Everyone has a favorite season. For some, its Spring- daffodils and crocus popping their heads out of the soil to meet the new signs of sunshine, the grass going from tan to green, and the opportunity to get out and stretch in the warmth after a long cold winter. For others, they wait patiently for the summer to hit the beach, backyard BBQ’s and days of extended sunshine. Yet still others yearn for the crispness of autumn, with the beauty of natures colors; escape from the heat and the start of football. Then, there’s winter…
I’m writing this as I look out the window at the Great 2016 Blizzard, on 1/23/16; right now, lots of snow, wind, and by now a distant memory for most of us as we go through our daily routines, the historic Blizzard of 2016 being in the distant past. There are so many more descriptions of winter, many of them leading to the same conclusion: cold, windy, snow, and bundling up. Skiers can’t wait for the fluffy stuff to fall, to get out and swoosh down the slopes. This winter, for investors, winter seems to be the least favorite of all- billions lost in the market, international meltdown, diminished 401(k) values and all that come with a declining stock market. For me, your Certified Financial Planner® (and all around good guy) it means study, research and doing the best I can to help our clients through these rough times answering questions, and as ever, helping you to achieve your goals whatever they may be. I’ve got two crystal balls on my desk for over 30 years, and I just can’t seem to find the on button, where to put the batteries or do whatever I am supposed to do to get them to work. Even worse, they didn’t come with instructions, so all I can see as I perilously peer into them is the table top. There is two questions I seem to be hearing most- “Is this 2008 again, and “will the same results happen?” My answer to the two are resounding “no”, and “I don’t think so”…let’s look at the differences.
In 2008, there were many huge domestic issues plaguing the market, culminating in a nightmare of a market downturn that took years to recover from. In no particular order, we saw the downfall of Bear Stearns and Lehman Brothers, both pillars of institutional respect leading up to that time- nobody would imagine that one of them, let alone both would fall and disappear. AIG, the largest insurer in the world, also was on the way to dissolution, only to be propped up by the US Government with the decision that it was too big to fail (remember that saying?) who loaned billions to the insurer to keep it from disappearing and leaving millions without all types of insurance. Then there was the sub-prime crisis: the issuance of millions of mortgages to people who really could not afford to pay for them, leading to a record amount of defaults and people losing their homes- most of which should have never been in them to start with. It was a mess. So here’s the thing- all of these issues were domestic, meaning that they were all happening all right here in our backyard, in the Good Ole USA. We had none of our international neighbors to blame- it was all of our doing.
Now let’s look at the winter of 2015/2016 and the time immediately preceding this winter and present economics. Greece was in the forefront of the news for us all to see: defaulting on its debt, and threatening to remove themselves from the Euro zone, a group of European countries who long ago decided to give up their individual currencies in place of the Euro, one currency to be used in 19 of the 28 European countries. It made traveling and trade between the countries infinitely easier as the balance of the dollar between countries is a main component of trade. As long as we’re talking about countries, we can’t not talk about Russia, led by President Putin: a bare-chested egomaniac narcissist individual who has a reputation for not liking to lose. His methods and intentions are questionable at best, as we have seen in a flight shot down killing hundreds of innocent civilians, a country where the President lives in luxury and the people are starving, his uninvited involvement in the Middle East, and more issues that I can get into in this paper. There’s the lunatic in North Korea, who purportedly tested a Hydrogen bomb, putting the world on alert to a possible international catastrophe. Let’s move on to China: the present elephant in the room. A recently strong economy now on the brink of collapse, China has unraveled and is in a strong and unfortunate recession, joining most of Europe and Australia as well. Their play with the value of the Yuan, their currency, is creating havoc with trade. Worldwide, it’s not a pretty site and a terribly unfortunate time for many countries around the globe including recession, unemployment, dollar imbalance and all around bad stuff economically. In two words…Oh boy. Are you seeing the difference between 2008 and now yet?
In 2008, all the issues were domestic. We were responsible for our own downfall, and suffered the consequences. Now, while not exactly perfect, domestic economic are relatively sound. Most of the matters affecting the domestic markets are a result of international events. While we live in a global economy and we are tied to the other markets in many ways, the bulk of the issues are being thrust upon us by worldwide events, not happening here. There is a big difference, and in some sense, we are being dragged down by issues beyond our control. What to do? Not panic, sit tight, and reach for the Tums when necessary. Historically, after a market downturn (with no guarantees, of course) the market has come back longer and stronger. So today, I’m going to open the shades, gaze out into the blizzard and remember that a month from now when this gets into your hands, it will be a distant memory. Perhaps and hopefully the same will be said for the downturn of the US markets...
