Stock Market High
Buy or Sell?
The stock markets are at an all time high! Should you buy or sell? Many believe the markets are literally on edge…
What is causing the stock market madness?
The excitement associated with stock market rallies is perpetuated by the media’s enthusiasm. And, though they have been on the sidelines since the Presidential election, now they can’t seem to get enough of this current run.
Recently CNN/Money reported “No worries on Wall Street” insinuating that fear and greed were responsible for the run. But, others are running scared, stating that a meltdown is imminent.
Last month the Census Bureau released its annual report on household income data for 2016. In 2016 the median average household income rose over 2015 and a record high.
So… People are making more money after a near 20 year decline? Most people I know with regular W2 income jobs are glad just to have a job. Fortunately, things are looking up and people are cautiously optimistic. But, as the main indexes continue to hit record highs, is this faithfulness justified?
The negative side to all of this is that the average investor has their entire retirement savings invested in the stock markets. Whether it be individual stocks, mutual funds or ETF’s, that is risky behavior.
And even worse, the retirement vehicle of choice for most Americans, the 401k is almost entirely invested in stock market mutual funds. Even the creator of the 401k, Ted Benna, has noted… he created a “monster”.
The 401k has morphed into a retirement vehicle where millions of Americans follow the herd into investing into something they neither understand nor control.
Read what Bloomberg posted in the article, The 401(k) Is Wreaking Havoc on Retirement. http://www.bloomberg.com/news/articles/2016-08-24/the-401-k-is-wreaking-havoc-on-retirement
Studies show that most participants in 401(k) plans have no idea that the plans have hidden fees or about the individual expenses. Prompting CNBC to report, “What you don’t know about 401(k) fees can cost you plenty”
401k Alternative
Wall Street Predictions
Bank of America Merrill Lynch Head of U.S. Equity and Quantitative Strategy, Savita Subramanian, believes U.S. equities are at an “elevated risk of correction.”
The great UNTOLD story of this market is the severe DROP in interest rates and the Fed’s insistence on leaving them there. While the stock market seems to have recovered, the bond market interest rates continue to PLUNGE! The 30 year US Govt Bond rate is below 2.87%! The bond market is very, very nervous!
TheStreet says “The Biggest Bull on Wall Street Is Forecasting a Stock Market Pullback. ” In the article, Wall Street’s, biggest bull, Morgan Stanley strategist Michael J. Wilson says the S&P 500 will soar to as high as 2,700 points… and then a “pullback or consolidation” is about to hit the equities market as earnings season gets into full swing.
The Federal Reserve and Federal Open Market Committee (FOMC)
If you haven’t put 2 and 2 together yet, the banks win. Just like with the casinos, the deck is stacked.
From Wikipedia: “Irrational exuberance” is a phrase used by the then-Federal Reserve Board chairman, Alan Greenspan, in a speech given at the American Enterprise Institute during the dot-com bubble of the 1990s. The phrase was interpreted as a warning that the market might be overvalued.
Irrational Exuberance
Many believe that we are in fact exhibiting irrational exuberance with the stock market highs of recent time. In other words, investor enthusiasm that drives asset prices up to levels that aren’t supported by fundamentals.
Economist Robert Shiller wrote a book, Irrational Exuberance, that analyzes the stock market boom that lasted from 1982 through the dotcom years. In his book, Shiller’s presents 12 factors that created this boom and suggests policy changes for better managing irrational exuberance.
And, just recently another economist, Richard Thaler, won a Nobel Prize for his study of Behavioral Economics. Thaler said the most important impact of his work is “the recognition that economic agents are humans.”
These studies seem to indicate that “we” are responsible for whatever happens to our investments. That our behavior and attitude should be corralled. If we just listen to the all knowing banks and follow their lead we will be okay. And, of course we have the full support and backing of the United States Government if things go wrong… Or do we?
“My friends, there is good news and bad news. The good news is that the full faith and credit of the FDIC and the U.S. Government stand behind your money in your bank. The bad news for you, my fellow taxpayers, is you stand behind the U.S. Government.” –L. William Seidman, former head of the Federal Deposit Insurance Corp. (FDIC)
Are Banks Too BIG to Fail?
Would you support another bailout for the BIG Banks? Banks have little risk because we the taxpayers support them.
AIG is no longer too big to fail, at least according to the Federal Reserve. Chair, Janet L. Yellen, has decided to rescind the designation of American International Group (AIG) as a “systemic nonbank financial company.” And, thanks to Dodd/Frank (wink wink), we are protected. https://www.federalreserve.gov/newsevents/pressreleases/other20171002a.htm
The New York Times is weighing in, reporting: Ten years on from the financial crisis, it’s hard not to have a sense of déjà vu. Financial scandal and wrangles over financial rule-making still dominate the headlines.
It’s not just the banks… According to the article, “Nonfinancial firms as a whole now get five times the revenue from purely financial activities as they did in the 1980s. Stock buybacks artificially drive up the price of corporate shares, enriching the C-suite. Airlines can make more hedging oil prices than selling coach seats. Drug companies spend as much time tax optimizing as they do worrying about which new compound to research. The largest Silicon Valley firms now use a good chunk of their spare cash to underwrite bond offerings the same way Goldman Sachs might.”
Forbes wrote this, Big Banks and Derivatives: Why Another Financial Crisis Is Inevitable
The derivatives market is the financial market for derivatives, futures, options and contracts which are derived from other forms of assets. Derivatives are tradable products that are based upon another market known as the underlying market.
The market can be divided into two, exchange-traded derivatives and over-the-counter derivatives. Some have estimated the derivatives market at more that $1.2 QUADRILLION.
Buy or Sell?
Is now a time to buy or sell? If you listen to the media pundits and financial entertainers, they all have their own advice for you to buy or sell your stocks and investments. Anyone can read the headlines or skim the finance section of any publication to make an educated guess. This post will not encourage you to do either.
A better question would be, will there be another stock market crash? And, if there is can we do about it? The answer is YES!
You don’t have to participate in the Wall Street shenanigans! The majority of people that are wealthy in this country did not make their money in the stock markets. Successful people invest their time, resources, energy, and money into improving themselves.
Perhaps the world’s greatest investor, Warren Buffett, said “There’s one investment that supersedes all others: Invest in yourself.”
And, that would be my best advice for you, invest in yourself. You can now get the equivalent of a college degree for free online. If you want to learn the secrets of the rich, study the success stories of the people you admire.
We provide a full spectrum of books, videos and articles from successful people that you can learn from in our financial resources library. If you’d like to learn more about investing in yourself, just follow the link and subscribe to our ezine, Financial Intelligence.
Until next time, Invest in Yourself!
Barry Page, RFC
Barry Page is a Registered Financial Consultant, Managing General Agent and Founder of Legacy Insurance Agency, PLLC. He helps clients with tax-advantaged investment alternatives, and specializes in showing families how to take control of their finances and create financial independence.
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