Fire and RainSubmitted by RetireWiseCFP on April 10th, 2018
James Taylor: I’ve seen fire and I’ve seen rain. I’ve seen sunny days that I thought would never end… Lord knows when the cold wind blows, it’ll turn your head around. I’ve seen lonely times when I could not find a stock to buy…sweet dreams and flying machines in pieces on the ground.
Where are we now?
The year started on fire in January; the stock market was reaching new highs seemingly every day. Then came the rain of March. The stock market was buffeted by the Facebook data scandal and by fear of a trade war with China. In my opinion, the market is overreacting again!! I am watching the Facebook matter very closely, but I am waiting for their next financial report to make a decision to hold, sell, or buy more. Imagine that—I am actually waiting to see the numbers and not make decisions because of news hysteria. The confrontation with China over their unfair trade practices and, more important, the theft of American companies’ intellectual properties is long overdue. The core issue is: Is America going to think long term and take a stand against obvious cheating by China, or are we going to blink because of concerns with short-term stock market gyrations?
Where do we go from here?
I am going to play the long-term game. Data confirms that the fundamentals of the American economy remain strong; therefore, I expect the market to provide positive returns. I am NOT going to react to market volatility. That is just noise!! But I will be looking for strategic opportunities to buy higher quality companies that are temporarily on sale.
On fixed income and alternatives:
Last month, the Federal Reserve Bank raised interest rates, the first of three interest rate increases I expect in 2018. Things are on track, but I will not buy bonds until we get into a recessionary period. I am still buying dividend-paying stocks as a proxy for bonds. In my view, any purchase of bonds right now is a guarantee loser unless one is an active bond trader which I am not.
On Bitcoin: In my last letter, I wrote that I am just watching the Bitcoin mania without judgment. Right now, the wheels are falling off and Bitcoin is tanking. I don’t know if this is the beginning of the end for Bitcoin, or the end of the beginning of Bitcoin as a long-term core asset.
What should we look out for?
How is the confrontation with China going to play out? Are we going to stand united as a nation, as we normally do during military wars, or are we going to be so focused on short-term profit that we stand down on the unfair trade practices of China? They say nobody wins a trade war. Well my friends—that is just not true! China has a lot more to lose. China has been fighting and winning the unfair trade war for a long time; until now, it has been an issue that America has chosen to ignore. I believe America can and will win the fight to level the playing field for fair trade if we stand united. This is not political for me, it is economics.
We’ve had an easy time, with our backs turned towards the sun and also last quarter when the cold wind blew that turned our head around. We’ve seen fire and rain, but the issues I addressed above are just as James Taylor described: “There’s just a few things coming my way this time around now.”
Femi T. Shote, MSF, ChFC, CFP®
Accredited Investment Fiduciary®