“I suppose whenever you go through periods of transition … those times are always going to be both very upsetting and also very exciting by the very nature because things are changing and you don't know what's going to happen.”
- Daniel Radcliffe
2014 was a major transition period for me on several fronts. After over two decades of being a compensated consultant in the junior resource market, I spent 2014 concluding that if I had to do it all over again, I wouldn’t say the classic line, “I wouldn’t change a thing.” I spent enough time and energy in 2014 going over this and feel it’s finally behind me. I do miss some people, venues and the like from that area of work, but they’re quickly overwhelmed by the joys of what now fully occupies my business life (And for the last time, I note I didn't sell any shares of SGC or TGZ in 2014).
On the personal life side, I struggled hard with two family situations:
My 93-year-old mother broke a hip, went from assisted living to nursing home and now I watch as dementia takes a once strong-willed lady and turns her into a little child much of the time. While the nursing home she now resides in is clean and the help is very nice, life there is like wherever elephants go to die. Very sad. Only the belief God knows all this sustains me.
My 22-year-old daughter graduated college and decide almost overnight to move to outside Philadelphia and take a job in the city. I guess I knew that one day this had to happen, but for very selfish reasons I wish it wasn’t for many more months or years. I just pray now she doesn’t become a Philly sports fan.
Consuming far more food than what is needed to survive has been a bad habit of mine since an early age. I “eat” my good and bad emotions. The many years of doing so have come to an end. If I want to put the odds back in my favor (or at least more reasonably tilt my way) to grow older without major health ramifications, the yearly resolution to get into shape mustn’t fail this time around.
I, for one, was more than happy to say good-bye to 2014, but know that all I need to have true faith and trust in in 2015 and beyond is this biblical verse:
“Trust in the Lord with all your heart
and do not lean on your own understanding.
In all your ways acknowledge Him,
And He will make your paths straight.”
I’ve begun writing a new book (or White Paper) and one of the topics in it is why it took 30+years in and around Wall Street to conclude neither I nor any other human can accurately predict the future on a regular and on-going basis. The combination of this and undisputable facts about the realities of equity investing based on numerous decades worth of data, has radically changed my analogy methods. While I will still ponder on the economy and markets, I pray my conclusions shall be worthy of print but not to be considered market timing advice (Will not read my own press clippings on market timing anymore).
I’ve long stated that those of us who look into a crystal ball, end up only experts on how to eat broken glass. Yours truly has cut his mouth for the last time. The fact that literally millions of other so-called experts were doing it as well in my 30+ year career, and I don’t even need one hand to count among them who has been constantly “net” successful in market timing, has finally led me to stop trying to be the needle in the haystack in market timing.
While I no longer employ “tea leaves,” crystal balls and the like, I do think one doesn’t have to be a rocket scientist to realize decades worth of fiscal mismanagement both in government and in personal finances for the masses, are some of the key factors that have led us to the threshold of economic, social and political upheaval never seen before in America’s history.
I could write a long dissertation on why I believe this, but instead I will just list a few key reasons:
In just one generation (mine), America has gone from being the world’s largest creditor nation to the world’s largest debtor nation. We no longer ask, “Can we afford it?” but instead ask, “Can we make the payment?”
Wall Street, Hollywood and Madison Avenue have all combined to paint a false picture that more money and stuff equals more happiness. Our parents never needed 5,000 square foot homes, never mind public storage facilities every couple of miles down the road to store all the stuff.
Like it or not, what kept this country great for the first 200 years was remaining basically true to the Judeo-Christian principles upon which our Founding Fathers built this great nation. The more we move away from them, the more troubles seem to find us. It’s no coincidence.
We’ve gone from a country that “worked” for a living to one that “votes” for a living. As more and more people get comfy sitting “in” the wagon versus pulling it, eventually the wagon will grind to a halt.
I can write dozens, if not hundreds of pages of what I believe is wrong with America. But it’s not what’s wrong that concerns me; what concerns me is how so many Americans don’t think there will be a hefty price to pay for it.
For them, I quote Thomas Jefferson:
“I tremble for my country when I reflect that God is just;
that his justice cannot sleep forever.”
U.S. Stock Market –
“The financial markets generally are unpredictable.
So that one has to have different scenarios...
The idea that you can actually predict what's going to happen
contradicts my way of looking at the market.”
