  Just before the financial collapse in August of 2008, the banks were at historic highs of 43%!  The norm has been 20-30%.

That was then, this is now…

Banks now account for 56% of all U.S. GDP: Despite massive regulation, banks now control an even larger share of GDP than they did right before the 2008 financial collapse.

4. MORTGAGE DEBT
Government holdings of mortgage debt at $1.5 trillion in 2008: Close to 90% of all subprime debt was then held by the government.

That was then, this is now…

Government holdings of mortgage debt at $950 billion in 2015:  And it is still climbing.  Over 90% of all subprime mortgage debt is still underwritten by Fannie Mae and Freddie Mac, despite government regulation to prevent such an occurrence.

OTHER PREDICTIVE FACTORS:

A) Similar conditions that caused the first financial crisis exist: Interest rates are low and real estate prices are increasing.
B) Market indicators reflect the market could go down 30%: Yale University economist and Nobel Prize winner, Robert Shiller, has shown that the gap between stock prices and corporate earnings is now larger than it was in previous pre-crisis periods. “….If markets return to normal earning levels, the average stock market in the world should fall by about 30%.”
C) Quantitative Easing rampant: Quantitative easing is the government printing of money and giving it to banks, to ensure there is liquidity and ensure the stock market remains elevated (banks trade the cash in stock and other paper assets).  This experiment has never been tried before, where banks have been capitalized with so much liquidity. So it is unknown what will happen when that money is deployed into the market.  Experts have an idea… rampant inflation.

The financial crisis of 2008 was fueled by many factors:

  • Banks forced by the government to lend to uncreditworthy borrowers: The worst of those loans – adjustable rate mortgages – adjusting the payment higher after a couple of years
  • Borrowers defaulting
  • Loans securitized and sold globally
  • Fannie Mae owning too much debt
  • Insurance firms insuring the debt against default

On and on it went until the bubble burst…

When the bubble burst, the market came crashing down.  The elites said we needed to spend taxpayer money to bail out those banks and industries.  Others suggested we let them fail through the bankruptcy process, which would normally happen.  Either way, where we are today is an artificial environment that looks a lot like the last time the bubble burst.

The difference this time is the answer to this question:  Are you protected against market losses at the next inevitable, predictable downturn?  If not, call us today and learn how you can have your money protected. 877-912-1919

(http://www.zillow.com/home-values)
(http://www.huduser.gov/periodicals/cityscpe/vol11num3/ch11.pdf)
(http://www.nasdaq.com/article/8-reasons-why-a-new-global-financial-crisis-could-be-on-the-way-cm383267#ixzz3uJzqQ5PD)