I try to avoid blogging about the stock market and politics, but these are interesting times that require that responsible people take notice of what affects us. Or as Adam Hamilton recently noted, “Our democracy rises or falls based upon the willingness of thoughtful people of moral courage and conviction to participate in the political process.”
Not Normal Times
These are not normal times. I tell my friends that we are in a “historical global economic crisis” that is going to be impactful on the rest of our lives … and our children’s lives. Even in normal times, the stock market forecast lacks precision. And I believe we have all learned we can’t trust the projections of politicians. Right now, we have the Euro-economy at risk of breaking apart, the U S economy is wobbling on the edge of the fiscal cliff, and the Republicans and Democrats are locked in an election year feud about how to address or stimulate the U S economy.
Six Things to Watch
We are in the last half of this fiscal year … an election year … and while it is impossible to predict the markets, there are certain things we can watch to see how they play out and how they may affect us. Here are six factors I think are noteworthy:
1. Fed… will the Federal Reserve provide more stimulus (or stimuli)?
Will Chairman Bernanke decide to ride in on his white horse and attempt to rescue the markets again by injecting money into the market to stimulate the financial system? I notice where Sam Stovall said, “The Fed has one bullet left, and they want to wait as long as possible.” Is the Fed becoming our real life Barney Fife? The Fed’s next meeting is Sept 12 – 13 … if it doesn’t announce new stimulus will the markets be disappointed?
2. It’s an Election Year: Romney or Obama?
Just before a presidential election is always a time of uncertainty … and investment advisors are stymied as to which policies might be put into effect until the winner is determined. It is obvious that the economy is affected by fiscal, monetary, and regulatory policies … and these are normally determined by who wins the election. For example, which trade policies and banking regulations are manipulated or influenced by who wins the election. Since World War II, stocks have suffered losses only three times in election years (according to LPL Financial). Rallies tend to get stronger as Election Day nears and policy clarity improves.
This year’s election is very important … lawmakers need to come up with a solution for the huge debt load … at risk is another credit downgrading … plus Congress must act to avoid the U S falling over the “fiscal cliff” … battling growth-stopping higher taxes and spending cuts. A real dilemma that must eventually be addressed.
3. The Fiscal Cliff… will we go over the edge or a close call?
The budget for Jan 1, 2013 has many problems … the Bush tax cut issues … temporary payroll tax cuts will expire … and least we forget that the Congress voted in nearly $100-billion in automatic government spending cuts that are also scheduled to kick-in. As Bill Stone with PNC put it, “The approaching fiscal cliff is big, scary, and yet avoidable.” And we know that it must be avoided if the economy and markets are to avoid falling into a recession the first half of 2013. Bets are a deal will be struck … but most likely not until after the election.
4. Europe … after the Olympics will they break up or make up?
Who really knows how their debt crisis will end? Will the PIGS* fall like dominos? Do you really think a bad outcome in Europe is priced into the market? This has a bigger impact on the U S economy than most people realize. (*PIGS = Portugal, Ireland, Greece, and Spain)
5. Policy has to be made … “right” decisions are a must!
To quote Ewen Cameron Watt, chief investment strategist for BlackRock Investments, “The fate of markets for the remainder of the year will be dominated by three factors: policy, policy, and policy.”
The USA faces key decisions on taxes and ways to boost growth while trimming the ballooning budget deficit … any of which are a negative impact on the market. The European situation has to be addressed eventually, and China’s challenge of dealing with an economy that is not booming like it once was. All these factors impact each other and all of us.
The U S needs to come up with a tax policy that promotes economic growth and reduces uncertainty for businesses … a long-term solution that will give businesses the confidence to invest and hire workers. Simply put, a business can’t operate within a government that operates quarter-to-quarter when businesses require confidence to go forward with a new plant that will take three years to build and startup.
6. China … can’t be ignored
China is the world’s second largest economy. And it has tried reinvigorating its economy with two interest rate cuts that appear to be working. They are currently projecting to grow at 8.5% in 2013, up from 8% for 2012. They clearly state that they will do what is necessary to keep its economy strong. We are in a situation where if Europe goes flat line we can possibly survive, but if China falls into recession our hopes for a recovery are most likely over. Hard to believe we are at this juncture in history.
Thoughtful … moral courage and conviction
It will be interesting to see where things evolve over the next several months. As one analyst put it, “the odds are that not every worst-case scenario will come to fruition.” But we must keep up with what is going on that is affecting us during these difficult times. Or as Adam Hamilton recently noted, “Our democracy rises or falls based upon the willingness of thoughtful people of moral courage and conviction to participate in the political process.” My suggestion … go vote with courage and conviction in your rights.
What’s your take on the markets … the economy?
© Phil Hoffman 2012. All rights reserved
I Am Phil Hoffman 