Up, Down, But – Seemingly – Going No Where

At least, that’s what it seems like so far in 2018.

I can live with that, but I don’t know if you can. I hope you can. The market was up about 35% from Trump’s election night, Nov. 8th, 2016, up to the last week in January of 2018.  Since then, it has been churning in a period of digestion, or consolidation, of all those hefty gains. Since January 26th, 2018, American markets have been up at most about 7% and down about the same, all in the last four months. This could go on a while longer.  Right now, we’re up a little bit, between 1% and 2%, the kind of return you might get, or could have earned, from a nice ,on-line saving account, without any of the wretched volatility that we’ve lived through these last, four months.

Wait! Am I now subtly recommending that you turn your money over to an on-line saving account?

No, not at all.

However, I would strongly suggest that you have liquid assets, like checking and saving accounts, equal to several months of your needed expenses.  All your loot should not be in markets where values change all day long.

For your longer-term investments, I just hope you don’t lose heart with the amusement-park-like quality of the markets of late – up, down, all around, and going no where other than scaring you. If you’re an investor, you just have to learn to ride this kind of roller coaster.

Moreover, after a long weekend where many of us might have pondered more important matters, like the sacrifice of others for our collective liberty, our markets opened this morning in a hissy fit. It can be tough enough coming back to work after a long weekend, but this time we complicate things with a market noticeably in the red.

Hey, it happens. And it may go on for a while.

The immediate cause of today’s market challenges is Italy, that romantic playground in southern Europe where debt is deeper than the Adriatic Sea.

This morning, the Italians are struggling to form a government (yet again – almost 70 of them since WW II!). The two, extreme parties that polled best in the country’s recent election, parties seen as populist and hostile to the European Union and the euro, tried to form a ruling coalition.  But in Italy, unlike in America, the winners’ plans to form a coalition must be submitted to elites for approval. Well, the elites do not like the people of Italy questioning the EU or the euro, so the winners’ planned coalition has been nixed by the elites. (Can you imagine that happening in America?  Say, someone like a Donald Trump wins the Presidency, but an elite group – maybe, in America, made up of the press and opposing politicians, try to deny his elected legitimacy?  It could never happen in America, could it?).

So, these nasty, populist vs. elitist developments in Italy have fueled “risk-off” markets for now in Europe that have carried over to America and global markets, which are contending with their own already, basket full of ongoing uncertainties surrounding trade matters, diplomatic dealings with North Korea, and brewing challenges for emerging markets due to the strengthening dollar.

But of all these things, it is Eurozone matters that are the main driver of the feeling of market dis-ease this morning. Not surprisingly, yields for the 10-yr Italian treasury bond climbed almost overnight 39 basis points (or over 1/3 of a percent) to 3.08%.  Which to me, by the way, editorially speaking, still seems like a bargain.  We’re talking about Italy here, after all. America’s 10-year treasury early last week traded at 3.10% – two, one hundredths of a percent MORE than Italy’s treasury yield today!!! (America’s now at 2.88%, because of investors seeking a safe haven away from places like Italy). Would you rather own a ten-year Italian treasury or a ten-year US treasury? Which do you perceive to be the safer bet for the next ten years?  I’d put my chips on America, in spite of all our problems. But in Italy’s case, the more than a 1/3 of a percent rise so quickly is the ominous part.

The latest Greek, or I mean, rather, Roman tragedies for the eurozone are not new. It is sort of like Mt. Kilauea, in Hawaii, which has been active for a long time, but is now erupting again and catching everyone’s attention.

There has for a long time been an active lava stream of concerns about the survival of the European Union and the euro.

From time to time, those concerns erupt and leave everyone wondering if the end is near. This is, again, now likely the start of one of those times, but like the tourists and residents of Hawaii taking photos next to a lava flow, things are still at a stage where there is more wonderment than true fear the European Union is cratering.

In any event, to shift to the brighter side of investing for a moment, what’s going on in Europe could also be seen as a positive for the U.S. market. America certainly has some nasty political hangups, but the U.S. already has, and lives by, a regular and peaceful transfer of power, has an economy that is running relatively well right now, and a stock market that is exhibiting relative strength versus many other developed countries’ markets.

So the year grinds on.  “Sell in May and go away” has not proven the best of advice for investors this year.  But it’s only May 29th, and the market has today and two more days to play out.  It could get better. Or worse. We never know. Last year, everyone wondered, “Where’s the volatility?” Well, it turns out we were saving it for 2018. It’s here. It’s now.  But don’t let it scare you into making foolish choices with your long-term investment funds. Yes, you need short-term liquid funds to pay your bills.  But longer-term, you need equity-oriented investments that will help you with inflation and in growing wealth for later life.

God bless you all.


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