- George Soros
While I definitely don’t agree with much of Mr. Soros’s social and political views, I’ve clearly adopted his belief quoted above regarding trying to predict markets going forward. But like he said, developing scenarios is still prudent.
30+ years around Wall Street has taught me many things (including some very hard lessons), including:
There’s always a very heavy slant towards the bullish scenario. I’ve coined them the “Don’t Worry, Be Happy” crowd who make up most of those who work in the financial services industry and many in the media who make their living giving these folks a box to stand on. It’s my most fervent belief that you can toss these folks off the top of the Empire State Building and all the way down they would say the same thing – “So far so good.”
The tilt against the public’s chances to succeed has gone from slightly against in 1984 when I first became a stockbroker, to nearly impossible in a highly manipulated, advanced-knowledge-to-a-select-few-players environment we have today.
Far too many investors and so-called professionals are speculating (Wall Street says “speculating” when, in fact, the proper word is “gambling”) way too much. Nowhere has that been more evident than in one of the most important areas of financial planning. Many have turned retirement “savings” plans into retirement “speculating” plans.
The stock market, the golden goose of the financial services industry, creates far more wealth for those who “sell” the products and services than those who “buy” those products and services.
Remembering only God (and that’s definitely not Cramer) knows which way the stock market is heading, I do think we need to conclude what are the likely drivers that shall send it up or down.
IMHO, the Fed’s QE programs created a massive financial bubble. The mistake for many market timers has been not accounting for historical facts that bubbles tend to get bigger and last longer than most could envision. It’s also been foolhardy to try to guess how and when the FED is going to act since they themselves have had opposing views internally (but that will never stop the financial media from parading out numerous so-called experts who you’d be better off ignoring and instead have one of the carnival guys who guesses your weight take a better stab at anticipating the Fed’s next move).
The plunge in oil prices would have to rank second behind the FED as key factors to impact the stock market in 2015. Here, we could spend hours, days or even weeks discussing all the possibilities and their impact and not fully account for what this decline may have on the stock market. I do think we can say that the first impact would likely be negative overall as the financial ramifications of those hurt by the decline are far more acute and much nearer term than those who will greatly benefit from much lower energy costs down the road.
It’s hard to imagine, but not that many decades ago, fundamentals like the economy, earnings, and valuations and actually making a profit were important considerations among stock market players. If you’re a relic like me and think they still matter, I do believe:
Trillions in new debt have only increased the choke hold on the economy and many Americans. This will continue to prevent the economy from operating at anything close to its capacity. If stocks are still part ownership of businesses and most businesses still depend on the economy, I don’t feel warm and fuzzy wanting to own a fistful of general equities anytime soon.
Just as beauty is in the eye of the beholder, what something is worth varies from one set of eyes to the next. However, when a valuation indicator like the CAPE Index that has an excellent track record over decades says now’s not the time to “bank” on much higher equity prices going forward, maybe one should give it some serious consideration in their overall evaluation.
When profitability comes more from creative accounting, buybacks of shares and the like versus actually selling more widgets at greater profits, I think erring on the side of caution deserves serious thought.
While passive versus active management is the preferred choice in my book, I hope no matter what avenue one chooses, they realize this when it comes to building true wealth: most people have done so because…
They inherited it
They owned businesses
They invested in commercial real estate
They “sold” investment products (not invested in them)
They were insiders or were able to buy into companies long before they became public or they bought at great discounts compared to what the public did
In all the people I met, I’ve yet to meet one who said, “Mom and dad invested a few thousand in the market every year and ended up with millions.”
Hundreds of thousands claim expertise in the stock market and work for a living in it; tens of millions put their hard-earned dollars into it; yet so few come up greatly profiting from it. I have come to conclude that the needle in this haystack is actually an investor who made (and kept) money in the stock market.
U.S. Bonds –
As noted earlier, bubbles tend to go longer and deeper than most could have imagined. It’s fair to say U. S. interest rates have gone lower and stayed so low far more than almost even the bullish forecaster could have imagined. Since I hope you agreed with me that with the Fed not in universal agreement, it’s silly to try and guess what they’re going to do (or not do) and therefore speculating (gambling) on the direction of interest rates who be like trying to pick the year the Jets, Mets and Knicks win a Championship again—it’s an exercise in frustration.
Having said that and being among so many who ate crow in 2014 by rates not rising as anticipated, I have added lots of condiments by my side for this time next year if rates fail to rise yet again.
