By Edward Leone Jr. CFP RFC DMD MBA
Contact Information: edleonedds@gmail.com 303-478-6793
The global energy seen is very interesting. The U. S. is a major producer of petroleum products. This fact puts other producers such as those in the Middle East and Russia along with some South American Countries in competition in the demand and supply dynamic. The U. S. is and will continue to be a reliable supplier as opposed to some other sources. Our challenge is transportation of product within our country and abroad. Look for aggressive business activity with entities engages in export networks, terminals and sea ports. The current slump in oil prices is not hurting U. S. production as much as reducing development of new wells and reducing capital expense on equipment.
Our most followed equity indexes have been quite volatile and through 6 months have shown very small advances in yield. The S & P 500 index is up 2.07 percent year to date. What will the next 6 months hold for equity returns? How should investors set up asset allocation and diversification strategies? How will investor biases influence financial behavior and how can some of us make an advantage of those behavior patterns? There is much to think about here. A disciplined investment strategy which contains reasonable goals over a reasonable period of time is a way to deal with much of what are future challenges. 401K plans and personal IRAs now hold $7 trillion while total nongovernment assets held by the population is estimated at $99 trillion. I am not sure what these numbers mean and will do for us when 41million of us are over the age of 65 with increases of 15% over the last 10 year increment which is projected to continue up to 2030. On the brighter side of things, Kiplinger is projecting a 7% annual return for the S % P 500 index while adding in dividend returns, this looks like a potential 9% year. Their writers feel that corporate earnings will be up and that the economy will improve due to increases in consumer spending. It is evident that diversified, safe and liquid investment vehicles are important for the parking of cash and cash equivalents. Investing in equities with a value orientation strategy is also an important consideration. Equity investments which demonstrate P/E ratios (price to earning) below the long term average, P/B ratios (price to book) which demonstrate value and P/S ratios (price to sales) less than 3 deserve a look.
It is clear that the monetary policies being engaged by global central banks will be an element in saving the banking system. It appears to many that this activity is also improving the economy since more cheap (low interest money) is available. This may be an element, but much of the money being created is designed to enhance bank balance sheets and may not find its way into the U. S. economy and the global economy. Many are concerned about the big hit that may occur when interest rates go up if there has not been significant improvement in economic growth first. I have stated before that monetary policy as engaged by the FED and other global central banks is at its limit of positive impact and that fiscal policy engaged by Government is necessary to see economic improvement. Government cannot continue to take financial resource out of the economy which could be used by industry and individuals to grow the economy. U. S. Government debt is at $18 trillion while Social Security and Medicaid legacy costs are estimated at $75 trillion. Service on Government debt at these low interest rates is at $535 billion a year. What will it be when interest rates go up? The Government spends $3.5 trillion a year, but takes in $3.1 trillion a year. Do you get the picture? Many Government activities regarding programs, regulation, borrowing and taxation will have to change if economic growth is the be generated at a more accelerated pace. Just look at what is going on with Greece!
For The Record:
DJIA 17,946.68
S & P 500 2,101.49
NASDAQ 5,080.51
Suggested Reading: “America 2020” by Porter Stansberry
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