Can reality keep up with hope in 2014 ?
Published on Minggu, 19 Januari 2014
06.23 //
Market Analysis,
Market News
By Kirk Spano
The stock market gains in 2013 were largely fueled by hope that 2014's
economy would accelerate. The anticipation was that employment numbers
would continue to improve, the global economy would pickup and corporate
earnings would keep chugging along. That hope — and likely desperation
from those who had been out of the stock market since 2009 — led to
retail investors pumping the most money into stock funds since 2000.
The problem with the hope is that it is largely speculative and based
upon ignorance of what is really ailing the world economy.
As I discussed in a quarterly letter in October 2010, as well as, on MarketWatch in November 2012 and September 2013,
the United States is in a demographically driven depression. Japan,
Europe and China are also in bad demographic spots, and in fact, are
worse off than America. At least in the U.S., we have the "echo boomers"
or "millenials," which is as big as the baby-boomer generation, hitting
the workforce now and starting household formation.
Around the globe, while we know billions want a better standard of
living, economic development is at best uneven. Better development is
necessary to justify the hope that the 2013 stock-market rally was based
upon.
Back in America, employment numbers for December were woefully
disappointing. Despite a 6.7% unemployment rate, the number of people
working in America is about three million fewer in January 2013 than
January 2008, despite a slightly higher population. Today, the labor
participation rate is the lowest in a generation.
In 2014, we know that the Federal Reserve will at least attempt to slow
down on easy-money policies. They are attempting to pull back on
quantitative easing for two reasons. The first reason is to avoid a
negative consequence. As Pimco's Bill Gross wrote:
"The Fed will have to taper, cease and then desist someday. They can't
just keep adding one trillion dollars to their balance sheet without
something negative happening..."
The second reason the Fed is trying to reduce the growth in their
balance sheet is that they hope the economy is firming up in way that
they feel makes continued easy money less necessary. If the economy is,
in fact, on the cusp of organic growth, then the Fed can claim victory
for their policies and move on to a more normal stance over the next few
years.
Interestingly, while I agree with Gross, I also believe that the new
Federal Reserve Chair thinks the Fed can continue with quantitative
easing at some level for years, yet without that feared negative
consequence occurring. If there are any hiccups in the economy, Janet
Yellen, based up on her confirmation testimony, will likely maintain
easy-money policies.
Yellen's set of "what ifs" which I discussed in a recent article,
are substantial. What we as investors must keep an eye on is where
exactly the Fed puts the most importance, avoiding a negative
consequence of easy money or avoiding a negative consequence of another
deflationary period in the economy and markets. The IMF and World Bank both warned about deflationary pressures still in the world within the past week.
As we stride into another earnings season,
we are seeing weakness in quite a few companies, particularly in
forecasts. Already we know that revenues and earnings growth are both
flattening.
Companies face a very uncertain period right now. If they take the leap
of faith and start hiring, they will see a slight fall in earnings. If
they don't hire, ultimately they are harming their own aggregate demand
and revenue. It is a tangled web.
Predicting the next stock-market move is even more unpredictable than
usual. If the Fed continues to taper, then a stronger dollar could very
well cause a stock-market correction. In that case, investors will need
to be willing to sell quickly if they'd like to avoid big losses. Should
the Fed continue to provide easy money and taper more slowly, then
investors will need to be able to access the growing parts of the
market.
For investors who are looking for a strategy, being highly nimble is a
must. Recently, parts of the market have exhibited signs of being
overextended and exhausted. In our quantitatively driven tactical
strategies, we recently sold dividend-paying stocks in the iShares Select Dividend ETF
DVY
-0.23%
and the Schwab U.S. Dividend Equity ETF
SCHD
-0.49%
— depending on custodian. We also lightened up on our S&P 500 holdings in the SPDR S&P 500 ETF
SPY
-0.43%
and iShares Core S&P 500 ETF
IVV
-0.38%
once again, custodian dependent as we use the no transaction-charge ETFs whenever possible.
Right now, I am working with my top subadviser to build upon an existing
five-star-managed ETF strategy. The new tactical strategy will add the
ability to more fully take advantage of macro themes and secular trends,
while offering protection from various global risks and a possibility
of profit from certain negative events.
Professional traders already have the knowledge and experience to know which trading techniques and trading systems could be profitable and which trading techniques and trading systems should be avoided, but professional traders are not looking for a new trading technique or trading system (because they are already trading correctly). New traders do not have the knowledge and experience to know which trading techniques and trading systems could be profitable and which trading techniques and trading systems should be avoided, and new traders are exactly the traders who are looking for a new trading technique or trading system (and even worse new traders are often still looking for the holy grail of trading).
Did you know you can create short urls with Shortest and get $$$ for every visit to your shortened urls.
BalasHapusThere is an incredible new opportunity that is growing in popularity online.
BalasHapusBig companies are paying people for sharing their opinions!
You can collect up to $75 per each survey!
And it's open to anybody from any country!
QUANTUM BINARY SIGNALS
BalasHapusProfessional trading signals delivered to your cell phone every day.
Start following our trades right now & make up to 270% a day.
According to information provided by the National Association of Unclaimed Property Administrators (NAUPA), 1 out of 8 people in the U.S. have unclaimed money... With claims averaging claims of $1,000!
BalasHapusSearch For Available Federal & State Money!