stock market

Elections and Investing

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presidential election us stock market

Here it comes (actually, we’ve been seeing it for a while), the pontification about which U.S. Presidential candidate will help or hurt the American Economy, and by extension, the U.S. Stock market. As you might expect, in the world we currently live in, these articles are tinged, if not rife with, political bias. If you are a Republican, then obviously, the Democratic candidate will destroy the economy and ruin your investments, and vice versa. However, some “neutral” economists and financial journalists will write similar articles. So, how do you know the difference? The reality is that it doesn’t matter as much as everyone likes to pretend. Presidential Reality People love to forget that the U.S. President is not a king. No matter who is elected this November, the reality they inhabit involves a grid locked Congress, among other things. While there is a great deal of power invested in the American President, much of that is policy based. While these decisions will eventually influence the course of American business, such changes will not immediately effect either the economy or the U.S. stock market, both of which are enormous in size and scope. Just like spinning the wheel on a super tanker slowly makes …

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Did He Really Recommend Stock Picks?

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“He recommended Amazon and Apple. What is he recommending now?” “He predicted the market crash of 2007. Here’s what he says now.” And so on. You may have seen ad headlines just like the ones above recently. The specifics change, but the idea is always the same. Here is a person who predicted a certain event, or recommended certain stocks at the perfect time, and if you would have followed that advice, you would have made a ton of money. That being the case, shouldn’t your find out what they are recommending or predicting now? Did He Really Predict Stock Market Moves? If you doubt that these people made these recommendations, or predictions, I admire your skepticism. However, these ads and their subjects can often back up these statements with records showing that they did, indeed, predict or recommend the perfect stock moves at the perfect time. So, should you run out and give them your money and subscribe to their newsletters? To answer that question, let’s backup for a second. There is a scam whereby a company claims to be able to predict the winners in certain sporting events so you can bet on them and make money fast. …

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What Does Brexit Mean for America?

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Gah! Brexit! Run for the hills! Wait. Wait. If you live in England, this might be kind of a big deal. I’m not 100% sure. However, if you live in America, it’s time to calm down. How Does Brexit Affect America? I’m on vacation, so I’m going to keep this brief, but I know a lot of people are worried about the vote on the Brexit, and what that might mean for the economy and the stock market, and so on. Let’s start at the beginning. The markets hate instability. They hate not knowing what is going to happen. The POTENTIAL exit of England from the European Union is both unstable, and something that no one really knows what will happen. After all, Britain, if it actually goes through with it, will be the first country to ever leave the European Union, or EU. That is why you got a super plunge in the American stock market on Friday. What happens next with the Brexit? Well, no one is actually sure. That’s what unprecedented means. However, there are some things we do know. England, while politically and strategically, very important to America, is actually very small from an economic point …

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There is a catch…

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More coming later today, but a quick note this morning: A MarketWatch article talks about “the most accurate” market timing system but notes that while it is accurate over the long-term, it has “trailed the market for the last decade.” So, long does it take to become inaccurate?

April Market Update

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fed uncertainty

Well, after a mostly sunny looking April, last week and this week look like speed bumps ahead. The trick is the interlacing of several economic events pulling on the markets. First, oil prices are still causing havoc after a meeting of OPEC oil producers produced no plan or reduction in oil supply. That’s bad news for producers in the U.S. that increasingly depend on more expensive extraction techniques such as fracking to produce oil. Of course, the add-on difficulty spreads to other companies that provide equipment or assistance to oil production businesses, as well as the potential problem for banks financing such oil related companies. Second up are company’s reporting earnings, most of them coming in below expectations, or with warnings of expected future declines in business trends. Third, is potential action from the Fed, and other central banks around the world. The trick is navigating the concept that being “hawkish” on inflation is better, and the fact the the economy may be teetering on a point between growth and decline. In other words, no matter what the Federal Reserve ends up doing after their meeting Wednesday, someone isn’t going to like it. If they make it clear that economic …

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Stock Market Back Up Over 18,000

