The 2nd quarter distinguished itself by significantly increased volatility and ultimately seeing the unmanaged stock market indexes down.
Those same market indexes are still up for the year, and it’s my belief they will end the year positive, but with continued volatility.
November is the big election here in the United States, and regardless for whom you feel is better and hope will win, the market likes a reduction in uncertainty. At that point, at least some semblance of planning can be done for a few years by the private sector as it analyzes the tax and regulatory environment it may find itself.
Europe is unwinding, unemployment is still high, and Asia is slowing down. Profitability is high in our largest companies, cash balances on large multi-national corporations are huge, and creative destruction is in full bloom.
All adds up to some volatility.
Watch my video for a more detailed discussion
Happy 4th of July to you! Mike Brady speaking to you from Generosity Wealth Management here in Boulder, Colorado; and happy summer to you. Here for the second quarter review and the third quarter pre-view. Second quarter was a difficult quarter, okay? I don’t want to minimize that impact. May was just an absolutely brutal month. June recovered from some of that but not enough to make the unmanaged stock market indexes positive for the second quarter.
If you look back three months ago, one thing that I said is that I believed that volatility was going to increase, and it did. It did in fact increase; we saw a much more erratic market in the second quarter than we did in the first quarter. The unmanaged stock market indexes are still positive for the year. Three months ago, six months ago, I said that I believed 2012 was going to end as a positive year for those stock market indexes and I still believe that is true today. That does not mean you should not have a well-diversified long term strategy in your portfolio- you absolutely should. I think that’s important for every client.
Now as I look forward to the third quarter, there’s going to be a lot going on, particularly as we lead up into the election. The election is, of course, the first week of November, so we’ve got the third quarter leading up to it with the convention and all kinds of hype. But we also have, if you’re looking for things to be negative about; you’ve got the looming Iran crisis; you continue to have Europe problems with Spain and Italy; you’ve got China showing a slow-down and many analysts saying they’re going to have a huge correction at some point in the future; (who knows if it’s going to be third quarter or not.) But the you also have, not this quarter but in December, you’ve got the expiration of Bush Era tax rate cuts. And so they’ve been extended and now it’s come due again and it’s going to be in that after-the-election-but-before-the-inauguration and that’s kind of a big thing going on this year, between now and the end of the year.
On the flip side though, companies have huge cash balances, companies have been very successful at reducing their costs. So one of the positives of being very lean and mean and efficient from a company point of view is some of their fixed costs, like a decline in oil in the gas prices, can have a major impact on their profitability. And so I believe that’s a positive trend for these companies. Plus, they’re dealing with lower expectations. There’s a lot of bearish sentiment out there, so that’s lower expectations that they have to meet. One of the most recent studies has shown that potentially the housing crisis has hit a bottom, the prices. And so I think that it’s going to kind of stoke the stock market a little bit more.
I do continue to believe that the end of the year is going to be volatile, but it is going to end positive. You’ve got to remain diversified. I believe you should meet with your advisor and hopefully that’s me if you’re one of my clients, to find a portfolio that works well for you, that meets your long-term goals. I’ve said this time and time again, that one of the best things that you can do, and hopefully you can do that with your advisor, is figure out, you’re at point “A”, where is point “B”? How do you get there? What plan works for your risk level? With all the variables, so that you can have the life style that you want upon retirement. Or if you’re already in retirement, that you can not out-live your money. All the kinds of variables add up together. If you do have a long term strategy, frankly, month-by-month, quarter-by-quarter, these things are just data points and so I hope that you are sleeping well at night because someone is worrying about it on your behalf.
You are always welcome to give me a call, Mike Brady, 303.747.6455. My e-mail is firstname.lastname@example.org www.generositywealth.com is my web site, I’d love for you to go see that. Hope you have a wonderful 4th of July. Not sure exactly when this video is going out, hopefully it is going out Monday afternoon, maybe it’s going Tuesday, I’m not sure but I’m recording it Monday, July 2nd. And like I said, I hope you have a wonderful 4th of July. We will talk to you later, bye, bye now!