Welcome to the 02-22-2018 update from your Pocono Summit Certified Financial Planner and retirement planner, Mike Savage. Today, Mike covers smoke signals in the stock market and the large number of Americans using food assistance and Medicaid.
I started writing yesterday about the effects of the Fed’s minutes on the markets. Since I can’t get this note out in real time I believe that my commentary was a rehashing of action that had already taken place and was not really full of any insight.
After the Dow dropped around 500 points yesterday afternoon from +300 to -200 or so the major averages seem to be stabilizing a bit today. After the government bond yields spiked up yesterday they seem to have calmed down a bit today also.
Is it that market participants have digested the information and now figure that all is well again or are the central banks just buying certain assets again to give that illusion? My guess is the latter.
Gold and silver seem to have stabilized also as I am writing this on Thursday morning.
It appears that many people are convinced that this market will not correct in any meaningful manner and are fearing that they may miss out on the next move up. While this may or may not be the case the level of risk in the stock, bond and real estate markets are off the charts from any historical perspective you may wish to use. There are all time highs in margin (loans to purchase stocks), record buybacks of companies own shares, massive central bank “printing” and purchasing of certain assets- namely stocks, bonds and real estate, the capping of gold and silver prices with paper contracts and a general mispricing of all assets because of central bank interference in virtually all markets.
In English- this is all fake. No different than the Soviet Union in the 1980s when their “news” agencies put out propaganda of how great things were. Of course, those living there knew the truth- as many here also do. Many people ask “Where are the bread lines?” You don’t see them because now people use SNAP cards. Credit cards to eat better than many who earn money on their own. How many? How about 41.3 million people receiving food assistance. That is 14% of our entire population. (US Debt cloc.org)
If anyone knows anything about Medicaid it is what pays medical expenses when you are literally destitute. How many qualify for that? 75 MILLION- or 25% of our entire population has no net worth at all. (US DEbtclock.org)
The median income in the USA is $31,000.00. Who could possibly live- other than subsisting- on that?
Somehow I am not buying the “all is ok” theme. The only way that this has been able to be sustained for so long a time is that as we have added unbelievable amounts of debt the interest rates have remained low and has allowed many countries, counties, cities, states, companies and individuals to continue adding to their already stunning level of debts.
That tide is now turning. Interest rates appear to be heading up. What was a 35 year tailwind for financial markets is now turning into a headwind. Rates remain historically low but instead of a vigorous push to financial markets it may be a light breeze right now. If rates continue to increase it may turn into a storm into which the markets will have to retreat.
Virtually all of the games being played in the markets are a result of money from nowhere which has led to artificially low interest rates, artificially high asset prices and no consequences for the most egregious of errors.
How will this end?
My guess is QUICKLY- when it happens.
Those in Weimar Germany were asked “How did it happen?” regarding the hyperinflation of the time. The answer is one you may want to pay attention to: “Gradually and then all of a sudden”.
The gradually part is apparent to me as rates are moving up, volatility has returned to the stock markets, mortgage applications are cratering as rates rise and price many out of the housing market. Of course, housing has been rising far faster than incomes for years so that is an asset class that is due for a major price adjustment also.
My opinion is that the only assets that are really undervalued here are gold, silver, miners and some currencies. Of course, there are always some stocks and certain bonds that may offer a decent value even if the majority are overvalued. There may be areas where real estate is also a decent value. Nothing is absolute.
The fact that the Fed’s words can have such an outsized impact on our markets is testament to the fact that many know that the markets are far from what they were intended to be- which is a constant barometer of what correct pricing should be with a willing buyer and a willing seller. Instead, we have a group of markets that are constantly being maneuvered to give the “right” signals as opposed to “real” signals about what the state of our economy and markets really are.
I always say that every fraud sows the seeds of its own destruction. While it may not be apparent at this time what these seeds may be it will be all too apparent in the near future. As markets rise there is a fear of missing out and many signs are just plain missed.
There are signs all over the place that this is not a healthy situation. I hope that anyone who is reading this has taken steps to diversify and also shift some risk to others if possible within your portfolios.
If you haven’t acted yet- let’s have a chat!
Mike Savage, ChFC, Financial Advisor
2642 Route 940 Pocono Summit, Pa. 18346
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