Record Low Interest Will Come to an End
The US is enjoying the lowest interest rates ever (for those that can qualify for a loan) and banks are even enjoying it more. It still boggles my mind with these type of interest rates, we are still seeing rather flat (slightly increasing) home prices. In most time periods, available financing of this type would send prices sky high, as people raced to lock in rates. However, being the complex market we are in right now, we are seeing the home price market flat.
The fact is, eventually these rates need to come up. This is how the economy works. Bill Grossman thought this would have happened last year. He was wrong. It is impossible to speculate the When, but be sure, when inflation begins to show its head, the Fed will be quick to respond. At that point, watch out for real estate. I do not want to see how a housing market responds in this economy with 6-9% interest rates.
I think it is safe to assume that neither Republicans or Democrats are evil enough to let this thing happen, so I am sure we see a resolve before the deadline. In the end, the republicans will most likely budge and forfeit tax hikes for higher wage incomes. Either way, we are heading toward an era of higher taxes, which in turn will directly effect businesses. Commodities, utilities, and gold have to look good to me, as any tax hikes will be sure to slow industry and tighten credit.
Sometimes it seems like it's never ending. Between Iran, Israel, Palestine, and the European debt crisis, there is much to be cautious of when looking globally. Any jolt to either economic or act of war is sure to make markets uneasy. Right now, it seems as though investors are comfortable with the uneasy conditions, but this could change over night with an unforeseen event.
It is a dangerous time to be in the market right now. We will see a lot of changes in 2013, both in policy and in economy. As for now, and I remaining very conservative in my investments, at least until the forecasting fog settles a bit.
This election, more so than past, especially has created a debate among Wall Street as to how the market will respond. Most energy and manufacturing prefer Obama. Investment and banks want Romney. Either way, whomever does get elected is sure to cause some volatility in the markets for a short time. This should stabilize going into 2013.
Regardless of the outcome of the election, there are still 3 main economic factors that success in equity markets hinge on. They are:
EUROPE HANGS ON
Many believe that credit turmoil in Europe has already been factored into our markets. I strongly disagree. We continue to prove that we make investment decisions in a very "reactionary" process. If credit defaults began to occur in Europe, you better believe this will hit home and strong. There is nothing worse for the US than a big reminder of what carrying a lot of debt can do to an economy. To keep a favorable trading market, we need Europe to hang on.
The topic that is on everyone's mind, except that it has been the topic of political discussion. There is a reason why both candidates focus so much on it. There is not a more influential stat that is reported than the Unemployment rate. Most people can't tell you what our GDP growth was this past quarter, what the Treasuries are trading at, or even what current interest rates are at. However, most know the current national unemployment rate. It's all fun and games until you lose your job... This directly effects investor sentiment. We have been slowly pecking away at it, but we need some acceleration. This last month, we saw a drop in the rate, but only because of people actual "leaving the workforce" and no longer looking for work. We added less than 100,000 new jobs, which won't cut it. Unemployment is the weight dragging behind market momentum, continually slowing it.
ACTION FROM THE FED
Time and time again we see the Fed pop in just when things are about to get real scary. After the most recent employment report, reports have been buzzing with the rumors of another stimulus in the works. Despite what the outcome of the stimulus might be, history has proven that markets love a stimulus. Though it may be short lived, we usually enjoy a nice little bump across the board.
This season of trading will keep you on your toes. The election is looking to be a close one and many are sitting back and waiting, including Wall Street. Keep your tabs on the above influences as they can greatly sway markets one way or the other. Happy Trading.
Thank you for your patience as I continue to try to find time to give updates on the site. Thanks to everyone who has reached out to make sure I am still alive, haha! All is well, and hopefully I get the opportunity to converse with many of you.
As for an update, I am pursing my MBA and am enjoying the opportunity to dig even deeper into financial markets and strategies. I have been lucky to work closely with faculty and staff who have extensive experience in portfolio trading and a long resume in market studies. It has been very interesting digging into market efficiency and really looking at the data and concluding if abnormal gains in investing can be accomplished and repeated and how... The results are very interesting. I will be sharing a variety of strategies and portfolio theory that we find and study with all of you as well as implementing these strategies in my account and sharing them with you.
Markets have continued to act unique this past year as it has since 2008. However, we are still finding many existing and new strategies are finding a lot of success in current trading environments. There are a variety of new portfolio strategies in today's market that allow for diversifying against non-systematic risk in portfolios. We are also seeing momentum trumping several past fundamental valuation methods.
The past two years, we have seen just exactly why fallen Angels small cap stocks are the optimal choice for portfolios rather than value growth stocks. Rebounds in companies such as Las Vegas Sands, Citi, and Wynn show just how profitable being 0n the right side of these rebounds can be.
I am excited to reignite some passion with the readers of this site... I look forward to some great gains and strategies for this year and hopefully we can share in the success that the markets are sure to bring this year. Happy Trading!
It is the week of all weeks for retailers. In fact, I find it comical to browse around online retailers to see that the norm has now become "Black Friday Week." Retailers are riding the black friday train as long as they can. Some, like Amazon, keep the party going a whole week after. For many, 40-50% of their profits will be earned in the next two months. That can be a big gamble if consumers are tightening spending a bit, which recent data is showing.
It is continually the big elephant in the room. On one hand, because of China, interest rates continue to remain at record low levels due to the large supply of treasuries they continue to buy (and the Fed). On the other hand, China's aggressive currency valuation and manufacturing is definitely starting to be felt in US businesses and has been for quite some time. So what is the answer?
Yesterday, President Obama announced that the US would be beefing up the military presence in Northern Australia, that man believe sends a message to China that the US still owns the Pacific.
Recently, I have been able to get two sides of the story as well as two perspectives and how we should go forward with our relationship with China.
First, I attended a presentation given by Joshua Cooper Ramo of Kissinger Associates, who has been nearly a diplomat of China and has lived there for over 10 years. He has recently written a book called "The Age of the Unthinkable," which talks about China in more detail.
Essentially, Ramo talks about the rising power of China and how, because of the population and buying power of the upcoming middle class, a mutual beneficial relationship cannot be ignored. He addressed many of the concerns and preconceived prejudices that many Americans have of China, as well as tried to dive into the culture of China and why they react a certain way to things.
Ramo feels that the next generation of China brings much more diversity and "free thinking" than does the current Communist party. He feels that as China continues to accept capitalistic companies into the country and with the help of social media, these barriers will continue to break down. He feels that if the US can make a mutual relationship work with China, it will be the best decision the US ever made.
However, there are always two sides to a story.
Next, I have listened to the words of Peter Navarro, a professor of Finance at The University of California Irvine and the author of the book, "Death by China." In this book, Navarro breaks down the manipulation and fraud of Chinese leaders in which directly effects both the health and economic well being of the US. He talks of the hacking, spies, and theft that occurs daily as well as the military threat as China continues to build their forces.
He also discusses the fault of the government for allowing many of the problems to happen. China allows almost no imports into the country, but exports more than half of the world's goods. Many factories in Detroit, Chicago, and Kansas City have been closed down and replaced with factories in China.
Navarro believes that unless something is done to regulate how China conducts business, especially within the US, we will suffer many consequences, as will our children.
You decide. How does the US go forward with their relationship with China? The fact of the matter is, that China does hold the largest middle class population and will have only more consumer buying power in years to come. As China continues to develop and become more urbanized, without a debt there will be extremely large opportunities there. The question is will US companies be able to take advantage of it. Some already have. This is why I continue to be bullish in Chinese companies. Happy Trading.