Welcome to the 12-29-2017 update from your Pocono Summit Certified Financial Planner and retirement planner, Mike Savage. Today, Mike writes his last update of 2017 and reviews the financial happenings from the past year.
As I write my last update for 2017 it appears that 2018 should be an interesting year- to say the least.
My main concern going into 2018 is that our President has taken credit for the economic “recovery” that has really only taken place in the major stock averages and with the 1% of the 1%.
Housing prices are rising while incomes are not. That can’t last long in my opinion.
Unemployment rate is falling while more businesses are closing than opening and over 95 million people who could work are not counted. By the way, the labor participation rate is stagnant and comparable to what it was in the 1970s when many women were not in the workforce.
Before we were separated from our gold- backing for our US dollar one income could support a family. Almost immediately that started to change and has been picking up steam for 40 years as many people believe that prices just go up. Actually, it is our purchasing power going down. In terms of gold the US dollar has lost 93% of its purchasing power since 1971. This is the real reason two or more incomes are needed today.
Bond rates are rising and it appears that if we do indeed get growth that many are expecting in 2018- globally by the way- it could lead to a rise in interest rates that could lead to a severe downturn in all traditional asset classes- namely real estate, stocks and bonds because of the obscene amounts of debt created mainly in the last decade.
In order for many bond funds to attract new customers they are resorting to leverage to get better yields and returns. The problem here is that a liquidity trap could lie in wait as, if rates rise, there may be no one on the other side to buy the sell orders. Where an etf or mutual fund have 50-60% leverage instead of a cash cushion (as traditionally would be the case for mutual funds) it could lead to far larger asset sales than would take place where no leverage was employed.
If liquidity dries up there will likely be many people who will get a lesson in leverage and the risk of leverage that they won’t likely forget- ever. This will likely be the time Mr. Trump will rue the day he took credit for the markets because now he may receive the blame even though the damage has taken place over decades.
Many people are predicting that, based upon charts, this could be the year gold, gold miners and silver could take off. I have been expecting that for quite some time. I am not a chart guy but there are many reasons I believe that these assets could fly in 2018- mainly related to the US dollar’s reign as the lone reserve currency coming to an end.
All around the globe more and more countries are choosing to trade in local currencies rather than using a middle man (US dollar) to settle trades. China has an oil trading system ready to go that will pay for any oil coming into China from anywhere with the Chinese Yuan- not the US dollar. Russia is issuing bonds –for the first time- in Chinese Yuan rather than in US dollar denomination.
Many countries are leaning towards China and away from the USA- namely China, Russia, Pakistan, South Africa, Iran, Iraq, Venezuela and others. So far, I have not mentioned Saudi Arabia- the day I do will be the day our dollar will likely be only a shadow of its former self.
I don’t expect a collapse but a prolonged period of dollar weakness which is why I also like assets that are denominated in other currencies. That could be currencies, certain bonds or certain stocks.
If the dollar does weaken substantially in 2018 then any hits in stocks that may take place because of rising bond prices may be muted as dollar weakness could lead to higher prices for almost everything-including stocks. However, I don’t see how US domestic bonds win in either scenario. If the dollar weakens in a non-controlled manner the Fed may be forced to raise rates to protect the currency.
While 2018 could be a roller coaster ride it could also be profitable for those who are prepared for what appears to be coming.
I would like to wish each and every one who is reading this a healthy, happy and prosperous 2018!
I believe that the prosperous part may require a little planning.
Mike Savage, Financial Advisor
Securities are offered through Raymond James Financial Services, Inc. Member FINRA/SIPC. Investment Advisory Services are offered through Raymond James Financial Services Advisors, Inc.
Any opinions are those of Mike Savage and not necessarily those of RJFS or Raymond James. Expressions of opinion are as of this date and are subject to change without notice. The information contained in this report does not purport to be a complete description of securities, markets or developments referred to in this material. The information has been obtained from sources considered to be reliable but we do not guarantee that the foregoing material is accurate or complete. Any information is not a complete summary or statement of all available data necessary for making an investment decision and does not constitute a recommendation.
Commodities are generally considered speculative because of the significant potential for investment loss. Commodities are volatile investments and should only form a small part of a diversified portfolio. There may be sharp price fluctuation even during periods when prices are overall rising. Precious metals, including gold are subject to special risks, including but not limited to: price may be subject to wide fluctuation, the market is relatively limited, the sources are concentrated in countries that have the potential for instability, and the market is unregulated.
Diversification does not ensure gains nor protect against losses.