With all of the horrible news surrounding the end of 2018, let us look into the future…
If you haven’t noticed by now, the financial pundits, prognosticators, and prophets all seem to have the same stories about the market and the future. If they are somewhat right; it’s yeah, I am so smart; if they are wrong, it’s not my fault, there were unnamed factors that nobody saw coming. I have yet to find one person or financial institution that is consistently right. And, if one exists, it is a product of the survivorship bias which forces us to concentrate on the one success story to the exclusion of thousands of similarly situated individuals and institutions who have failed to perform as expected.
So rather than provide a forecast, I will list some of my key thoughts.
** One of the greatest dangers to your personal and professional well-being is closing your eyes and believing that today will be the same as yesterday and tomorrow will be much the same as today. It is a fundamental truth that the stock market, like the weather, is a chaotic system with complex inputs and feedback loops which defy being projected with even the most sophisticated computers.
** The market IS NOT the economy. The financial markets are driven by investor sentiments as conditioned by the mainstream media. If individuals, especially those who are institutional investors, believe that we are headed toward a problematical future, they will sell volatile stocks in favor of equities and bonds in a rather stable sector. However, many of the large institutions are so large and so loosely regulated that they can, themselves or in concert with like-minded institutions, move markets to benefit themselves and disadvantage others who are long-term investors. We have all seen companies lose significant value overnight and not a single thing changed within the company. The market may be used as an indicator, but by no means is it a consistently reliable predictor of the future.
** That the financial markets seek stability is an untruth. Individual entities seek stability and predictability whereas the middlemen seek volatility that sends profits soaring as they earn commissions on buying and selling equities (stocks), bonds, and commodities. It should be noted that speculative transactions in the forward markets are little more than gambling, with the gambler believing they understand the game and aware of the odds.
** Corrections should be expected after the system was flooded with money (“Quantitative Easing”) to stimulate the economy and companies became grossly over-valued, especially those that never earned a profit and relied on continuous infusions of capital from venture capitalists, hedge funds, and public offerings. Many companies offered their shares to the public, not to seek expansion capital but to allow their founders and investors to cash out before the bubble burst. At some point in time, the true valuation of the company will become apparent and the inflated value bubble will burst.
** Look for stock buy-backs as a means for shoring up a company’s stock price and thus its valuation. Be extremely skeptical when those shares are later awarded as bonuses to executives or are used as collateral for loans.
** Politics, especially highly partisan politics or politics benefiting special interests, can be highly disruptive in unpredictable ways. How many people know that the gasoline additive ethanol is harmful to vehicle engines over long periods of time and that requiring ethanol in fuel was less about climate change than it was a mechanism to provide subsidies to farmers. And, that as a result of the conversion of grains into ethanol, the availability and price of food was similarly increased. There is little or no doubt that President Trump is a disruptive force in today’s divisive national scene and that both parties will ignore what is best for the American people and do whatever appears to enhance the outcome of the 2020 presidential election. In some cases this may manifest as gridlock where nothing is accomplished, in other cases it may manifest as increased spending to purchase votes from large voting blocks. Politicians, especially professional, career politicians, are looking at their next election challenge and will be beholden to the special interests and unions that provide campaign funding, voter turnout, and media support.
** One key financial indicator will be the interest rate as set by the Federal Reserve. Even increase hailed by depositors is loathed by borrowers and those who will be forced to pay more for debt service. The more money that is poured into debt service, the less investment and discretionary capital is available; thus exerting a drag on jobs, capital expenditures, and growth in general.
** On the employment front, one should keep a close eye on the behavior of executives, especially those that head public companies. Like any other individual, top executives are motivated by their own self-interests, primarily to stay employed, to boost their salaries and net worth, to generate the largest bonus possible, and to do everything in their power to keep the Wall Street wizards and their own Board of Directors satisfied. One of the easiest initiatives to implement in order to boost stock prices is to engage in cost cutting, a synonym for laying off employees. Research has shown that employees of troubled companies are most at risk, followed by the risk posed by an incoming executive who needs to prove their worth to the Board and the financial community.
** Loyalty is dead. Corporations cannot return love, dedication, or loyalty. The fact that you may be sacrificing your health or family to benefit the company will not be rewarded. It is more likely that your enhanced performance will become your new norm and any deviation from this higher performance level may be seek as slacking off.
** Unless connected to your employment or education, an increasing interest in social media may signal that something may be lacking from your life or that you are suffering from FOBO (Fear Of Better Options) or FOBLO (Fear Of Being Left Out).
** Pay attention to digital safety. More and more information is being collected, stored, and disseminated on the Internet. “The Cloud” is little more than a euphemism for somebody else's computer which you cannot control and is operated under a unilateral “take it or leave it” user agreement which gives the operators certain rights to use your data while providing you with little or no recourse if the information is lost, stolen, or scrambled. Especially if the information is stored in a foreign country beyond the U.S. legal system. Consider changing your passwords on a regular basis if your upload contains personal data such as: names, locations, addresses, phone numbers, family members, email addresses, passwords, Social Security numbers, dates of birth, credit card numbers, banking data, passport numbers, driver’s license numbers, and medical records. Unfortunately, anything that is a public record is likely to be scraped by information aggregators and is often available free or at little cost on the Internet.
New Year’s Resolutions…
Consider redefining success as being physically healthy, having peace of mind, enjoying reciprocal relationships, continuing your education, building a safety net for times of adversity, and developing multiple independent sources of income that are not all susceptible to economic conditions at the same time.
Consider de-cluttering your life, selling, gifting, or donating objects that you no longer use or haven’t used in a long time. Perhaps using the sale of unused or unwanted assets to fund your emergency safety net. Also consider digital de-cluttering by reducing the number of emails and files you store. My rule is that if the information is available on the Internet via search engines does not need to be stored unless it is being kept in a project folder.
Perhaps it is time to give up goals and implement habits that will serve you whether or not your goals change over time. Prioritizing your health above all.
Just because something bad hasn't happened yet, doesn't mean it won't. It can happen to anyone, anytime, anywhere ... are you now wondering, Am I Next?