Washington, DC -- (ReleaseWire) -- 04/02/2015 --Last Thursday, Atlanta Federal Reserve President Dennis Lockhart spoke at an Investment Education Conference in Detroit. He voiced a position seemingly held by a number of Federal Reserve members, saying, "The economy is in solid shape to weather the upcoming turn to tightening monetary policy." If this is true, and everything really is running smoothly, then why did the Atlanta Fed just forecast that first quarter GDP growth for 2015 will be 0.20 percent? Only a few weeks ago the expectation was to see 2.5 percent GDP growth for the first quarter, so this is a nosedive of 2.3 percent in just two weeks. Is it possible that the reality of our weakening macro-economic data is rearing its ugly head at last? Is the "field of dreams" economy that the government and media have been selling us really a field of nightmares?
In February, orders for durable goods declined significantly, in the worst fall since the collapse of Lehman Brothers. For the last four months, that number has been not only declining, but missing expectations, and it seems that the series is now locked into back-to-back quarterly contractions, and if the pattern continues, we could find ourselves in a formally constituted recession. Durable goods orders are considered a significant indicator of what will happen in the economy overall. Again, dreams or nightmares?
Good investors and financial advisors rely not just on their own research, but on the work being done by others. A few recently published research pieces are worth taking the time to consider here. The first is a piece by the editor and CEO of Business Insider, Henry Blodget. The piece is titled "The Current Boom will Turn to Bust." (http://www.businessinsider.com/tech-bubble-boom-and-bust-2015-3) He makes the case that we are at the point, especially in the tech sector, where the boom we are experiencing is about to make the cyclical downturn to "bust." It's a valuable set of insights to consider when looking at protecting your portfolio.
Analyst Michael Belkin, in his Belkin Report of March 30th, emphasizes this, pointing out that a strong dollar (up +9% on average in the first quarter) adversely affects the industries that have the highest exposure to foreign exports. This means the Tech and Industrials sectors, in particular. He says, "Many leading tech stocks topped out months ago (paradoxically way before the Nasdaq index)." Belkin is also particularly cautious about the Fed's apparent intention to raise interest rates. He warns about the consequences of this in our current climate. "Having missed the boat on raising rates at the right point in the cycle, Yellen in her infinite wisdom now intends to raise interest rates while GDP growth is approaching zero, the energy slump is dragging down investment and corporate profits have turned negative."
The third "recommended read" for this week is an examination of liquidity and its impacts, by Howard Marks, Co-Chairman of Oaktree Capital Research, titled "The Meaning of Liquidity" (http://www.oaktreecapital.com/memotree/liquidity.pdf). He references Investopedia's definition: "The degree to which an asset or security can be bought or sold in the market without affecting the asset's price." Marks then goes on to clarify, saying, "Thus, the key criterion isn't 'can you sell it?' but 'can you sell it at or close to the last price?'" Why is this important? The market cannot always be held up by money from the Federal Reserve or the Plunge Protection Team, and investments in this market need to truly be liquid, so that investors have a chance to move them if the market begins to fall, which many experts say is going to happen soon.
The answer to the earlier question, "Is this economy a field of dreams or a field of nightmares?" comes into focus when we consider this research and the larger macro-economic picture, and it's starting to show in the market itself. The Dow and the S&P 500 are in the red for 2015, year-to-date. Silver and gold are in the green in the same period, though, with silver up 8.10 percent and gold rising 1.30 percent. Why are silver and gold on an upward run? Looking at some of the reasons for that can be a big help in looking at ways to protect your portfolio.
Because the central bank manipulated markets have been ignoring the fundamentals for so long, many investors and traders have essentially sidelined themselves, and even the head of the Federal Reserve is seeing it. Janet Yellen made a rather astonishing admission last week. At the "The New Normal Monetary Policy," a research conference sponsored by the Federal Reserve Bank of San Francisco, she said during the question and answer period, "Cash is not a very convenient store of value." In this, she was echoing former Fed Chair Martin Greenspan who not too long ago made the statement that "gold is a currency, it is still, by all evidence, a premier currency. No fiat currency, including the dollar, can match it." If fiat currency isn't a "convenient store of value," what is? Perhaps the answer is gold and silver, and that is one of the reasons they're going up.
In a recent report, Eugene King, an analyst with the Goldman Sachs metals and mining team in London, gave another good reason. He asserts that the world will be facing a commodities scarcity. "Our research shows that there are only twenty years of known, minable reserves of gold," and goes on to say, "The combination of very low concentrations of metals in the earth's crust and very few high-quality deposits, some things are truly scarce. Perhaps, and surprisingly, these are the so-called precious metals, and their value is derived from the fact that they are rare. The relative scarcity and the market's belief that new discoveries will be limited is what drives the price of these super-rare commodities." That rarity has made precious metals a true store of value for over 4,000 years, and if King is correct, what he says becomes even more true as economic systems around the world become weaker.
So, field of dreams or field of nightmares? With sufficient thoughtfulness and the willingness to act toward protecting your investments, the current minefield doesn't have to be either. Consider what the best, most liquid options are for you to store the value of your life's work as we being to enter into what is looking to be a very volatile period.
All data sourced through Bloomberg
Securities offered through Western International Securities, Inc., Member FINRA & SIPC. Bennett Group Financial & Western International Securities, Inc. are separate and unaffiliated companies.
About Dawn Bennett
Dawn Bennett is CEO and Founder of Bennett Group Financial Services. She hosts a national radio program called Financial Myth Busting http://www.financialmythbusting.com
She discusses educational topics and events in the financial news, along with her thoughts on the economy, financial markets, investments, and more with her live guests, who have included rock legend Ted Nugent, as well as Steve Forbes and Grover Norquist. Listeners can call 855-884-DAWN a as well as take podcasts on the road and forums for interaction.
She can be reached on Twitter @DawnBennettFMB or on Facebook Financial Myth Busting with Dawn Bennett or firstname.lastname@example.org