Happy New Year once again.
The market stumbled today, Tuesday, January 16th, but I doubt very much that where it finished yesterday or where it got intraday today – over 26,000 on the DOW – will mark its high watermark. Rather, I think the market just needed to take a breather. It’s earned it with the start it’s had out of the gate in 2018.
Much of its upward thrust is due to factors beyond America. We’re in the midst of one of those rare worldwide , synchronous economic recoveries. The last one this strong goes back to when Eisenhower was President. Almost every country is participating – Europe, Japan, the U.S., even smaller places like Vietnam.
In America, Donald Trump may have turned many people off for his tweets, his childish behavior, and his fragile, needy personality. But, boy oh boy! have his policies of tax relief, deregulation, and economic optimism ever driven our markets north!
Markets are often described as being driven by either fear or greed. For so many years this new century, ours and many others around the world have been driven by fear. Fear of recession, fear of another market collapse, fear of ISIS and terror, and much else. It has been a long time – probably going back to 2000 – since our markets and our economy has been driven by greed. Well, we’re there again. John Maynard Keynes called it “animal spirits.” And those spirits are once again running wild like the bulls in Pamplona. If the Obama people told business, “You didn’t build it.” Trump’s policies tell them, “How can we help you build it?”
As a Christian, greed is a source of significant concern. But its presence in this imperfect world is also very helpful in encouraging investment and job growth, along with better returns on retirement portfolios. So, greed can do some good. It won’t last; just like excessive fear won’t either. But a sign of the greed running wild today is the phenomenal rise and current fall of bitcoin.
I’m not sure I can intelligently describe bitcoin. Frankly, to me, it’s seemed like an attempt at creating an inexpensive replacement for air. It has no revenue, makes no profit. It is purely a speculation, like tulip bulbs once were in Holland, that has been undertaken by a seedy group of techies who were, at first, trying to skirt the law. Now, it’s invested in by people who, I find, don’t understand economics and don’t know when they’re gambling recklessly. A lot of millennials who distrust capitalism in conventional markets and corporations seem to feel comfortable with bitcoin as their “stock” of choice. And interest rates have been low enough long enough – more fuel to power greed! – to facilitate bitcoin’s wild ride over the last year or so.
As I say, greed will not be riding tall in the saddle forever. But I see no end to it this year, short of what may happen in the mid-term elections. Of course, No. Korea could change things quickly or a successful terrorist strike or an EMP (or an electromagnetic pulse) or the unexpected bankruptcy of some sovereign nation. For sure, right now, if I had to pick one area where I think problems might arise up ahead it would be debt related. Not so much personal debt or corporate debt but government debt. There’s just too much of it, and too much that we cannot pay for, yet people want – and seem to get – more and more entitlements.
So enjoy the moment. No, that’s not a veiled threat I see. Again, I really don’t see an end to the good times any time soon, and the positive effects from the tax changes are only beginning to enfold. Best advice I can offer you, my friends, is to stay invested in a broad array of low-cost, no-load funds and ETFs, running across equities, domestic and foreign; include some short term bonds, real estate, emerging markets stocks and bonds, maybe even a little bit of commodities. But stay away from bitcoin, or if you must indulge, limit your investment to no more than 1% of what you have to invest, an amount you must be able to lose totally.
Understand your risk tolerance. Don’t get too far out over your skis; meaning, make sure you’re sleeping at night. If you’re feeling anxious about your investments, that’s a sign you’re taking too much risk. The last few years has brought too many people into stocks who are, at heart, savers. They left bank account because they pay nothing. Stocks are not CDs or bank savings accounts. But when things unwind, earning nothing can be much better than losing 25% – unless your temperament can stand losing 25% on paper and hold on until things turn around. Not everyone can.
God bless you this year. Do good things, and don’t focus too much on money.