• Beki Dobson

Fall Economic Update by Phil Mahoney


The question of the day is: Why with lower interest rates, lower inflation, lower oil and a stronger dollar does the stock market refuse to respond?  The best rational I have heard is from “the Agile Trader”, Adam Oliensis, who believes that institutional money managers are still trying to de-leverage their holdings and are forced to sell their assets in areas such as stocks and commodities. 

Lincoln Anderson, LPL Financial’s Chief Economist, says the following:

“The fall in energy and commodity prices should do wonders for inflation over the coming months.  I believe we will see a very sharp drop in CPI inflation if the energy declines stick.  Lower inflation would likely mean the Federal Reserve could stand pat and keep rates low well into next year.  I think the dire predictions of deep recession and rising inflation are off the beam.

That said, we have gone through a lot this summer and a lot more over the last three years.  Bad hurricanes, a housing crash, a banking sector crisis, a huge rise in energy and commodity prices, a major decline in the dollar exchange rate and the negative effects from dire predictions of all sorts.  I come away from this period even more impressed by the resilience of American workers and companies and by our economic system’s ability to handle these adversities and keep on ticking.  While a shallow recession is possible over the second half of this year, I continue to believe that by working our way through these adversities, we are setting the stage for better financial market performance later this year and into the next.  Remember, that while the stock market has stalled and fallen below the 2000 peak, U.S. corporate profits are more than double what they were at the previous peak.  Outside of banking, the aggregate non-financial corporate balance sheet is very strong and the ratio of the market value to the net worth of non-financial corporations is well below one (about 0.7) indicating to me a very low valuations risk.”

I like the 30,000 foot view that Lincoln brings to our attention and it reminds us that while these are the times that bring us great pain, they also bring us great opportunities.   These are the times that have made the careers and fortunes of notable men such as Sir John Templeton and Warren Buffet.  Let’s join them and look for those opportunities now while we can instead of looking back in a few years with regret.

I look forward to speaking with each of you soon!

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