Market Alert May 12th, 2018: Party Like It’s 2019!
We specialize in retirement planning, and our two goals for our clients are for them to have financial peace of mind and for their money to last as long as they do.
Our investment philosophy of Buy, Hold, and SELL! Is designed to give us unlimited upside with a tolerable downside.
- The Yield Curve is the flattest it has been since 2007.
- The Financial Flood may come in 2020.
- We continue to stand by our Fearless Forecast of Dow 26,500 by the end of 2018.
- According to Ned Davis Research, the average bear market is a drop of 37%. The S&P 500 index fell 49% in the bear market of Y2K and 57% in the bear market of 2008.
The Yield Curve is the flattest it has been since 2007.
The Yield Curve, which is the difference between short-term and long-term interest rates, is the flattest it has been since 2007, just before the stock market crash of 2008. This means that short-term interest rates have risen to almost equal long-term interest rates. When short-term interest rates are higher than long-term interest rates, this is called an “Inverted Yield Curve.”
As the Federal Reserve continues to raise interest rates, you will probably see and hear more about the Inverted Yield Curve in the coming weeks. Over the last 50 years every time the Yield Curve has inverted, a recession and a bear market have followed.
According to SEI, once the Yield Curve has inverted, the stock market usually continue to rise an average of 10% over the next 12 months before the bear market starts.
According to Ned Davis Research, the average bear market over the last 50 years has been a 37% drop in the S&P 500 index. However, the bear market of 2000 saw the S&P 500 index fall 49%, and in 2008 the S&P fell 57%.
The chart below shows you how far the S&P would fall if any of those three outcomes were to happen from the high on January 26 of this year.
It also shows you how many years of gains each one of those three scenarios would wash away in the Financial Flood.
To put it in perspective, an average bear market would see the Dow falling 9,848 points from its peak on January 26, 2018.
- Do you have a plan for what to do when the next market crash comes?
- Do you know if you have enough money to retire?
- What are 5 strategies that you can use to reduce your income taxes?
- Do you have a plan for your retirement cash flow?
- What should you do to maximize your Social Security benefits?
- Are you properly diversified?
We would love to review your entire financial plan, analyze what you have and see if we can help you. If we can, that’s terrific, but if not, that’s fine too. Either way, there is no charge or obligation, and we will part friends!
We continue to stand by our Fearless Forecast of Dow 26,500 by the end of 2018.
The Yield Curve has not yet inverted, but if it did, a 10% rise should still get us to our fearless forecast of Dow 26,500.
Also, there is more stimulus in the system today then there was during the worst part of the credit crisis. Interest rates remain historically low, and we have just seen the largest tax cuts enacted earlier this year. We believe that all that stimulus and historical precedent portend a continued rising market this year.
The Financial Flood may come in 2020.
Unfortunately, all good things tend to come to an end. We believe this bull market will also come to an end, and it is beginning to look more and more like it will happen in 2020.
We have talked before about how, in many ways, we feel like Noah warning about the flood that is coming while everyone is looking around and seeing only sunshine.
When the S&P 500 Index crashed in 2008, many hundreds of people wanted to get on our Ark and become clients and we did not have the capacity to bring them all on. We anticipate that the same thing will happen when the next Financial Flood comes as well. We anticipate that our Ark will be filled in the flood that we see coming in 2020.
We encourage you to become a client before then. Our strategy enables us to participate in the upside as long as it lasts, and it is also designed to get us out with tolerable losses when the trend changes.
And, we believe, the trend will change.
Clients who followed our lead were out of the Stock market during the great market crash of 2008.
Generally speaking, that which you subsidize you get more of. Central banks around the world have been keeping interest rates near zero for almost a decade now. Essentially they have been allowing people to borrow money almost for free.
This “subsidy” has created global debt of $233 trillion. This number is the largest in history. We view that the more debt the world has, the fewer options will be available when the next crisis comes.
This is why we believe the next crisis could be historic.
I would like to invite you to come to one of our seminars. They are designed for those of you who are retired or retiring soon, and they are free.
At the Money Matters free retirement seminar, we will answer these burning questions:
- How do I protect my retirement from the next market crash?
- How do I avoid three basic “pitfalls” of retirement distribution planning?
- Am I on track to be able to retire?
- When should I take Social Security? 62? 66? 70?
- Am I diversified properly?
- How much can I afford to spend during my retirement?
- What is the best investment I can use to fight inflation?
- How do I determine how much risk is appropriate for me?
- Do I take my pension or a lump sum?
- How do I avoid having 85% of my social security taxed?
- Should I rollover my 401(k)?
- How do I reduce my income taxes in the future?
The hundreds of trillions of dollars of global debt have put a significant strain on our government’s ability to do anything about the next recession. In fact, we see debt exacerbating the effects of any economic slowdown. The worst recessions that we have had around the world have often been the result of governments taking on too much debt.
Look at the chart below:
- Flattening Yield Curve Part 1: Why?
- Flattening Yield Curve Part 2: The Flood
- The Magic Number
- Buy Hold Myth #1: The Market Always Comes Back
- Estate Tip: Love Units
It is our singular goal to keep our clients from becoming poor. Preserving the wealth that they have built is job number one for us. I encourage you to join the Money Matters family!
I believe that avoiding large losses is the single most important thing that we should be concerned about as investors.
Perhaps you were given a package by your employer. Perhaps you sold an asset and want to know how to properly invest the proceeds. Perhaps you inherited money and want to keep it safe and grow it if you can. Perhaps you just want a second opinion. These are all reasons for you to take advantage of all the resources that we at Money Matters have to offer you.
We want to help you to achieve your financial goals.
Thank you for subscribing to this newsletter. I hope it finds you and yours in good health and spirits.
Ken Moraif, CFP®, MBA