Taper Tantrum

 

The markets moved up or down over one percent per day every day this week. Short term traders were literally chopped up trying to find an edge. Compared to them, buy and hold investors survived the week quite well. (more…)

It’s not 2008

This week the markets lost some ground. In the scheme of things, it wasn’t much, less than 3% on the S&P 500 Index. By the number of concerned calls I received, you would think we were back in the financial crisis. Investors need to chill out.

Let’s look at things with a longer perspective than just the first three weeks of January. In the fourth quarter of 2013, the S&P was up 12%. For the year, it was up almost 30% and the other averages did as well and some did better. A 10% decline after a runup like that would not be out of the ordinary. I have been expecting a pullback to at least the 50 day moving average, which is around 1,800 and possibly below that.

Readers, we need some sort of consolidation and selling is a perfectly normal and predictable event in the historical life of the stock market. The alternative would be a market that continues to go up, up and away until it was so extended it snapped like a rubber band. It would only end in disaster and a 20-30 % collapse in prices. You don’t want that and neither do I.

At the same time, over in the bond market, you may have noticed that interest rates have taken a breather on their march higher, while gold, which has experienced a 50% retracement over the last year, seems to be gaining ground. That is as it should be.

Nothing goes straight up or straight down. The Ten Year U.S. Treasury note in the space of less than eight months has seen its rate rise from 1.67% to a high of over 3%. It is presently hovering around 2.73%. It could easily trade in a range of 2.50% to 2.75% for several months as it consolidates.

Gold, on the other hand, has also had a very bad year and a bounce back of $200/ounce or more would be entirely normal. Make no mistake: both gold and bonds have entered a bear market that will last several years while the stock market, in my opinion, has entered a multi-year bull market. But nothing goes straight down or up.

I do recognize that many investors have had a hard time moving beyond the losses they sustained during the financial crisis and subsequent stock market meltdown. No one wants to see that happen again. Yet, I believe that was a once in a generation occurrence. It is over four years since those events occurred; the time has come to get beyond it.

If you are still so traumatized that every down draft in the market keeps you up at night reliving the past, then you should not be invested in stocks or bonds, commodities or anything but cash for that matter. Every investment holds risk (and reward). There is no such thing as a free ride where you can earn a good return on your money without risking some loss.

My bet is the market will likely bounce off these levels, if not a bit lower, make a lower high and then come down to a level below where we are today. It’s the cost of doing business in the stock market. Over the course of the next several months any losses will be made up, so I’m content to lick my wounds, take a few paper losses and allow the markets to go through this healthy consolidation period. You should do the same.

 

 

 

 

 

Income inequality has suddenly become a hot topic. Think tanks worldwide are releasing studies on the issue.  In this country, the President has made it a political issue in the mid-term elections. This week in Davos, the World Economic Forum will take up the gauntlet as well. It’s about time. (more…)

A Cause to Pause

 

Markets usually need something to move them. Good news or bad, the markets want an excuse to go up or down. Now that the government, the debt ceiling, the budget and the Fed are temporarily out of the picture, investors are finally focusing on something meaningful—earnings. (more…)

 

“Net Neutrality” is the official name for an open internet. It means that all internet providers are to be treated the same regardless of whether you are a mom and pop company or a global behemoth. This week’s federal appeals court ruling pulled the plug on that concept. (more…)

This week the markets traded in a tight range. Traders were taking profits from the gains generated by the Santa Claus rally while bullish investors were buying each dip. It is exactly what should be happening after the gains of last year. (more…)

 

The markets had a great year. The benchmark S&P 500 Index was up 30%. Other averages were up almost as much. So why are some investors disappointed?

“Why am I paying you a fee to manage my money?” asked one disgruntled client recently. (more…)

 

Wall Street is awash with statistics on any given day. Some are useful while others simply add to the level of noise, but on occasion we do get some hints of where the markets are going by looking at past data. (more…)

 

As most of us resolve to lose weight, quit smoking or in some other way change our lives this year, don’t forget to reevaluate where you stand financially. There are some simple steps you can take that will reshape your fortunes for years to come. (more…)

It was a word rarely spoken in post-War Japan. “Bushido” or the “Way of the Warrior,” evoked too many embarrassing and shameful memories culminating in the horror of Hiroshima and Nagasaki.  But times have changed. 

On December 26th, Prime Minister Shinzo Abe did the unthinkable. Defying the Koreas, China and the U.S., he visited the Yasukuni War Shrine. It is where the memories of 2.4 million Japanese war dead from three wars are remembered. His 30 minute visit sparked outrage from Japan’s neighbors who view the shrine as a symbol of Japan’s imperial military past.

Last Tuesday the Japanese government further confirmed my thesis presented to readers six months ago.  Japan announced a significant increase in its defense spending over the next five years amounting to 24.6 trillion yen ($237 billion). That’s an increase over the current plan and, in my opinion, the defense budget will be increased again and again as time goes by.

They will use the money to acquire surveillance drones, 28American F-35A fighter jets, 17 Osprey aircraft, five naval destroyers, six submarines plus amphibious vehicles. That’s not all. Japan’s existing Self Defense force will be beefed up with a new amphibious unit (similar to the U.S. Marine Corp) whose job would be to re-take islands captured by the enemy.

Abe also announced the establishment of a U.S.-style National Security Council and gained support for changing the country’s constitution, specifically Article 9, which prevents Japan from “collective self-defense” (coming to the aid of its allies).

Clearly, Japan is rebuilding its defense capability. This sea change will have long-term repercussions for the Japanese economy and the balance of geopolitical power in Southeast Asia. It also adds to U.S. security while reducing our costs as we begin to share the role of the world’s policeman.

In my last column back in August “Japan’s new frontier,” I argued that this island nation was on the eve of re-inventing itself. I predicted that as part of an economic renaissance, Prime Minster Abe and his cabinet was preparing to expand its defense capabilities. Re-armament, in my opinion, would address several issues simultaneously.

An expanding defense industry would provide a large number of highly-skilled, highly-paid jobs for the country’s workforce. It would also be an easy avenue for the government to provide spending and additional stimulus to the economy. It would answer the U.S. government’s on-going request that Japan shoulder more responsibility in policing their side of the globe, specifically Southeast Asia. And finally, the return of the Samurai in the form of a stronger army, navy and air force would provide a strong detriment against encroachment from China, North Korea and someday possibly a more aggressive Russia under Putin.

Recent events have played into the hands of Abe in martialing support in his quest towards Bushido. China’s arbitrary declaration of an exclusive “air defense identification zone,” covering the disputed Senkaku Islands recently lent credence to Abe’s argument that Japan must be willing and able to protect its own territory or else others would take it from them.

This argument reverberates in other parts of Asia.  Vietnam and the Philippines have their own disputes with China over territory. It is no accident that Japan, using last month’s typhoon damage in the Philippines, dispatched troops, ships and generous amounts of aid while China did next to nothing. It was the largest deployment of Japanese forces since 1945.

Most readers are aware that I have been bullish on Japan, its economy and stock market for the last two years. Everything I see convinces me that my investment stance is correct.