Welcome to the 01-04-2018 update from your Pocono Summit Certified Financial Planner and retirement planner, Mike Savage. Today, Mike shares his thoughts about the financial world in 2018.
As I am getting ready for 2018 I have been contemplating what we just saw in 2017. It appears to me that 2017 will go down as the year where any pretense of central banks not actively “managing” virtually all markets will be wiped out.
Even those who follow charts have been uncannily correct in predicting the market’s ebbs and flows. My belief is that the charts will work until they don’t. It is most likely that since everyone is basing decisions on the same charts with mostly the same algorithms that these “predictions” become self-fulfilling prophesies. Until someone steps in and changes the rules of the game- like 2008.
Keep in mind that this could happen at any time.
The VIX- a gauge of how much fear is in the markets- was at historical and dead lows.
Markets across the globe rose relentlessly for the year. Of course, there were many events and occurrences that COULD have knocked the markets down but each time they just kept on rising.
The financial game shows just tout the markets as being “resilient”. Let’s be clear- if the central banks are “printing” money up and buying stocks- along with many other assets this is likely the reason that there appears to be no fear in the markets at this time and why prices continue to ascend.
Besides the fact that central banks are not being shy about buying assets the US dollar index was lower by 10% in 2017. That is quite an accomplishment when the main competitors are from Europe and Japan! This could lead to still higher stock prices this year- at least for a while.
Many are calling for a correction in the stock markets in 2018. I also believe that a large correction is long overdue. Others believe that the troubles that may take place in 2018 will start in the bond markets as the bond markets (10 year treasury) have broken out of the long-term trend of lower rates recently.
Many are calling for 2018 to be the year where inflation pressures break out. Actually, they may be a little late to the party. The Goldman Sachs Commodities Index was up 11% in 2017. Gold was up 13% even as the “authorities” are trying to keep the price from rising. Silver was up 7.3%, crude oil was up 12%, gasoline was up 8% and copper rose 32% in 2017.
Hey, but according to Janet Yellen and her Fed friends- we need higher prices for everything!
Just a few thoughts as we enter 2018.
I believe we will see a large war somewhere in 2018.
I believe many will be shocked at some of the news that is released this year. It appears that the mainstream media is being exposed for protecting many that they are aligned with and that they may be discredited more than anyone can imagine at this moment.
My guess is that 2018 may usher in a new currency system. Russia, China and others (even the IMF) have been planning this for quite some time and it appears that all of the pieces of the puzzle are in place. This would likely lead to further US dollar weakness and lead to high inflation- at least here in the USA.
I believe that silver is the most undervalued asset on the planet and will rally strongly in 2018. I also believe that gold will have a shiny year in 2018. I also believe that the mining companies are some of the most unloved assets on the planet and because of their relatively small market caps can see major gains when big money decides to add even a small exposure to this area.
I am also hoping that 2018 isn’t the year when investors start fleeing the bond market. Recent research has shown me that many are taking risks that they are likely not aware of- like etfs and even some supposedly “safe” mutual funds leveraging their assets up to provide what appears to be a juicy yield but is backed by debt, debt and more debt. Selling in this area could, in my opinion, get out of hand and actually cause a liquidity crunch as there would likely be few buyers for the sell orders coming in until the prices were drastically lower.
This brings back to mind an interview on CNBC when Karl Icahn was being interviewed along with Larry Fink -Blackrock CEO. Mr Icahn actually said a couple of years ago that he was fearful that Blackrock and others like them could cause a liquidity crisis. I believe now that he may have been aware of this situation back then. Most people believe they can buy and sell ETFs at any time. What we have to remember is there also needs to be a buyer.
If selling begets more selling and margin calls are activated that could lead to even more selling and most would likely be looking to get out of the exit door at the same time. My advice- if you believe this is possible exit now. There will likely be little, if any, warning if this takes place. Like I say- I hope not but if inflation does indeed pick up bonds could have a bit of a tough 2018.
This will likely be a year of surprises- probably some good and some bad- but with a little planning maybe it could be your best year ever!
Mike Savage, ChFC, Financial Advisor
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