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I spend a lot of time telling people not to read too much into the short-term moves of the stock market, no matter how compelling the narrative is at the time. In the past 12 months, there have been two pretty significant meltdowns attributable mainly to investors worried about China or Europe, or whatever. I plan to develop a system that takes a screenshot each day of Marketwatch and CNN Money, or others just so that you can scroll through the comings and goings of each day. I can clearly remember numerous articles as the markets were falling in January and February about how this was only the beginning of a massive collapse, and others like that. Now, just a few months later, the same website is publishing articles about the market being back up above 18,000 for the first time since July last year. The point I’m making is that with the value of a little hindsight, or just a longer term view, it is clear that a lot of the recent volatility is a result of a market that went too high, too fast, for too long without any sort of correction. A couple of correcting down blips …

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Are Oil Loans the New Subprime Mortgages

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oil drilling rig

Remember when banks got too greedy with subprime mortgages? Remember when banks (and their executives) just couldn’t say no to the massive earnings (and by extension massive bonuses) that came from building bigger and riskier portfolios of subprime loans? Well, get ready for oil loans. Oil Loans and Bank Risk If you think Wall Street and the big banks learned their lesson from the subprime loan driven banking crisis, you really don’t understand how compensation works in the financial industry. You see, bonuses are paid based on big gains. This encourages risk taking. However, there is no downside for being wrong on those big risks, not even losing some of the bonus you earned earlier in the year. As a result, risk is the name of the game at Wall Street’s big banks. This time, banks rushed to lend money to companies in the oil industry when prices where high. In addition, they extended very generous lines of credit to those same companies on pretty sweet terms. Just like with the subprime mortgage crisis, as long as oil prices didn’t fall too far, too fast, everything would be fine. Deja vu. With oil prices at low levels, and any oil …

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Oil Drillers and Oil Industry Outlook

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There was recently a fascinating presentation regarding the state of the oil industry. The presentation is from Schlumberger CEO Paal Kibsgaard. Schlumberger is one of the biggest oil drillers in the business, so he knows what he’s talking about. The surprising candor of this oil industry outlook presentation is what makes it so fascinating. In the presentation, Kibsgaard notes that unlike previous oil price implosions that were caused by what he calls “demand events,” this one is caused by OPEC’s decision to protect its market share rather than protecting the price per barrel. This creates a very different world for the oil industry. He goes on to describe what his particular company is looking at doing in the future. For our purpose though, what is interesting the confirmation that things really are different this time. Boom and Bust in Oil The oil industry is no stranger to the boom and bust cycle. The oil bust of the 1980s hammered the local Denver economy until the internet bubble managed to rescue the city. The resulting merger and consolidation turned one-word household name energy companies into combined energy companies such as ExxonMobil (formerly two separate companies Exxon and Mobil). In the end, however, …

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Market Still Crashing… Wait, No It Isn’t

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stock market back even

Still waiting for that market implosion everyone was certain was going to happen a few months ago? Looks like you’ll have to wait a little longer. I usually have to wait a little more to pull out the “I told you so,” on the stock market being a constant swirl of ups and downs that should be ignored by long-term investors. Long-term investors, of course, should be sticking to their long-term plans and only making adjustments to rebalance their portfolios. This is often easier said than done. Usually, in the middle of a down period, people start showing up or calling to tell me that they were, “right,” and that they pulled all of their money out of the stock market and now they weren’t losing anymore money and I am dumb for saying they would be better in the long run if they had just stayed put. They never call me to tell me they put their money back in right before things start going up, but that’s another matter *eyeroll*. This super, mega, down, recession is coming, batten down the hatches, plunge was too short for that to happen this time. Market Back To January 1 Levels Right …

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Stock Market Does What It Does

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stocks first part of 2016

Remember when the sky was falling, China was blowing up, and the stock market was going to go straight to zero and there was going to be another super recession? You should. It was only a couple of weeks ago. But, as some of the calmer bloggers, (ahem) and other financial publication that don’t rely on massive waves of panicked clicks, pointed out, the stock market was actually due for a little breather after running almost straight up for a very long time. In fact, in the long run, it was probably much better for everyone (as long as they didn’t panic) for the stock market to pause for a while. As an added bonus it made the Fed stop its blind, headlong rush into raising interest rates because that is what good hawks do, and caused them to look at the actual data instead, which suggested that while the U.S. economy is definitely moving up, the movement isn’t necessarily strong. Most importantly, there are still virtually no signs of inflation and instead, it looks like there are some weak spots hiding in the otherwise decent economy. Stick To Your Plan As always, the worst time to make investment decisions is during …

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