Our beginning of the year predictions influenced our investment strategies. Now we are seeing many of our predictions become reality.
Last week was rough for the markets as oil continues to tumble. We stated at the beginning of the year that oil would drop drastically, so here is were we can say, “We told you so.” Unemployment also took a hit and we have been saying this was going to continue to be a theme as technology grows and disrupts business models.
Warren Buffet troubles
Rail traffic dropped to 6.6% last week which is Warren Buffet’s leading indicator. Berkshire Hathaway is now down 10% for the year. Here at Fi Plan we track the rail industry but also the trucking industry. If people aren’t making orders, the rail and trucking industries go down.
Where is the good news?
The good news among all this negative data is that the US economy is still looking strong. December is usually the best month for a market comeback. With the Fed most likely raising interest rates, it is looking to be a good month.
Will Yellen make the market yell?
If the Fed does raises interest rates, we believe it will be a non-event as the price has already been baked in to the markets. While it has been easy for the Fed to predict unemployment, it has been problematic to measure inflation since 2008. We attribute this to technology and an aging population. Earlier this year we predicted the US would be fighting deflation, not inflation. Our predictions influenced our investment strategies. Now we are seeing many of our predictions become reality.
The consequences of long term low interest rates
The unexpected consequences of long term low interest rates is that many investors have gone outside their risk curve towards higher risk investments. On Friday, we saw the high yield junk bond market seize up which took liquidity out of the markets. The Dod Frank law, which limits how much banks can hold on their balance sheets, also limits liquidity. This illiquidity is now hurting investors who hold higher risk investments.
On Friday we saw the market trade back on a knee jerk reaction to one fund. All bonds are not created equal as some bonds went down but treasuries went up. This is why we have bought treasuries for our clients portfolios.
There are still investment opportunities
Even with the market trading back last week, we believe the market is oversold at the moment. While there are still many topics that need to be addressed, there are plenty of opportunities for investors.
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Greg Powell, CIMA
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Ashley Page, JD, MBA
Senior Vice President
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Bobby Norman, CFP®
Email Bobby Norman here
Trey Booth, CFA®
Email Trey Booth here
Fi Plan Partners is an independent investment firm in Birmingham, AL, serving clients across the nation through financial planning, wealth management and business consulting. Fi Plan Partners creates strategies in the best interest of their clients using both fee based investing and transactional investing.
The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. All performance referenced is historical and is no guarantee of future results. All indices are unmanaged and may not be invested into directly.
Bonds are subject to market and interest rate risk if sold prior to maturity. Bond values will decline as interest rates rise and bonds are subject to availability and change in price.
Government bonds are Treasury bills are guaranteed by the US government as to the timely payment of principal and interest and, if held to maturity, offer a fixed rate of return and fixed principal value.
Economic forecasts set forth in this presentation may not develop as predicted.
Stock investing involves risk including potential loss of principal.
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