Outside Economics

Questioning the Investment Market

Posted by Wendell Brock, MBA, ChFC on Fri, Jan 30, 2015

With 2014 wrapped up a new year started many people are inclined to ask questions – it sort of reminds me of the old game “20 Questions”. All sorts of questions get asked at this time of year – often I wish I had all the answers; but when looking forward I soon realize that no matter how much experience anyone has in the market or investing professions no one has the answers to how a particular investment portfolio or market will behave – we just don’t know the future!Questions

Sometimes people may think they have right answers, only to realize that they answered the wrong question. I remember once in college, sitting in the testing center, taking a timed exam getting to the bottom of the Scantron answer sheet (where you fill in the bubbles with pencil and the machine grades the test in seconds) and realizing I had miss placed one answer, thus making all the subsequent answers wrong. That would have been an epic failure!

Fast forward thirty years and I still am amazed at the answers people give to questions asked. Maybe we really need to look at the questions better. I have learned that asking questions helps to crystallize your thinking or another person’s thinking.

“The art and science of asking questions is the source of all knowledge” Thomas Berger

“A focus on questions recognized the ambiguity associated with economics, markets and investing – there are rarely “specifically” right answers, but more commonly, there are “generally” right answers. Investment answers may materialize abruptly, but often answers occur on a timeframe independent of consensus. Thoughtful questions point us generally in the right investment direction. In our view, “generally right” is a worthy, sustainable, long-term objective. On the other hand, “specifically right” investing is rarely repeatable and too often leads an investor onto unrealistic and unattainable market paths. We also recognize that sometimes we don’t know what we don’t know, so the “right” questions may not even be on our radar.”[1]

Recently we have seen Germany’s central bank lower rates on its 10 year bonds to 50 basis points and Japan has lowered their rates to 25 basis points, while the US is around 2.0 percent. This begs the question how long can these governments keep rates so low? At some point won’t Germany and Japan have to raise rates somewhat closer to the US? Or will we have to lower our rates? After all, we could theoretically, borrow money from Japan and loan it out in the US and make 1.75 percent.

In the past six months oil prices have been cut in half. I was in a meeting listening to an oil analyst during the summer where he expected oil to hit $140+ per barrel before the end of the year. Perhaps he was not asking the right questions? Are the geopolitical assumptions we have been using the past five to ten years going to hold out for the next five years? What could cause a shift in the geopolitical environment that would cause a drop in the price of oil? Will the current oil prices remain low? What impact does a stronger dollar have on current commodity prices? Are derivatives going to be impacted by the low oil prices? Will the U.S. be able to continue producing oil from shale as prices continue to fall?

With all that is going on in the world the United States looks pretty good, but how long will that last? China is boasting that their economy is now larger than that of the U.S. Is the U.S. economy really picking up steam or are we still sputtering along? While our political leaders battle things out in Washington, leaving us in a solid gridlock (thank goodness), is the market advancing because of real value or because of central bank manipulation? The gridlock in many ways has kept lots of laws from being passed, thus creating new regulations, which have given us a bit of a break from the constant barrage of endless new regulations we must follow. I believe this has been a blessing to the economy and businesses in general.

Human nature can always make the markets rise and fall by how we react to news and information and mostly by our own emotions. We are susceptible to irrational behavior and emotional responses to “what just happened.”

All of these things can impact investments, markets and returns. However successful investing requires that we not only question what is going on in the markets, but also ask ourselves in an effort to seek greater understanding. Have we selected an investment approach that makes sense, is disciplined, and sustainable? Next – am I willing to follow this approach over the long term? Giving up is a challenge we all struggle with in the face of up or down markets or account values. Up, because we should have more of the return, we think “the strategy just isn’t working right”; down, “because the account should never go down, where is the downside protection!”

This is why long term investing is so difficult, sometimes it is better to just forget about it and let someone else worry about it. “Investment success is most likely to be achieved when finding the appropriate combination of diversified market risk and tactical strategy risk.”[2]

As an advisory firm, we worry plenty about our clients’ investment portfolio; we appreciate working with you and remain devoted to your overall long-term success. We are happy to answer questions about what is important to you. We wish y’all the greatest success in 2015.

If you want some basic questions to ask yourself about how you invest, check out our short investor profile - click the button below to get a copy.


Investor Profile Questions



[1] John Lunt, Lunt Capital Management, Inc.

[2] John Lunt, Lunt Capital Management, Inc.

Topics: Investment, Market

Fed and the Market

Posted by Wendell Brock, MBA, ChFC on Fri, Jun 21, 2013

This week Fed Chairman, Bernanke. made comments about tapering back the stimulus towards the end of the year. These comments have sent the market into a tailspin these past few days. What was once a background supporting role, has now become front and center, and the lead player on the markets Federal Reserve Seal logoworldwide stage. It is now the case if Bernanke sneezes the market gets a cold. The Fed’s tapering plans may be good to get out in the public because maybe the market can focus back on what is really important – the fundamentals of the company stocks that are traded daily rather than the Fed’s involvement. Understanding the tapering is important to the long term investment strategy. There are a few points that are important to know.

Bernanke said that tapering is contingent on continued improvement in the economy and the jobless rate. He described it as easing up on the throttle once the auto reaches cruising speed. This will not happen “until the outlook for the labor market has improved substantially.” The target jobless rate he wants is 6.5% vs. the current jobless rate of 7.6%. 

The next big discussion point was the interest rates – he expects to keep interest rates close to zero for a long time. Currently they are around 25 bps. Bernanke said, “The current level of the federal funds rate target is likely to remain appropriate for a considerable period after asset purchases are concluded.” This will keep borrowing cost very cheap for borrowers and will continue to squeeze bank margins as competition for new loans continues to heat up. The hope here is that companies will find reasons to borrow and expand their payroll. 

Additionally, the tapering plans will be postponed if the economy doesn’t improve as expected in 2014. The target date for the 6.5% unemployment is mid-2014. At the same time 14 of the 19 FOMC members don’t expect to raise interest rates until sometime in 2015 at the earliest. 

This leaves QE3 in place much longer than Wall Street believes making perhaps the fed a new permanent player. There may always be an economic hic-up that causes the Fed to stay involved in some way, keeping the markets artificially propped up. 

Yesterday’s major sell off caused havoc around the glob – making the Fed’s comments and policies the major player not just on Wall Street but in the world. It may be soon that the Fed Chairman becomes the most powerful man in the world instead of the President. After all, most people are more worried about their pocket book then who is president.  

While the market is the great predictor of what it expects to happen in three to six or nine months from now; the current mayhem seems to be an overreaction.  If the underlying economy is truly doing as well as reported from all the government agencies and the company quarterly reports, then things should continue for the next several months to a year moving forward. If the info is not strong and stable, well then, we will see another major move down. What are your thoughts about the economy?

Topics: Fed, Fed Chairman, Market, stimulus


Wendell W. Brock, MBA, ChFC

Subscribe by Email

Follow Me

Most Popular Posts

Other Sites I Follow, hobbies, fun and info:

gold-vs-silver-1.jpg  Nauvoo Mint brokerage services for precious metals


john Mauldin chair


Outside Economics is not a registered investment advisory firm (RIA) and does not act as an RIA. Outside Economics does not provide any specific investment advice. Any information obtained from this website or through one of  Outside Economics' representatives should be reviewed by a professional.

Subscribers Note: We do not sell our email list. Period. Thank you for subscribing.

Recent Posts