September 13, 2013
By Steve Blumenthal
Looking for a feel-good financial read this weekend? I highly recommend Gary Shilling’s Advantage America that John Mauldin highlighted in his most recent Outside the Box.
Speaking of Mauldin, he and I spoke in Chicago at the Trinity Financial Investor Forum. John shared his thoughts on the economy and the markets and I spoke on current probable returns and strategies that enhance portfolio construction.
We both agreed that a new secular bull market is approaching and that it likely presents itself in the next three to five years. Recessions do happen and are a healthy part of every business cycle and appear every 6-10 years or so (see charts below). Unfortunately, history shows that stocks decline approximately 43% on average during recessions. The recent gains have been great. Make sure you mindfully protect those gains.
This week, I share the following relevant research:
- Advantage America – Gary Shilling via Mauldin’s Outside The Box letter
- NDR Recession Probability and Global Inflation Model’s
- The IMF knows that the Fed is playing with fire in emerging markets – Ambrose Evans-Pritchard
- Trade Signals – Investor Sentiment Remains Favorable
Advantage America – Gary Shilling via John Mauldin’s Outside The Box
“Today’s Outside the Box, which comes to us from good friend Gary Shilling, is unusual because that old confirmed bear is waxing positively bullish about the future prospects of the US. In doing so he mirrors my own views. It is just a matter of time before I go from being bearish on the US because of the dysfunctional US government to being an irrational perma-bull, at least for the next few decades. There is just too much upside potential with this country of ours — if we can muster the political will to handle our serious fiscal issues.”
Here is a link to the piece.
NDR Recession Probability Model and Global Inflation Model – The shaded areas represent recession periods.
The IMF knows that the Fed is playing with fire in emerging markets – Ambrose Evans-Pritchard
“Listen to the IMF’s Christine Lagarde very carefully. While the US Federal Reserve has as a parochial “closed economy” view – and made a series of grave blunders over the last six years as a result – her job is to look at the entire world, and she does not like what she sees.
She warned over the weekend that Fed tapering could ricochet back into the US economy if handled carelessly.
“Very negative spillover effects on the emerging market economies could very much backfire on other economies. So to assume that the domestic economy is totally isolated, that a country is an island, would not be the right approach,” she told CNBC at the Ambrosetti Forum on Lake Como, which I have been attending.
“Without necessarily changing the mandate, without reviewing the terms of references, and maybe without even acknowledging it, I cannot believe that central bankers do not take into account what’s happening elsewhere in the world,” she said.
Unfortunately, that is exactly what the Fed seems poised to do. It is an open question whether the US economy itself has really reached escape velocity, or is strong enough to withstand much tapering, and the European economy is not even close to that point.”
SB: This piece hit my radar as Ambrose brings into focus just how Currency Wars may escalate into military wars. He continues by touching on the economic risks (emerging markets are half the global economy) and the very real risk of war.
“But the Brics are in no fit state to cope with the withdrawal of global dollar liquidity. And remember, emerging markets now make up half the world economy, so we are in uncharted waters here.
Of course, one might say the Brics deserve to be taken down a peg or two, since they seem determined to collude in Assad’s chemical weapons attack, blocking any punitive measure at the UN (and there are measures short of missile strikes). Why is India taking this squalid position? Why is Brazil? Why are they allying themselves with the dictator Putin, now the full accomplice in a terrible crime?
Why are they continuing to show such lack of leadership, such an inferiority complex? Why for that matter is Germany – which started the ball rolling with Mustard gas in 1915, and therefore should have a special responsibility – so unwilling to go along EU partners in any way? Why is it doing so little to muster proper condemnation? Frankly, I am shocked by Germany’s behavior, since it appears to have no moral content at all.
So if the Brics come pleading for mercy as Fed tapering sets off a faster pace of capital flight, they cannot expect a very friendly response from Washington.
Be that as it may, any satisfaction that the US may enjoy from seeing the Brics humbled a little will not last long if the effects spread contagion to southern Europe again, and then back into the US economy itself.
The IMF is right, but is anybody listening at the Fed?”
Here is the link to the full piece.
Trade Signals – Investor Sentiment Remains Favorable
Trade Signals is designed to help you navigate the risks and rewards of the stock market. I believe a less certain investment outlook is ahead due to unmanageable debt, entitlements and unprecedented central bank manipulation.
Have a plan in place that enables you to participate in the stock market’s gains while mindfully reducing your downside risk.
Included in this week’s update:
- Sentiment Charts – The short-term trend remains favorable supporting a continued rally.
- Cyclical Bull Market Charts – The cyclical bull market trend remains favorable
- I suggested removing hedges several weeks ago when sentiment was at Extreme Pessimism and the S&P 500 Index was at approximately 1630. Sentiment continues to favor a bullish market view.
Here is the link to the charts. Note – it is posted to our web site every Wednesday.
It was great to see John in Chicago. We go back so many years and it’s great to see him flourishing. We all benefit from his intellect and passion. If you would like a copy of our presentations, please send me an email. There are some updated charts on forward expected returns you might find useful and I share ideas on creating broadly diversified portfolios designed to grow your wealth. Mauldin has a short, entertaining video at the end of his power point presentation that you’ll enjoy. Hint: Remember the scene in A Few Good Men when Nicholson declares, “You can’t handle the truth!”?
Finally, I would like to give a quick thank you to John Wimbiscus and his outstanding team at Trinity Financial. The forum was held at the beautiful Gleason Center at the University of Chicago. The room was packed and the night was entertaining.
Wishing you a great weekend!
With kind regards,
Steve
Stephen B. Blumenthal
Founder & CEO
CMG Capital Management Group, Inc.
Philadelphia – King of Prussia, PA
steve@cmgwealth.com
610-989-9090 Phone
610-989-9092 Fax
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