Happy New Year: 2019!!! What to do?
· Do anything other than sit there and listen to the national pundits tell you about the volatility in the market and how bad everything is. Don’t get caught up in the constant news cycle, as they tend to be short-term oriented, and sensationalize to enhance their ratings.
· Remember the importance of history. History teaches us that trying to time markets is a loser’s game. No one, not even the huge institutions, do this well. The only way to make money in the market is a longer term, value oriented, buy and hold approach. As Warren Buffet says, “he tunes out the noise.”
· Ask yourself, what is real?
· Low unemployment
· Slow growth economy
· Corporate tax benefits
· National wages are up
· Low to no inflation
· Cheaper Gas & Oil Prices
These are not the components of a recession that the stock market has already put into its’ lower prices and volatility.
· What are the real negatives?
The real or perceived negatives are as follows:
· A possible trade war with China
· A Fed who blindly raises interest rates to drive us into recession
· A Global Slowdown
· Political gridlock and nothing getting done.
· More domestic and global debt.
Of all of the above possible negatives, most of them are not nearly as likely or as ominous as some would like you to believe. And quite frankly, these risks are always inherent in the equity markets.
We believe that the Fed will only do what is necessary to keep our economy from overheating. There probably is no great time for them to be “unwinding” their balance sheet, but it will have to happen over time. Everyone is so set on their raising interest rates twice more in 2019. I am not convinced. Why? To slow down what? Either way, it neither makes nor breaks us.
Global slowing is a natural part of the business cycle, but business by no means has grinded to a halt, and I think everyone from the ECB to the Fed is conscious of the danger of stopping forward movement on the back of a slow recovery. Additionally, the Fed is aware of the higher carrying costs that will result by continuing to raise interest rates. They know that this makes it harder for us to pay our debt service, and they benefit from our survival, not our demise.
A trade war is bad for everyone. The United States and China are so inextricably intermeshed that the leader would not let this happen. Furthermore, China’s economy is terrible, and a trade war would be a dagger in the heart of their trying to recover. Trade wars never offer the protectionist benefits that feel patriotic and get politicians elected.
Finally, the stock market generally loves political gridlock. The cynical thinking has always been that if the politicians cannot get anything done, they can’t screw anything up! The market loves predictability and hates uncertainty. This entire writing is a long way of saying that, “this too shall pass. “
With warm regards for a prosperous 2019.
Alexander (Zandy) Campbell