Weekly Comment - July 9, 2019

Jul 09, 2019 | Nick Foglietta


If the world is really moving towards near zero interest rates, we all need to be more vigilant about our wealth awareness.

Financial Planning and Wealth Management

Each week, Megan and I, publish these comments about financial markets and whatever else catches our attention without spending enough time focusing on “keeping the main thing, the main thing” in our writing.

Wealth management and financial planning are the cornerstones of our process to help you achieve your goals. If we don’t understand your financial goals, how can we help you reach them?

Our intention is to spend time listening to each of our clients tell us about:

  • Personal goals and hopes,
  • How your financial situation relates to those hopes and dreams,
  • Your tax planning,
  • Your estate planning,
  • What happens if you get sick or unable to work? As well as,
  • Your family situation and how it relates to your wealth.

At the end of the day, your plan is your plan, and it can take into consideration anything you want to bring to the table.

To be clear, it is my impression that we have offered this service to everyone who has more the $500,000 with us. Many of our clients who have less than $500,000 with us have one of these GPS projections too.

If you are reading this comment and you would like one of these projections, but feel we have missed you, please let me know by sending us an email.

Why I mention this again now is because, if the world is really moving towards near zero interest rates, we all need to be more vigilant about our wealth awareness.

Megan and I always appreciate and enjoy your input. Please touch base with us if you have questions about your personal planning needs. 

Why worry about the possibility of a BEAR market?

Rather than a long explanation of what might or might not happen when a true BEAR market takes hold, why don’t we just look at the actual “peak to trough” declines of the last century of BEAR markets?

The graphic shows what percent of the preceding BULL market gains were relinquished back in the BEAR market decline. Not many are less than half; some are more than the entire BULL market gain given back.

If we use the chart of the S&P 500 below as an example, and assume the BULL market started in March 2009, we end up with a “normal, garden variety” BEAR market low of 50% off the gain.

To calculate what that would mean: 2975 – 666 = 2309

2309/2 = 1155 (amount of decline for normal BEAR market).

2975 – 1155 = 1820 S&P 500 level or a decline of 39%

Remember, that would just be normal!

Something to think about.

Are there any signs of a pending BEAR market?

There are always signs of a trend reversal. So far, the central banks and share buybacks have been able to keep the BEAR market away.

At the same time, trends that have been negative for a while continue to grow more difficult to rationalize away.

Global manufacturing has dipped negative again. The first graphic averages manufacturing for the countries of the world (a reading above 50 signals growth, below is shrinking).

The second breaks each country out unto itself.

The countries still progressing in a positive direction are not exactly world leaders.

The real question is will lower interest rates change the trajectory of manufacturing or are interest rates already so low that even further reductions only encourage greater speculation rather than manufacturing growth?

Leading indicators in the US have spent a lot of the past year in negative territory too.

The graphic below show the NEGATIVE earnings pre-announcements for the S&P 500 (each bar represents three months of pre-announcements).

Given the manufacturing data, we should not be surprised by the spike in negative pre-announcements. 

Of course, the one economic indicator I watch the closest is the correlation between the S&P500 and the amount of money being printed by the global central banks.

The gap shown on the chart above is as wide as I have ever seen it. Remember though, the S&P500 does not have to fall to meet the red balance sheet line. The central banks could print a pile of money and raise the red line back up to where the blue S&P500 line is.

I doubt any of this is going to be easy to follow in coming years. Negative interest rates really do create an “upside down” world. We will do our best to keep you informed and to answer your questions.

One Last Thought…

President Trump has publicly asked the question of his authority to fire US Federal Reserve President Jerome Powell. Opinions have lined up on both sides of the issue…mostly along party lines, of course. 

Then I saw this next Tweet this weekend.

Ben Hunt of Epsilon Theory cast his vote figuring Trump will get his way.  What do you think?