5 Critical Money Issues in 2017

5 Critical Money Issues in 2017

Ty J. Young Inc. Editorial

Happy New Year! 2017 here we come! Can these “good hits” just keep on coming?

As 2016 fades into memory, it would be easy to say that “Happy Days” are here again! The stock market roars to new highs virtually every week. The election of Donald Trump appears to have galvanized conservative tax cutters in Congress, promising a stimulative flattening of the tax rates. And regulations appear to be on the chopping block.

But… a rosy picture on the surface still masks significant headwinds for the economy and the market.

There are 5 critical money issues which could affect you, the stock market, and the American economy in 2017:

5. The Fed raising interest rates. In most respects, rate hikes can be a good thing. They are normalizing the interest rate environment from 8 years of government tinkering with the value of our money. But for certain, as rates continue to go up – as Janet Yellen has indicated – it could have a dampening effect on the rising stock market. Yellen has projected at least 2 or more hikes in 2017.

Raising interest rates could:
A) Reverse stock market gains
B) Negatively impact US export businesses
C) Make borrowing a LOT more expensive

4. Black Swan event in geo-politics. Any number of events, known as “Black Swan” events, could lead to an impact on the stock market, the U.S. economy, and in turn, your money. Black swans are bad for markets because they are circumstances that occur unexpectedly and outside of the normal chain of events.

“Black Swans” could include:
A) Euro-zone debt crisis – European governments and banks default on existing debt, which affects American companies tied to their markets.
B) Iranian adventurism – Iran decides to use terror and conflict to undermine our friends in the Middle east, which can affect oil supply and U.S. businesses in the region.
C) Russian expansionism – further conflict in Europe could radically damage markets – since Europe is one of our largest trading partners.
D) South China Sea conflict – almost 70% of ALL global trade passes through these Asian waters. Conflict here would without question impact the global economy.

3. Value of the Dollar Over-heats. A rising dollar is a good thing as it reflects a strong American economy and a strong dollar policy. However, a rising dollar based upon Chinese currency manipulation, or a currency war with other countries, will create economic havoc and great volatility in currency markets.

A rising dollar NOT based on strong market fundamentals could occur due to:
A) Chinese currency manipulation
B) Demand for dollars due to global economic catastrophe
C) Currency wars where competitors are devaluing their currency all at the same time.

2. U.S. debt burden looms over markets. The outgoing administration doubled all U.S. debt—all of it—in 8 years. Adding 10 trillion dollars of debt to the economy without new boats, planes, guns, helicopters, infrastructure – without ANYTHING to show for it, was a huge Keynesian debacle. While the honeymoon period remains on-going for the President-elect, the country cannot afford much more of our deficit filled financing of government operations. At some point, our lenders stop lending. We simply benefit – as the stock market has – from being the only safe game in town.

U.S. debt burden could cause a market contraction, if:
A) We keep borrowing at the current rate;
B) Interest rates skyrocket, making the debt payments more expensive
C) China, Russia, and other adversaries decide to move against the dollar, making it more difficult to finance the debt.

1. Your personal finances may not match stock market success. While the market has been up, that doesn’t mean your own 401K has been so lucky. For example, some energy bets would seem to be a sure thing in the Trump era, yet some utilities such as FPL have dropped significantly since the election. Why? They bet, and invested, in the Obama clean energy agenda, which appears to be on the way out. Political determinants for investing rarely, if ever, go the way you want them to.
Your 401K may not enjoy the market up-swing because:
A) Made the wrong investments
B) Fees paid to broker are too high
C) You structured your portfolio with risk-related assets.
Personal finance has taken a beating since the collapse of 2008. Yes, for many, our 401Ks are back! But do you have more money in your pocket? The same “gurus” who kept you in the market at the 2008 highs are now telling you again to stay in… with the same visible “irrational exuberance” which occurred before the Lehman collapse. Many in the industry are advertising against principal protection investing while at the same time not reminding you of the obvious – their advertising message conflates products and does not offer to give back their fees or your money when they lose it.

There were some not-so-happy moments in 2016 as well. A brutal Presidential election campaign, foreign policy setbacks…while the market skyrocketed, real people faced real issues that were a challenge for us all.

Despite those problems, most look at the record for 2016 and consider it a good one for the markets and money in the USA. But headwinds remain for the individual investor and the American economy. The time may be right to move some of your portfolio to principal protection products.

