Current Thinking with Uncertainty in the Air
There are few things the stock and bond markets hate more than uncertainty. Currently, part of that uncertainty is the unraveling of the European Monetary Union and the impact that will have on us here in the United States.
Since the beginning of the year (see January and April videos in particular) I have been optimistic, but I have to say my enthusiasm for this market is waning. The summer months, historically difficult in themselves, have me concerned with lower GDP numbers, continued unemployment leading to the election, but most importantly concerns about the debt problem in Europe and domestically.
I’m adjusting my portfolios accordingly.
Click to watch my video.
Good morning, Mike Brady with Generosity Wealth Management speaking to you from my offices in here Boulder, Colorado. And I’m recording this on a Friday evening, originally I had a couple of topics I wanted to talk to you about but so much has been in the news recently about consistently down days in the market; J.P. Morgan Chase losing two billion dollars on their propriety trading desk; Europe, France just had an election. Then I wanted to share with you my analysis, kind of my thoughts about that because up till now I’ve been optimistic and data changes, it’s not that I’m not optimistic. As a matter of fact I’m still feeling very good about getting rid of that uncertainty of the presidential election one way or the other. But this summer some more uncertainty has been introduced, I think, to the system, to the world, to our analysis that causes me to really look at things very closely. And this is what I’ve been doing in the last week or so, and will be continuing in the near future.
One of the reasons why I was optimistic is increasing profit margins in our businesses, kind of corporate America. Their very large cash balance sheets ready to deploy when they feel there will be less uncertainty. Because they will deploy in research and development and new staff and new infrastructure but they’ve got to have some kind of confidence that will come back to them in a rate of return. Completely reasonable.
But right now Europe really is becoming a sore spot and that has me concerned as we’re going into the uncertain months of summer. Spain, just to give a little bit of perspective; it’s the fourth largest economy in Europe and the twelfth largest in the world. It currently has twenty-four percent unemployment, and among Spanish youth over fifty percent unemployment. How is this really going to affect Europe? And how is Europe really going to renegotiate some of the arrangements of the European Monetary Union, etc., in the coming months? I don’t know. I don’t know any more than you do but what I will say is I’m reading this stuff and I’m analyzing it very closely and I’m coming to some conclusions that—the uncertainty has me concerned. So I’m decreasing my percentages in the international in general and it’s something I’m watching very, very closely. And I’ll continue to report to you how I’m thinking.
Just to put some perspective on where the markets have been, I’m going to throw up on the screen there (a chart) the Dow Jones for about the last twelve months. And what you’ll see is that although the last four to six weeks have been down and volatile and increased volatility etc. In a long term diversified portfolio, having that strategy- you’re still positive for the year in an unmanaged index.
It’s good to have that because these things that are happening right now, most recently, are always going to happen. The market is cyclical and we can’t get too concerned, too freaked out when it does happen but what we can do is reassess with new data coming in—where should we go? And where should we be, where should we tilt, one way or the other as we’re going forward?
Anyway, if you’re my client you know I talk to you all the time. Of course I want to hear from you if you have any questions or concerns after my video here today. If you’re not my client, if you want a second opinion on what you’re doing I’d be happy to do that. It would be my pleasure.
Mike Brady, Generosity Wealth Management, 303-747-6455, you have a wonderful week. Thanks! Bye, bye.