November 18th, 2018:  Will The Chinese Blink?

As a firm that specializes in Retirement Planning, our two goals for you are:

  1. For you to have Financial Peace of Mind and
  2. For Your Money to Last As Long As You Do.

Our investment philosophy of Buy, Hold, and SELL! is designed to give us Unlimited Upside with a Tolerable Downside.

  • Trade Negotiations with China Seem to Be Going Nowhere.
  • The Federal Reserve’s Future Actions Continue to Concern the Market.
  • We Believe That These Two Issues Will Resolve Themselves in A Positive Way.
  • We Are Thankful That We Have a Sell Strategy in Times Like These.

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Trade Negotiations with China Seem to Be Going Nowhere.

If we go by the rhetoric that we have seen lately, we would have to assume that the United States and China are moving farther apart, not closer together. While this is most likely posturing, it does create the possibility that a full-on trade war with China will begin in January.

This possibility is causing great consternation in the market, and many potential buyers are sitting on the sidelines waiting to see how it will play out, despite the strong data that has been coming out regarding the strength of the United States economy.

We view this current state of affairs as the precursor for a trade deal as both sides get down to the serious business at hand. We believe that China does not want to be seen as losing face, and they have to present a defiant tone publicly. However, the reality is that a trade war with the United States would devastate their economy and set them back ten years. A devastated economy would create millions of unemployed in China and most likely would create great social unrest.

It is difficult for us to see that China wants to go there, and because of this, we see the trade negotiations resulting in a deal. One never knows though, and a trade war could very well bring on the next Bear Market.

According to Ned Davis Research, the average S&P 500 Index bear market is a drop of 37%. The Dow falling 37% would see a fall of 9,848 points from its peak on January 26.

The S&P 500 index fell 49% in the bear market of Y2K and 57% in the bear market of 2008.

Do not get complacent.  Overconfidence is dangerous when it comes to investing.

While this year will most likely not be as good as last year, it is shaping up to be a good year in our view. We will never become complacent, however. We must never let our guard down and never take the market for granted. It is when overconfidence sets in that the market is the most vulnerable.

With the market near all-time highs, this is no time to be complacent and assume that the market only goes up! The best time to plan ahead for the next market crisis is now!

The Federal Reserve’s Future Actions Continue to Concern the Market.

Another area of great concern to the market is Federal Reserve policy. In the last two meetings, they chose not to increase interest rates despite having told us that they most likely would be increasing interest rates.

According to Bloomberg, since 1950, every recession has been preceded by an inverted yield curve. In plain English what that means is that the Federal Reserve raised interest rates too much.

That historical statistic has led many to believe that the Federal Reserve has caused every recession since 1950. Many investors are concerned that the Federal Reserve will do it again. The Fed has told us that they intend to raise interest rates one more time this year and potentially four more times next year. What if they overdo it and create the next recession?

This is a question of “what comes first the chicken or the egg?” In our opinion, the business cycle is inexorable. Recessions will happen regardless of what the Federal Reserve does. They may accelerate when the next recession happens through bad policy, or they may delay it with good policy, but we don’t see how they can stop them from happening.

We Believe These Two Issues Will Resolve Themselves in a Positive Way.

As you may have gleaned from our analysis above, we do not see those two issues as being what will cause the next bear market. In our experience what causes the next recession and Bear market is something that almost no one saw coming. China and the Federal Reserve are very closely watched and, whatever the outcome, should surprise no one.

Donald Rumsfeld famously said that he did not worry about the “known knowns or the known unknowns.” What he did worry about were the “unknown unknowns.”

All we can say is that we are so glad we have our Buy, Hold, & SELL! strategy in place should that “unknown unknown” happen.

If you are not a client of Money Matters, we want you to be!  Let us worry about all this so that you don’t have to.  

We Are Thankful That We Have a Sell Strategy.

Without it, we would find it very difficult to justify investing in the stock market at this time. We believe there is still upside, but we also believe that when the downside comes, it could be very bad.

Our strategy enables us to participate in the upside as long as it lasts; it is also designed to get us out with tolerable losses when the trend changes.

And, we all know that the trend can change quickly and precipitously.

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 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 the way I should be?
  • How much can I afford to spend during my retirement?
  • How can I fight inflation?
  • How do I determine how much risk is appropriate for me?
  • Do I take my pension or a lump?
  • How do I avoid having 85% of my social security getting taxed?
  • Should I rollover my 401(k)?
  • How do I reduce my income taxes in the future?

Click here to reserve your spot at the next free retirement planning seminar.

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.

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We want to help you to achieve your retirement goals.

Thank you for subscribing to this newsletter. I hope it finds you and yours in good health and spirits.


Ken Moraif, CFP®, MBA