02 Oct Walking a Tightrope
Many of you may feel investing in the market today is not all that different than how Nik Wallenda might have felt as he was crossing Niagara Falls this summer — one step away from disaster. On the other hand, I tend to think Nik’s only concern was moving one step closer to success.
It’s always easier to concentrate on what could go wrong when we are constantly being bombarded with negative news, thus we tend to lose sight of some of the good things happening around us, such as:
- Interest rates are near record lows, allowing businesses and individuals the ability to refinance higher cost debt.
- Housing is experiencing an improvement in both sales and pricing.
- Energy prices are declining, a huge benefit to consumers and manufacturing. There is even talk of the United States becoming energy independent in the future thanks to shale oil and gas.
- The average age of automobiles on the road is at a record high, a catalyst for improving sales.
- Credit is being relaxed, particularly in the states that were less affected by the housing boom and subsequent bust.
- The political season is nearly over and hopefully we get more compromise from our elected officials.
Now I’m not naïve to the risk confronting our economy; the Federal Reserve is not keeping interest rates near zero for nothing. But just because the news appears bleak does not mean the stock market has to act accordingly. I will give you three examples where the economy was great but the market had other ideas: 1987, 1999 and 2007. In each case the economy, unlike today, was humming. Investor confidence was high, risk aversion low and stock prices were on a tear. The mantra at the time was ‘don’t worry be happy’, then the bottom fell out. The three worst market declines in the last twenty five years had the same things in common: great economy, too much enthusiasm and too little regard for risk. Fast forward to today, you can hardly give stocks away. There is so much fear and anxiety that people would rather earn zero on their cash and money markets than invest in the stock market. Some are virtually guaranteeing themselves an unsatisfactory return over the next ten years by loaning it to the U.S. Government at an incredibly low 1.60%. The kind of dangerous behavior normally exhibited at market tops is just not present. Does this mean we should throw caution to the wind? Of course not, there will always be nerve-racking corrections and no one knows how our government officials plan to get out of the mountain of debt and future IOU’s that have been piling up. However my choice is to be like Nik Wallenda — moving one step closer to success by investing in a portfolio of carefully selected and reasonably priced companies serving the daily needs of an aspiring and growing global middle class.
Please let me know if I can be of benefit.