The first half of the year is over, and the year has been up and down on an almost weekly basis.
There are reasons to be positive, and pessimistic.
In this month’s video, I outline why you should be optimistic, and reasons why you can be concerned. In most areas of life there are pros and cons, but the question is which one wins out on balance.
In this case, and I outline this in my video, the positives outweigh the negatives.
But that being said, the fundamentals of reaching your goals remain the same–diversify, have a long term vision, and keep your emotions in check.
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Transcript of the video:
Hi there. Mike Brady with Generosity Wealth Management; a comprehensive full-service financial services firm at headquartered right here in Boulder Colorado, although I’m recording this video from our cabin in Wyoming. Hopefully you had a wonderful 4th of July, maybe you took the whole week off. I came up here for the whole week it’s kind of an annual tradition and it allows need to get some business projects done, but even more importantly to get away from the hustle and bustle of the daily life, get my emotions in check, which is of course one of my big recommendations for my clients and for investor.
I’m going to cut right to the chase of today’s video because it’s going to be a mid year report, but the fundamentals of investing and being successful in my opinion have stayed the same, which is to stay diversified, be long-term and keep your emotions in check. That’s one of the fundamentals and I just think that that’s absolutely important.
Today I do want to talk about what’s happened so far and talk about the reasons for being optimistic or pessimistic for the rest of this year. Nobody knows the future. I certainly don’t so this is my analysis so this is one of the reasons why those three that I brought to you, be diversified, long-term, keep your emotions in check are so very important because when someone says they know absolutely what’s going to happen, the impact of this policy or that policy they know exactly what’s going to happen they’re lying to themselves, they’re lying to you and so I don’t think that anyone is well served by that particular approach. So here so far this year the market was up pretty dramatically in January, continuation of low volatility and good market in 2017 coming into 2018; February and March very difficult. And then the second quarter recovered as some of that, but really was really more in general in the unmanaged stock market indexes and bond indexes basically a flat year so far. Plus or minus a couple percent in my mind is flat.
I’m going to throw a chart up on the screen where you’re going to see is we’re in a consolidation period. The markets go up, down and sideways and so far this year it’s a sideways. It’s always irritating to have; everybody wants the up with no volatility and that’s just not the world that we live in. What we’re seeing right now is a time where patients makes a lot of sense. Those are the people who are rewarded long-term and so remember that as you look at your particular investments and your particular approach.
Now, I’m going to put a number of charts up on the screen and I’m going to talk about some of the reasons to be optimistic, some of the reasons that things could look very good. So let’s go through them. The first one is strong U.S. economy and that’s shown a really above average pace with tax cuts, higher government spending, ultra low unemployment rate, the biggest increase in business investments in years, we’ve had an earnings per share that’s very high and the Fed is normalizing monetary policy, and the last is equity valuations are not as pricey as they were just a couple of years ago. And so this is a good reason to be optimistic and in my opinion, I’m not going to lie to you, the pros outweigh the cons. Here are some of the cons: The price of the oil is back up high in the last year or two; it’s around $75 for a barrel. However, I will also put it into context that it is where it was three years ago and lower where it was four years ago and I don’t remember the stock market being horrible during that time frame. Always up and down that’s just part of the deal, but it is not a travesty. Excessive fiscal stimulus in a full economy could lead to an overheat. Got it. And then the third is the tariffs, which I want to talk about here today.
Tariffs over the last number of administrations they have talked about how the barrier to entry, some of the costs of doing business with other countries is greater than it is here. It’s easier for people to import it into the United States than it is for us to export to other countries. That’s what the tariff discussion is all about. So the discussion is out there, has been out there for a long time, the question is what do you do with it? So one of the reasons why, and I’ll jump to the conclusion on this too, while it’s an irritation it’s a wrench into all of the pros that I just brought up it’s not necessarily a deal killer and the U.S. could actually win on it. Some people say they know absolutely this is horrible for the U.S. or they say it’s absolutely horrible for other countries. The bet that President Trump is making is that others will blink before the U.S. will or before he will. And so one of the reasons why that might be the case is the reliance that other countries that we have had these discussions with and imposed some tariffs on are much more vulnerable than we are. Their stock markets are not doing as well as ours are and their economies are not doing as well as ours. We are the strongest out of all those that we have imposed these tariffs on. Our exports are 12 percent of our economy, whereas in China it’s 20 percent, in Canada it’s 1/3 and in Germany it’s 50 percent. They’re much more reliant on exports to us and to other countries as we are exporting to others. So we only do 12 percent of our economy is based on exports from the United States because we have such a big country, we have such a vibrant interstate commerce from city to city state to state that we are less vulnerable than many other countries.
And so that’s why when I weigh something negative like the tariff discussion and wars against all of the positive it’s the net still going towards the positives than it is on the negative. If you’re only focused on the negative, sorry you’re going to be very disappointed and of course you’re quite dark about that. I on the other hand want to balance both of them and that’s why I’ve come out net on the positive. So I’m optimistic for the rest of this year. I’m not making any changes wholesale in client portfolios, in my discussions with clients, et cetera. Sticking with those particular fundamentals it’s served us well the first half of the year, I think it’s going to serve us well the second half as well. Be diversified long-term, be cool, cool as a cucumber.
Mike Brady; Generosity Wealth Management; 303-747-6455. Give me a call at anytime. Thanks. Bye bye.