Our advisors are experts in helping people protect and grow their money. Call today to learn more, 877-912-1919.

Fed Interest Rate Changes…

Fed Interest Rate Changes… How Will This Affect the Market?
Ty J. Young Editorial

It is that time of year! Christmas, the Yuletide spirit, and the New Year are rapidly approaching. This is also the second year in a row December has had a rate hike for the federal funds rate. The market had a brief downturn, and then continued its historic rise upward. Terror events, such as in Germany and elsewhere in Europe, seemingly had no impact on market performance. The market essentially suggests that terror has become an everyday part of life.

Seemingly, only market-driven events have a chance on denting the stock market’s drive upward. That is a good thing—a normal, functioning market should only be determined by market forces.

However, part of the market performance is relative to the Federal Reserve’s actions on pricing money—the federal funds interest rate. The Federal Reserve increased it again last week. They cited a tightening labor market and increasing risk of inflation as the reasons for doing so. While one rate hike may have been merely a speed bump on the road to a higher market, several rate hikes over the next year could certainly impact the upward movement of stocks.

The rate hike was only the second in the last 12 months. Everyone has an opinion on Fed policy, from former Fed officials to the analysts in the media. The consensus amongst all the chatter is that we have been in an extended period of unconventional policy making at the Federal Reserve. Whether or not the Trump era will usher in a “normalization” of monetary policy still remains to be seen.

I. Three Reasons It Was a Good Time for a Fed Rate Hike.
1. Banking crisis has been over for some time. Economic expansion is anemic and possibly the worst economic recovery in history. Household net worth remains lower than what it was before the 2008 banking collapse, but we are no longer—and have not been—in the middle of a crisis for some time. Normalizing rates would mean getting off the zero-interest rate policy, and moving the rates up. It is a necessary move for the stock market to begin the healing process, and it is great for savers because they can get higher interest rates on their money market and savings accounts. It is good to have the continued rise in stock prices based upon market performance, not Fed intervention.
2. You don’t wait to deal with inflation after it has arrived. At the most recent Jackson Hole symposium, Fed officials shockingly admitted on the record that the inflation number remained a “mystery” to them. Simply because rapid and massive inflation has not occurred in asset pricing does not mean it is not coming. You can’t print as much money as we have and price money with little to no interest cost, and the market not eventually respond to the excess dollars available. The price hike and moves taken by OPEC, Russia and Iran—which have driven up oil prices—will certainly impact the inflation numbers. Lastly, having room to deal with the next crisis requires moving the fed funds rate up now.
3. It will begin to normalize the rates. The time was right to begin moving the fed funds rate further away from zero. This is based upon the available information from tightening labor data and the potential for increased inflation seen in the Fed’s analysis. In a traditional, market-driven model, interest rates are rarely, if ever, at zero—or close to it. Additional rate hikes in 2017 can help begin to normalize U.S. monetary policy.

II. Three Reasons It Was Not a Good Time for a Fed Rate Hike.
1. The crisis never ended—so we don’t need to dampen asset prices. Just repeating the points above—worst economic recovery in history, anemic growth, lower household net worth—ALL in combination with $10 trillion in additional debt. Those metrics do not support that the crisis ever ended, and now was not the time to increase borrowing and dollar costs.
2. There is no inflation. Those who buy the groceries and pay the bills certainly know prices aren’t going down! The moves in the oil industry and what we have seen over the last few weeks suggests oil is going up—along with gas. No single data point, or combined with others, will necessarily give a complete picture. But for those using the government averages, there is no core inflation that is visible.
3. Market reaction was and will be downward. Despite the “Trump Bump,” it should not be unexpected that a stock market heavily influenced by easy money and “trading the fed” would react sharply downward to the news of rates going up. The yield curve for treasury notes spiked on the news. The dollar index also spiked. A stock market addicted to easy money, with no traditional and sustained economic growth, will be easily impacted to the down side if rates continue upward.

As 2017 approaches, and 2016 fades into memory, the country has many reasons to be thankful and proud. But the marketplace remains in a state of flux that is often burdened by state intervention, and operating on imperfect pricing models… thanks to the Fed’s zero interest rate policy for the last 7 years. Normalizing rates should be a critical component to a healthy stock market—one that performs according to free market principals and corporate performance, not government action.

If the market response is downward due to continued rate hikes, one of the many ways you can protect yourself is through principal protection products. Can you afford to potentially lose half of your retirement money? Call us now to speak with your Ty J. Young Inc. advisor. You will learn how you can protect your money from stock market fluctuation—regardless of the environmental factors—and grow your money over time. 877-912-1919

How Long Will the ‘Trump Rally’ Last?

