DANGER SIGNALS ON THE HORIZON?

I don’t usually write on this subject but recent circumstances have forced me to think about it.  Perhaps you’re thinking about it too.  I’m not a maven or an expert on the economy or the stock market, but I have taken notice of a number of comments, trends and warnings that I thought I would share with you.

Writing helps clarify and crystallize my thoughts, as well as helps me to prepare to seek advice.  You may want to do the same.

Here are my concerns about the market and our economy:

  1. The Fed is making noises about raising interest rates. The usual effect of this is likely to send stocks down and bonds up.
  2. The volatility of the market has been more extreme than I can ever remember.

There appears to be a rising chorus of players and economists (pessimists) predicting that a currency and market crash is about to happen:

James Davidson, Nouriel Roubini, Larry Summers, Jim Rickards, Jamie Dimon, Ron Paul, Stanford Research and short seller Bill Fleckenstein each agree with almost all of the following:

  1. Our massive national debt may approach $20 trillion by the end of 2016
  2. World countries (Russia and China) are starting to back off our bonds
  3. The market has been going up on relatively low volume
  4. Margin buying is the highest it’s been since 2007
  5. Price-to-earnings ratios are at an all-time high
  6. Real unemployment is probably at 23%

I believe all the factors I’ve cited above (A-F) are accurate.  It must also be noted, however, that all the people I’ve named who are singing their alarming song are consultants and newsletter publishers who want you to subscribe to their recommendations.

To pursue this concern, I contacted the two investment sources I use to gain their input on these troubling factors.

Conversation with my Charles Schwab Investment Advisor

They share most of the concerns I’ve outlined although they’re not sure there is an imminent crisis.  There is a lot more debt than we had in 2007, but it’s government debt, not in the private sector as it was in 2007.  We have and are seeing improvement in the economy although not as robust as we normally expect.  Commodities are low in price and we are in a currency war right now which translates to imports being up, exports down.

Bottom line expectations from Schwab:

  1. Overall 2015 year end is expected to see a 2-2½% increase in the economy; the Dow down to maybe 16,000. (As of August 24th, the Dow is just about there already.)  Maybe they meant 15,000.
  2. They recommend downsizing their model modest conservative portfolio to 45% equity, 46% fixed income, 4% commodities and 5% cash.

After a week of non-response to my fax and phone calls, Vanguard informed me that their personal advisory services were only available to holders of a mutual fund with at least $50,000.

Wonder why they didn’t tell me that when I transferred my annuities over to them in March?

In just the last week, the market appears to be reacting to the concerns the prophets of gloom are predicting.  Except for the commodities, I decided to go along with Schwab’s recommendations and peg fixed income at 50%.

Let’s hope for the best!

ArtSchwartzSig

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3 Comments

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3 responses to “DANGER SIGNALS ON THE HORIZON?

  1. altstarr

    Most studies show that trying to time the market do not work. “Asset allocation with rebalancing when allocations exceed targets” is the recommended strategy. Tweaking asset allocations is probably OK, but changing allocations substantially in reaction to market perceptions is a market timing strategy that historically does not work.

  2. Paul White

    As you know, I am a bond man (municipals mostly) so my response is always jaded. I remember 1987 with horror. Huge prime rate, AAA bonds over 13% (when you could sell them) and we had to sell the bonds as soon as we got them because the prices fell almost immediately. Of course, both the professionals (me) and the clients (you) lived through it, and eventually made money. At one point several years later, that 13%-AAA bond was refunded, and eventually sold for $1,240.00/ per $1,000 face (and the only reason it was so low was because of the refunding date and price); if it was not refunded, it would have sold for much more. I don’t care who it is, none of us know what is going to happen. The market today closed +640.

  3. Art Schwartz

    I agree with you 100 % and what I’m doing is minor tweaking. At the same time the naysayers appear to be gathering steam

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