Tactical investing news, views and resources for financial advisors
Recently, we offered current U.S. recession watch charts, including the Employment Trends Index, the Economy and the S&P 500 Index, and Inverted Yield Curve.
It’s critically important to remain vigilant and to check these indicators regularly because the next great buying opportunity could be right around the corner.
The current recessions charts indicate…
READ MOREOur equity market trend model signals remain moderately bullish and our bond market trend model signals remain bearish. With that caveat, we’re speeding down the road with limited visibility to the problem that exists just around the next turn. The mother of all bubbles exists and it is in the debt markets. It is global in scale and there is no easy way around the problem. Like bubbles past, this too will pop. The trigger? Rising interest rates.
The debt situation in the U.S. is bad. As of December 31, 2017, it stands at 329% debt-to-GDP. It’s worse in the Eurozone, which is currently at 446% debt-to-GDP. For perspective, credible studies show countries get into trouble when debt-to-GDP exceeds 90%.
But what does this really mean for the economy and for you?
READ MOREIn Friday’s On My Radar, Steve provides his much-anticipated market outlook for 2018.
Steve says, “The weight of market trend evidence remains bullish. I remain focused on both market momentum and trend evidence. Despite the aged, overvalued and over-bullish environment, as evidenced in Trade Signals each week, I remain moderately bullish on both equities and fixed income.”
READ MOREOn Friday, December 15, CMG Founder and CIO Steve Blumenthal was interviewed by Nasdaq global markets reporter Jill Maladrino. Jill asked Steve about the current state of the market, his 2018 outlook and his recent On My Radar piece called “Start Small, Grow Tall.”
Click below to watch the short interview.
Several weeks ago, I shared an interview with behavioral economist and recent winner of the Nobel Memorial Prize in Economic Sciences, Professor Richard Thaler (here). So when I read Martello Investments’ monthly commentary this week, I thought it perfect to share their piece with you. Below is an excerpt from Artie and Charlie.
READ MOREEarlier this month, Richard Thaler received the Nobel Prize in Economics, and his recognition was long overdue. In a world where conventional economics is driven by simplifying assumptions — assumptions like “markets are efficient” and “investors are rational” — Thaler’s contributions to the field as one of the founding fathers of behavioral finance bring a realistic perspective. The underlying principles of behavioral finance, blending financial theory with psychology, accept the emotional and cognitive biases of most investors. Instead of assuming investors are rational, Thaler and others acknowledge that, on the contrary, most investors are irrational, emotional creatures that are driven by a combination of greed, fear, and fallacy, and that it is these behavioral issues that can cause bubbles and overreactions.
Despite tidy econometric models that peg investors as rational creatures, we value the contributions of the behavioral camp; we believe that emotions and irrational decision-making tend to govern investor behavior, oftentimes to the detriment of the investor. There are numerous behavioral biases prevalent in investing; some of the more notable include loss aversion (losses are generally 2-3X more painful than the positive feelings associated with similarly sized gains), confirmation bias (only pay attention to opinions that agree with you), and endowment bias (what we own is more valuable than what we don’t). Ultimately, these behavioral fallacies can result in investors buying high (chasing) and selling low (out of frustration and fear), the consequences of which are long-term wealth destruction.
From On My Radar (September 29, 2017):
The global economy continues to improve. Recession probability for the U.S. remains minimal in the next six to nine months. Europe’s economy is on better footing. Risks persist, including North Korea, a sharp slowdown in China, fiscal dysfunction in the U.S. (e.g., tax cuts, fiscal spend), and growing protectionist risks to global trade. Debt remains a significant headwind to growth as can be seen in this next chart.
Total Credit Market Debt-to-GDP
Here’s how to read the chart:
Source: Ned Davis Research
Also note the very last data box “Non-Financial Productivity.” Overall GDP growth comes from the total number of workers multiplied by their collective productivity. More workers producing more equals greater growth. With aging demographics (typically people moving into their lower spending years… they have a lot of stuff and kids out of the house) and fewer workers… you can see the pressure it can put on growth. And then with debt to be repaid, how much extra money is there to spend on things. Growth suffers.
Two Ds: Debt and Demographics are headwinds to growth. It is going to be hard for corporations to grow earnings much faster than GDP. Some will, of course, but in the aggregate, it’s a headwind and we are seeing it consistently in the low growth GDP stats. What we really need is Dedication, Determination, and Discipline. Let’s tell that to our representatives in Washington.
READ MORETake a look at the recession data in the next chart. Since 1930, there have been at least one or two recessions every decade. Three of the post-1930 decades had just one recession and five of the decades had two recessions. There have been zero recessions so far this current decade.
Will this be the first without recession? I doubt it very much. Often I share with you my favorite recession indicator signal charts. There is no current sign of recession within the next six months. I’ll keep you posted. Here are the recessions by decade chart:
Source: Crestmont Research
Let’s continue to keep our eye on leading recession indicators. The best is an inverted yield curve. The equity market is also a good leading indicator. No need to cover this today.
In their May market review, Arthur Grizzle, CFA and Charles Culver of Martello Investments wrote an article called “Markets in a Post-Volatility World.”
We wanted to share the following selected bullet points from the piece:
On May 22-25, 2017, Mauldin Economics hosted the 2017 Strategic Investment Conference in Orlando. Once again, the speakers and program were outstanding, making the SIC the preeminent economics conference in the world.
For the last two weeks, Steve Blumenthal has been sharing his notes from the conference in his free weekly newsletter, On My Radar. In sum, following are Steve’s three main takeaways from the SIC 2017:
Be sure to click below to read Steve’s first two installments of his 2017 SIC notes.
On My Radar: The Great Reset – Notes from the 2017 Strategic Investment Conference (Part 1)
On My Radar: Dr. Lacy Hunt – Notes from the 2017 Strategic Investment Conference (Part 2)
On My Radar: Investment Ideas — Notes from the 2017 Strategic Investment Conference (Part 4)
On My Radar: David Rosenberg — Notes from the 2017 Strategic Investment Conference (Part 5)
In Friday’s On My Radar, Steve features Ray Dalio’s recent LinkedIn post on the condition of the global economy. Dalio is the founder of Bridgewater Associates, the largest hedge fund in the world. In sum, according to Dalio:
The near term looks good, but the longer term looks scary. That is because:
The economy is now at or near its best, and we see no major economic risks on the horizon for the next year or two.
So while we have no near-term economic worries for the economy as a whole, we worry about what these conflicts will become like when the economy has its next downturn.
Steve suggests that advisors show Dalio’s piece to their clients. Further, Steve says that advisors should tell clients to be careful and not to buy into the long-term buy-and-hold passive investment trap. For more, click below to read On My Radar.
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