I do feel good about near perfect timing (blind squirrel theory strikes again) about what I said regarding high yield (junk) bonds being at their heights in 2014. What still concerns me greatly is how many people I come across in our planning business who were sold high-yield bonds and have no real grasp of the potential loss in principle and the associated mental anguish that awaits them. The sharp sell-off in oil as 2014 came to a close only made that potential loss and anguish greater.
I’ve written for years about why one should never expect an industry that makes its living from selling financial assets to be positive about something that usually o rises in value at the expense of their money-maker. I also have stated that one should never expect most in the financial media who live off those financial asset lovers to embrace gold either. But, 2014 saw the most extensive universal hate against gold I have ever witnessed in my career. Outside of the relatively small number of poor souls who still try to make a living with gold whether mining, exploring or (God forbid) investing in it, one would have sooner see a rush for Oakland Raiders versus Jacksonville Jaguars tickets at years end than a swelling of interest in the relic that most say lost its luster for years to come (if not forever).
Here, too, I could write a long dissertation on why one could be bullish on gold but:
Most don’t care
Nothing has made real sense since the Germans first showed up to see their gold but couldn’t, ask for most of it but were told they could only get a relatively small part of it, and now countries are lining up to repatriate their gold. If I left something of value for years with someone else, I would think it would remain worthy to stay there unless I was given concern that maybe that worthiness was no longer valid.
We’re in a “Gold Hate” bubble. It, too, can last longer and go lower than most think but like all bubbles, they eventually get pricked. It would come as no surprise that it coincides with the end of America’s financial bubble. I’m out of the process of trying to figure out the date and time, but I do believe standing anywhere near it when it blows will be far more dangerous than the warning given on cigarette packs.
U.S. Dollar –
While other major currencies are out in front of the U.S. Dollar in the race to debase, as a long time horse racing owner I’ve learned that most only remember who crossed the line first. Sometime in 2015, I suspect the U.S. Dollar shall begin to suffer the same fate that this horse did that Joe Pesci and Rodney Dangerfield bet on.
Thoughts and Tidbits –
When I started in the business, I was told to be successful never discuss three things: Politics, Religion, and Other Men’s Wives. I’ve had very few wife discussions in 30+ years but have always talked politics, and in the last half of my career religion has been an open topic.
I wouldn’t want to depend on the income from being the owner of the “I love Politician’s” fan club. I do think the paralysis that has gripped Washington for years is at its worst. However, the fact that the powerful 1% has greatly benefitted from the boom in stocks and bonds, has masked how poorly Washington has done on the legislation side of things. It has allowed our financial condition to come to a point where the viability of paying off our debts is not only questioned, but if not addressed in a serious matter, even servicing the interest will be called into question.
Besides our fiscal house in total disarray, there have been few (if any) good laws enacted to help small to mid-size businesses in years. Ask most business owners and they will tell you it’s harder now to run their business than ever before. Stupid and overwhelming regulations are choking off the entrepreneurial spirit that once made this country great.
It’s not much better on many state and local levels. Here in New Jersey, despite what some would say, our pension system is in full-blown crisis. I wish the situation in NJ was the exception to the rule in the U.S., but it’s not.
When it comes to the world stage, not only has America lost the prowess it once had in the eyes of most allies and enemies alike, but because of our teetering financial condition, in times of crisis we won’t be able to do what’s needed (and right) to help humanity.
Between my written commentaries, my book and numerous public comments, I would hope one has concluded about me:
I practice the Mark Twain business method – "If you tell the truth, you don’t have to remember anything.”
I put my pants on one leg at a time, too.
I don’t suffer that terrible infliction widespread in the financial services industry – Fonzieism.
Having made and lost millions more than once and suffered both financial and mental anguish multiple times, my residence shall never be a glass house.
“If one has the answers to all the questions –
that is the proof that God is not with him.
It means that he is a false prophet using religion for himself.
The great leaders of the people of God, like Moses,
have always left room for doubt.
You must leave room for the Lord, not for our certainties;
we must be humble.”
- Pope Francis
I by no means shall even attempt to do what so many in the financial industry do each day – try to convince others they know it all (or anything close to it). But 30+ years in and around Wall Street has taught me many hard lessons but none so more important than:
There are bulls, bears and pigs. The bulls and bears each have their day but the pigs always end up in the slaughterhouse.
Never in 30+ years has it been more prudent to be a live chicken versus a dead duck.