Welcome to The Financial Pulse for August 2015 with Drew Tignanelli and Tom Bonvissuto. Here are some of the video highlights:
• While we were taping this update the Chinese stock market was experiencing a significant but not unexpected decline. The Chinese government has initiated measures to try to slow the market’s decline, but our experience indicates that markets cannot be controlled forever. One of the factors which has and will continue to magnify market volatility in China is the number of investors who have borrowed money to invest. We use the term invest loosely because what these Chinese investors are doing is more akin to speculating or even gambling. In all fairness, U.S. markets have experienced speculative bubbles and the end of the story will be the same in China as it was in the U.S., meaning that the gamblers are washed out of the markets leaving the long-term investors to pick through the wreckage.
• Could the decline of the Chinese market affect markets in other parts of the world? Yes. Although it is widely acknowledged that the Chinese stock markets are not rising or falling in response to the economy there. The realized losses, or reduced wealth as a result of the market decline is likely to have a negative effect on the Chinese effort to embrace consumerism. There also may be effects on the already deeply discounted commodities markets.
• In the U.S., investors were very focused on the July FOMC (Federal Open Market Committee) meeting. Although no action was expected from this meeting, in the press release the “Fed” seemed to set the stage for a modest interest rate increase in overnight money rates at the September meeting. As expected, the release indicated that the economy is still improving modestly. Low interest rates have made it more difficult for savers/retirees and forced many investors into the stock market who probably should not be there. Rock bottom interest rates also mean that the FOMC is short on monetary policy tools to combat the next financial crisis. All of which means that it is time to begin to raise or normalize rates.
• If the U.S. markets weaken this fall, investors who have been pushed into the equity markets will likely be the first to bail-out. On the other hand we need to remain disciplined and stay the course through any upcoming market volatility. We have some liquidity at our disposal to reposition portfolios if the need or opportunity arises.
• So far this year bond markets have been weak and the U.S. stock market has been volatile and range bound. Until the Chinese market decline international markets were modestly positive.
Financial Planning Topic
Identity theft has been in the headlines and on our clients’ minds lately. From a practical point of view we all need to have a plan to combat identity theft. What should you do? We recommend that clients do a security freeze. To implement this recommendation you contact each of the credit reporting agencies and request that they freeze access to your credit report. If you want to apply for a loan or new credit card you will need to allow access to your report for a short time and then freeze access again afterwards. We favor the credit freeze over services like LifeLock who monitor your credit and accounts. We are happy to send you the instructions for implementing a security freeze, please email firstname.lastname@example.org or your advisor.