That Was The Week That Was-3rd Week November

  Seniors Be Careful Out There. My 97- year old mother called me and said she got a phone call from the Internal Revenue Service saying that she owed them money. The person then rattled off a phone number where he said she should immediately call and ‘settle-up’.  It was a Saturday morning and we all know the IRS doesn’t work Saturday, and it also doesn’t call someone out of the blue. There is always a letter preceding any call explaining what the IRS is looking for and informing the taxpayer what they are investigating and what the IRS needs to settle their query. This was not the case. This type of scam is scary and could happen to you or an aging relative. Seniors sometimes get embarrassed or frightened when faced with a situation where they ‘think’ they did something wrong and need to fix things quick. Rather than call someone for help they’ll want to do things themselves. If you have an aging relation make sure they understand that anything that has to do with money and strangers calling out of the blue they should call you soon after. After my mother told me the story and I explained what had happened she said she was going to take a pill and go back to sleep. So this story ended well.

 The scams are endless and you have to be wary at all times.

 

More worrisome than inflation is deflation. The clue is falling oil prices and our strong dollar. Central bankers know how to deal with inflation they simply raise interest rates and the economies cool down. Deflation is another scary thing entirely. This is where consumer prices fall, profits erode and with little to no profits company’s shut down businesses. Unemployment rises, people stop saving since interest rates remain at uber-low numbers. Investors find that investments they were comfortable with are stagnating or non-performing. Gold falls along with the entire commodity group. Deflation once infested in an economy it is difficult to remove. Japan has lost decades to a deflationary economy. I’ll have more on deflation at my client meeting in 2015 and what investment work best.

Japan Falls Into Recession: WSJ 11/16/2014. A sales tax increase cut into Japan’s growth revival.GDP fell 1.6%. Eighteen economists had expected a 2.25% expansion. The nation’s sales tax hike will be delayed as Japan deals with this latest economic policy failure. In Japan the economic policy is named after the Prime Minister Shinzo Abe, Abenomics. What is surprising is not that Japan has fallen into recession but that one would get a consensus from 18 economists.

Money poured into Shanghai-listed shares on the first day of trading last week. The Shanghai-Hong-Kong Connect trading link opened up mainland Chinese markets to global capital. This allowed world investors to access shares trading in Shanghai. It also allowed wealthy Chinese investors to Hong-Kong securities. Up to now only a handpicked number of fund managers were the only foreigners allowed to invest in Chinese financial instruments. It’s capitalism, sort of.(WSJ 11/17/2014)

How do you tell the health of our domestic economy? People go out to eat! According to The Economic Outlook Group a combination of factors shows that the economy is getting better. A better back to school shopping season since The Great Recession (Yes, they’re now calling it that!). We should also see a better holiday season because of the good back to school sales, reported Phil Orlando, chief equity strategist at Federated Investors. Economists have also predicted that a 1 cent drop in the cost of gasoline puts 1 billion dollars in consumer’s hands. It’s estimated that in many parts of the country gasoline has fallen to less than $3 from $3.70. (You do the math. That’s a lot of extra money!) That has created a dry powder, Orlando said about the drop in gas prices, for an excellent Christmas. The one missing piece for a complete recovery, according to the 11/16/2014 MarketWatch.com article from Jeff Bartash, is higher wages. And, housing, I would say.

 

M&A, that’s mergers and acquisitions, has been boosting 2014 markets with company’s lofty share prices and cheap credit. Firms have been trading stock to acquire other firms. So far $3 trillion in deals for 2014. WSJ 11-18-2014. Whispers that they good times will continue to roll for another 6-12 months.

Oil prices may not come back for some time but it is never to late to ‘bottom feed’ on oil companies that have been ‘dinged’ in the crush. Holders of oil and energy stocks will get dividends buying more shares at the lower share prices and realize nicely when share value returns. Do your homework.

Avoiding Risk by Avoiding Investing. Sometimes people think that they’re beating the system by holding assets in cash or in a money market, earning little or nothing on their savings. Other times they sell everything whenever the markets hiccup. By doing this, they think, no risk is being accepted. They’ll ‘wait’ things out until another global meltdown and then step in to buy ‘bargains’. The fact that catastrophic global depressions happen once every 100 years seems to be blithely ignored. In the meantime these investors lose money to inflation and decreasing purchasing power of their ‘riskless’ savings. When they do wake up they’re so far behind that their savings plan is a shadow of where it could have been if they’d stayed invested. Understanding and accepting risk is essential in any form of saving.

 

 Jeremy Grantham, founder of Boston based money manager GMO, opinioned about market tops and stock market crashes on his GMO web site. You could do far worse than reading and following the wisdom of Grantham. He writes of markets being overpriced and the unknown consequences of what he calls the largest red herring in the history of oil, fracking, and yes, even a stock  bubble where things will come crashing down, as they always do whenever there is such a bubble. So where is the top according to Grantham? We have another 10% on the S&P 500 before a fairly large retreat. That’s 2250 in case you need a number to write on your refrigerator.  Barrons.com and GMO web site 11/2014.

No Recession in 2015 But No Growth Either, according to a Bank of America Merrill Lynch survey of fund managers. Fewer than 1 in 10 fund managers expect a recession in 2015. Emerging markets are poised for a further rally, according to the same survey. CNBC 11/19/2014. And we all know what great crystal balls most fund managers have had in the past.

Did you know there is a web site where if you don’t know how to pronounce a word will pronounce it and explain what it is?  www.howjsay.com

Bob Pasani at CNBC thinks 2015 may be a good year for stocks. He reported reading the Stock Trader’s Almanac, 2015 edition, that 2015 is a presidential pre-election year and the Dow has not had a loss in a pre-election year since 1939. Also, the worst two quarters of the four year presidential cycle are the ones we just left- the second and third quarters of the midterm year. Pasani also writes that 2015 is the fifth year of the decade. The fifth year is the best year of the decennial period by a long shot. Over the past 130 years the Dow and its predecessors are up an average 28.3%. There has been only 1 losing year ending in ‘5’ in 13 decades. CNBC 11/19/2014 Bob’s on the right talking to Art Cashin, Director of Floor Operations at UBS.

It doesn’t hurt to be a bit defensive in 2015. Look at dividend paying all weather stocks that perform and pay a dividend in good economic times and bad.

Goldman Sachs outlined their economic theme for 2015. They reported that there will be a broadening economic recovery, with the U.S. to remain the primary engine of global growth, while Japan and the euro area are set to look a bit better. Oil, they believe, will be lower in 2015 than in 2014. Reported in CNBC.COM 11/20/2014.

Thursday’s Factory Activity in the U.S. Mid-Atlantic region expanded at the fastest pace since December 1993. The Philly Fed said its business activity index doubled. Analysts expected a modest 18.3 number and what they got was 40.8. Any number above zero indicates expansion. CNBC reported 11/20 that the numbers most surely would fall back to more normal levels but it seems that the U.S. economy is impervious to any bad economic news that comes from overseas. Markets continued their upward momentum.

 Have a Happy Safe Thanksgiving.

Questions call Paul @ 586 295 0430 or write him at pstanley@westminsterfinancial.com. Share this blog with someone who cares about their money.

Securities offered through Westminster Financial Securities, Inc. Member FINRA/SIPC.