I think of today’s video as my “mid-newsletter” thoughts, as I want to be timely in my communication with you.
The stock and bond markets have been more prominent in the news lately, and I want to share with you my analysis.
So, is it jumping off the ledge time, or is this just a part of the cyclical nature of the markets?
Watch my video to find out my opinion.
Hi there. Mike Brady with Generosity Wealth Management, a comprehensive, full service, wealth management firm headquartered right here in Boulder, Colorado and I wanted to send out this video because there’s been a lot of news recently about the global sell off and yields and bonds and China, et cetera, and I wanted to bring you up to speed with where it is and also, just to make sure that we’re all on the same page.
The very first thing is — step away from the ledge. Everything in my opinion is going to be all right and this is a normal thing that happens. The markets are cyclical, which means they go up and they go down. Nobody really worries about things and everyone goes on with their daily lives when things are going up. When it starts to go down a little bit, people really start to freak out but it is part of the natural cycle of the market but this most recent one, I think, has been started by a number of different factors.
The first one is just some concerns about a tightening monetary policy, both in China and in the United States. Over in China, there’s a concern that they’re having a credit crunch and that money will not be loaned out in order to continue their great growth. That has really been harming a lot of the Asian markets, leading over to Europe, which is already sick and then leading to the United States and then Bernanke last week said that he is also putting out a blueprint – an outline for a tightening monetary policy or maybe not so much of a tightening one, but not as loose as it has been, which of course, leads to from that point of view, a tightening, so I’m going to put up on the screen here, if you could look at it, it is normal for there to be a intra-year decline in the unmanaged stock market indexes. That is normal and as you can see, I’ve just focused in there a little bit, and sometimes they’re double digit returns. It does not mean that the end of the year ends negative, okay, so that’s just real important that in an up and down market, things do go down at various points and I do think that this is an overreaction. That’s my opinion.
The next chart that I’ve thrown up there are historical returns by holding period and you’ll notice that in the left hand side is the one year, the range of going back many, many years, going back to 1950 that the range for one year is very high but then as we go up five year, 10 year, 20 year, the ranges have a tendency to get smaller, so the longer a time horizon, historically at least, the smaller those ranges are and it has a tendency to work itself out.
This next chart here are the stock markets since 1900 and you’ll notice that keeping the big picture in mind, there are some times great movement on the upside, sometimes on the downside as well, but you’ll also notice that those little tiny blips, et cetera, are what they are, just blips right there. I think that having a well diversified portfolio, while it does not guarantee any kind of an outcome or an absolute return one way or the other and many times, it has a tendency to go down in a generally trending market. It is appropriate for most people and if you’re my client, we of course, have talked about what portfolio and what managers might best meet you with your goals and your risk levels, et cetera.
Remember at the beginning of the year, I talked about how I felt that this was going to be a trading range type of year to two years and I was surprised by how strong things have looked over the last five to six months. Part of that is being a correction right now. You’ll also remember that I talked about China and Europe being sick and how they might spill over into the United States and I think that we’re seeing some of that right now. What’s interesting is the sharp decline in bonds, which would mean that their yield is going up and we’re just kind of quickly show you a graph there. This is the last five years of the 10-year note and in this case, down on the yield is actually good from a price point of view. Up is actually bad, so it’s kind of a funny chart in that regards. If you’ll notice that most recently it has swung up but – so that means that the price of things going down and so you know that’s just kind of what happens, you kind of see the whole chart there. It does go up and down. I don’t think that we should necessarily freak out. These things do happen but I will keep you informed as things go on.
Mike Brady, Generosity Wealth Management.
Give me a call if there’s anything that I can do to explain a little bit further. The end of the quarter is in just a few days. I’m actually doing this Monday afternoon. The market is down today. It’s very possible that the quarter will be negative, so the year-to-date, hopefully, will be positive but it’s very possible that this quarter will be negative for both the stock and the bond market, et cetera, so we’ll have to see how things turn out. If something dramatic happens later this week, I will send another video out. Otherwise, the next video you receive from me will be my quarter end review and my quarter preview for the third quarter, so anyway. Mike Brady, 303-747-6455. You have a wonderful day. We’ll talk to you later. Bye-bye.