The Rest is Noise – Peeling Back the OnionBy Bob Andres | Sep 10, 2015
For the past few weeks the markets, stocks in particular, have seen days of extreme volatility, rapid price movement and increasing uncertainty. It is at times like these that we hear industry buzz words such as illiquidity, flight to safety, risk-on/risk-off tossed about like peanuts at the ballpark. And while there are clearly important issues and events impacting global and domestic markets, (China, the FED, oil, Greece, the Dollar), it is essential to decide if you are a trader/speculator or an investor and re-assess your current position and your financial goals. Professional traders and many portfolio managers live and die by sound bites and exist in short term time horizons. Individual investors have longer-term goals and are better served ignoring all the noise.
Below are a few points that I believe reflect market reality:
- Rising interest rates are an outgrowth of rising inflationary pressures generated by above trend economic growth not the Fed
- Q1 – 0.6% – Q2 – 3.7% – Estimate for Q3 – 1.5% = 1.9% – Inflation (PCE) through July was running at annualized rate of 1.3% – Anyone see an economic justification for a Fed rate increase?
- Look to the bond market as a guide in forecasting economic growth and inflation. Results will be far superior to the consensus, and the Fed.
- Fed action in September should it occur will have nominal consequences on markets.
- Purchasing overvalued securities expecting them to increase in value is speculation not investing and will lead to disappointing results.
- Avoid the consensus – they’re wrong 90% of the time.
- Invest knowing your investment time horizon and your personal risk parameters.
- Stock pickers will make a comeback at the expense of indexing investing as uncertainty and volatility increase.
- Without a serious correction spreads between equity and bonds returns will be a lot narrower than most anticipate over the next five years.
- Central Bankers and market bubbles are conjoined and that always means trouble.