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The Best of What They Said and I Read Week Ending 12/23/18

Short excerpts from articles I found interesting

I may not agree with the author and the following material is not intended as investment advice

Barron’s – December 21, 2018 – Nasdaq Gets Mauled by Bear Market, and the Dow Isn’t Far Behind - by Ben Levison

  • “…Santa’s sleigh is usually pulled by reindeer. This year, it looks as if it will be pulled by a team of bears.  The Nasdaq Composite tumbled 8.4%, to 6332.99 last week—its largest drop since 2008—ending down 22% from its August high and placing it firmly in bear-market territory. The Dow Jones Industrial Average dropped 6.9%, to 22445.37, while the S&P 500 slumped 7.1%, to 2416.58, leaving them down 16% and 18%, respectively, from their all-time highs. No one would be surprised if they entered bear markets of their own before the end of the year.”
  • “What’s striking is how quickly we’ve come to this point. Entering December, all three indexes were in positive territory for the year. Now, the Dow, down 12% this month, is on pace for its worst December since 1931. While government shutdowns and cabinet resignations make for good headlines, there is only one thing that gets the market to slide like that: recession fears, in this case exacerbated by a Federal Reserve that seems reluctant to acknowledge that possibility.”
  • “The odds of a recession have increased. Jason Pride, chief investment officer of private wealth at Glenmede, puts the chances of a slowdown at about 35%, and while that means there’s a 65% chance that a downturn is avoided, those are “not gambler’s odds,” he says, referring to what a pro would require to make a bet. What’s more, when the odds of a slump are that high, it signals a high level of fragility in the economy, which means that an accident—whether from the Fed, the White House, or something we haven’t even imagined yet—could “come out of left field and knock this economy into recession,” Pride says.”

U.S. Global Investor Alert – December 21, 2018 – Frank Holmes

  • “…Although there’s more to the selloff than higher interest rates—a looming government shutdown tops the list—industry leaders have been quick to point fingers at the Fed’s long-term accommodation policy. Speaking to CNBC this week, Jeffrey Gundlach commented that the problem isn’t so much that the Fed is currently hiking rates. The problem, he says, “is that the Fed shouldn’t have kept them so low for so long.”Stanley Druckenmiller made a similar argument, writing in a Wall Street Journal op-ed...”
  • “…Other analysts have highlighted the untimeliness of this month’s rate hike…Not since 1994, Lu says, has the Fed decided to tighten in such a volatile market. Nor has it ever tightened like this when the budget deficit was expanding, as it is right now…Then again, there’s a case to be made that, should another recession strike, the Fed needs the ammunition to stanch further losses. If it doesn’t hike now, it won’t have the option to lower rates later. That’s the argument made by Axios’ Felix Salmon, who believes “the only way to prevent another catastrophic asset bubble is to allow interest rates to revert to something much more normal.”  Salmon points out that, when adjusted for personal consumption expenditures (PCE)—the Fed’s preferred measure of inflation—the federal funds rate is now positive for the first time in over a decade. That’s “something to be welcomed,” he says.”
  •  “…The Conference Board’s Leading Economic Index (LEI) edged up 0.2 percent to 111.8 in November. Solid GDP growth at about 2.8 percent should continue in early 2019... The LEI has increased 2.2 percent over the past six months, slower than the 2.9 percent gain over the six months before that. However, strengths among leading indicators remain more widespread than weaknesses.  Consumers increased spending again in November, suggesting that the U.S. economy is holding its momentum…the Commerce Department said Friday. It was the ninth straight monthly increase in household outlays.”

Kiplinger’s Personal Finance – January, 2019 – How Market Cycles Drive Emotions - by Anne Kates Smith

  • “…Finally, as the downturn crescendos, herding behavior comes back full force.  It generates brutal sell-offs that carry stocks far below fair value, leading to investor capitulation and wholesale dumping at the bottom…”
  • “You can do a few simple things to lessen the effects of behavioral biases on your portfolio.  Keep a long term chart of the stock market hand to help you maintain historical perspective.  Determine an asset allocation that is both diversified and appropriate to your risk tolerance and stage in life, and then rebalance on schedule.  If your saving for a long-term goal, dollar-cost average by investing a fixed amount on a regular schedule.  That takes the emotion out of buying and lowers your average cost per share.  If you’re in or close to retirement, keep enough cash to cover one to two years of living expenses so you can ride out any downturns.”

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