 

How Long will the ‘Trump Rally’ Last?
Ty J. Young Editorial

Lou Manheim said to Bud Fox in the movie, Wall Street, “You’re on a roll kid. Enjoy it while it lasts… it never does.”

For the last several years’, analysts have claimed the market was destined for an imminent decline and we have endured some short-term losses, such as the late 2015 Chinese market slide. Despite the constant threat of Fed rate hikes and multiple dizzying data points saying the end is near from books, analysts, and pie charts… the market has yet to correct.
But it will.

The one irrefutable law of the financial jungle is what goes up, must come down. How the market sustained such long-term upward movement has more to do with artificial stock market growth from our out-going government than actual economic performance. The stock market has been artificially propped up with:

• Price inflation, due to the printing of money
• Zero-interest rate policies
• A lax social welfare regime making government support easier than working.

The result has been stock market prices going up in spite of, not because of, the underlying negative economic indicators.

So when is the correction coming?

One of the enduring market indicators is the price earnings ratio (P/E Ratio). This is a measurement of the fundamentals, and the fundamentals still count. The P/E ratio is historically 14; the ratio now is 26. That is 85% higher than the historical average, and market declines usually begin when you reach just 20% above the historical marker. By these numbers, the P/E ratio would have to come down 46% to return to historical norms. That means there is a possibility of a market correction just waiting to happen.

I. 3 reasons the stock market rally could continue up:
1. Market believes in Trump economic plan: “Trump-o-nomics” suggests there will be de-regulation on steroids, repealing of Dodd-Frank, repealing of Obamacare, And restraining rogue EPA. The market sentiment so far has been that America, after 8 long years, is open for business again!
2. Tax policy will be pro-individual and pro-business.: Flatter, fairer tax rates. No punitive taxes on certain products through laws like Obamacare. U.S. hiring and employee benefits suffered for years under the highest corporate tax rate in the world. If Trump follows through and reverses these tailwinds on the economy, the market will certainly benefit.
3. U.S. Market remains the greatest in the world: Despite unprecedented financial and social engineering over the last 8 years, and all of the macro trends working against advanced market economies, the U.S. still remains the best investment destination for someone’s money. So… there can still be an up-side to this market, which means the famous line from our friend at FOX Business, Neil Cavuto, is proving true: “The trend is your friend.” Certainly over the last 8 years the stock market trend is UP! With the Dow near 20,000, a pipe dream at the dawn of the Obama era, it could be hit while this blog goes to print!
 
II. 3 reasons the stock market could see a correction:
1. History it is time to sell: Virtually every market correction of the past century has been preceded by P/E ratios 20% or more above the historic average, and we are well north of that number today. But not just P/E ratios: economic growth, global trends, macro-economic indicators….all say the time may be to sell.
2. The Fed will be raising rates: Some will say the political shackles designed to keep the market elevated have been removed with the election of Trump. But there are good policy reasons for the Fed to take action. At some point, you have to normalize rates after 8+ years of essentially zero interest rates. Pricing money by the market, as opposed to keeping rates artificially low, is long overdue, and healthier long-term for the market. But, higher interest rates mean stocks may drop.
3. The P/E ratios are signaling that we are overdue for a correction: Seven straight years of a rising stock market, yet less than 2% economic growth and $10 trillion in new debt… that is simply not sustainable. Despite the “Trump Bounce”, the data, starting with the P/E ratios, tells us we should expect a correction.

The public has greatly benefitted from a rising stock market, and it has more than recovered the losses of 2008. However, the growth in your portfolio should be coupled with prudent judgement on the condition of the market, and the larger economy as a whole. Elevated P/E ratios are a warning sign – maybe it’s time to take some earnings off the table and put them in a place where your money is completely protected against market losses and still able to grow.

Call now to find out how to avoid market losses due to market fluctuation and earn a reasonable rate of return! Our advisors are specialists in helping people protect their money. The data shows a correction could be near, and it could be big. You don’t have to be in the line of fire when that happens. 877-912-1919
http://www.marketwatch.com/story/trump-rally-could-mark-biggest-postelection-stock-market-rise-since-hoover-2016-12-12
https://www.advisorperspectives.com/dshort/updates/2016/12/01/is-the-stock-market-cheap