In anticipation of the Fed’s meeting this week, I am providing a chart that shows per month what the Federal Funds Rate has been since January 1971. I find that it helps put things into perspective.
It’s easier to run when the wind is at your back. Remember that the next time you’re out running and the next time you think about making an investment decision. One of the reasons Amazon is able to show strength at a time many of their competitors are struggling is that they have a number of drivers that cause a metaphorical wind to be at the company’s back. Need an illustration…here we go.
A big news story lately has been some insane idea that your gender identity should enable you to choose what restroom to use when out at a store or what locker room to change in, if I’m attending a school or part of a gym. I feel very confident saying that most people, especially those with kids, even more so with female kids, are pretty freaked out by this concept.
Just as a $15 minimum wage will push away lower skilled jobs that have an automated alternative, the thought of having some pervert in a bathroom your kid is using while at the store will push parents to opt for online shopping and home delivery. Most people do not get pleasure putting themselves through awkward and dangerous situations. If an alternative exists, they will choose the path that provides more comfort, even if a slight premium exists.
Amazon’s wide range of products and fast ordering speak directly to a society that is increasingly fragmented and polarized. They also are configured to serve higher wealth individuals. This group is not only in a better position to spend money on goods, but also generally has been predisposed to not want to submerge themselves with ‘the commoners’ at your regular retail establishments. The thought of pervert Bill frequenting the women’s restroom will push more people into the world of anti-brick and mortar shopping.
In the example above, I didn’t talk about the economy’s strength or buying trends, I talked about a political and social change that is pushing people to online shopping because they do not feel at ease with the direction our leaders are taking us. Amazon is the king of online retail and finds itself in a sweet spot.
A weak economy is not good for any retail establishment. In the short term, economic weakness has and may continue to take a backseat for an establishment like Amazon because other factors of change are playing to its benefit. The example provided is an external force that happens to be a benefit to Amazon and other online retail establishments. It’s only one factor and the truth is Amazon’s planning and strategy has led it to be able to take advantage of such a situation.
Never forget that social patterns do drive business success. Whether it’s where you are in your life (demographics), changes in society’s perceptions, or even geographic population shifts, all of these weigh heavily on economic dynamics and the ability for businesses to grow. Momentum is real.
Why have and why do so many people continue to migrate to the USA? One reason is because of the belief that life in the USA is superior to where they are coming from. In short, they believe their life will be treated better here in the areas of life that matter most to them. This is no different with money. In general, money migrates to where it feels it will be treated the best given its owner’s desires and risk tolerance.
Large cap dividend stocks are a place where many investors see their money being treated best, given the Federal Reserve’s perpetually low interest rates. The quest for yield has brought a significant share of investors to a realm where risk is much higher than it ever existed in certificate of deposit (CD). Paradoxically, the hive minded investing class finds comfort in the Fed’s new normal of scant borrowing rates. If the market is the only game in town for a decent return, then how bad could the market actually get? We’ve all got to drink to cool-aide or dehydrate. Drink we do.
If the market continues to fail to top the last top seen, how long does the punch drinking party continue before panic strikes and the greater fool theory rapidly unwinds before the eyes of the watching world? To think investors have recovered from skittishness brought on by the last decade’s market crash would be a great error in judgement. One aspect of ‘the new normal’ for investors is bouts of extreme volatility. It becomes almost a self-fulfilling prophecy. Spikes in volatility spark fear, fear sparks further selling and the cycle continues until a rush of bargain buyers convenience themselves the market, and society for that matter, are not doomed.
This is not meant to sound bearish. We live in a time where we’ve convinced ourselves the Fed and other like groups around the world have thrown their best punch and come up wanting. All the while we see Baby-Boomer after Baby-Boomer leave the job market and face the 2nd half of their life. A wave of wealthy individuals that want to live off of the yield of their savings, but do not need to establish themselves, buy new homes, start new families or start up new businesses. The main block of their offspring, the Millennials, have slipped, fallen and then slipped again as they’ve attempted to establish a career. Progress is coming, just at a much slower pace than anticipated.
While growth exists, it’s not comparable to what was seen after the 2nd World War or even the tail end of the last century. We live in a different time. We live with much different demographics. We live with a radically different job market. Over the last eight or so years we heard “Change we can believe in!” For those years and even before that we were in the midst of change we could believe in, yet it wasn’t the change to bring us to some social promise land. It was a change that would reshape the way we see the world, invest and plan for the future.
We’re often told that the market doesn’t reflect the economy and maybe to a certain extent that’s correct. I’m not sure what you or I are supposed to take away from that, besides from abstaining from gloating that the S&P 500 hit a new high. The market is a reflection of something more than itself. The market is a reflection of where money is treated best.
Given all the calamity whether social, political, economic or otherwise, people will migrate over time to where they are treated best and they’ll manage their money the same way. What is the best today might not have been the best yesterday and so on. A six-month teaser rate CD at 7% is a pipe dream today, yet wasn’t in 2006. Best in investing is relative to the current market conditions and those conditions feed off of the multitude of factors influencing the world we all live in.
The bottom line is, no matter how good you swim, you’ll always swim faster with the tide than against the tide and it’s vital to know the difference between the two. Retired people need a constant return on their savings. Savings accounts, CDs and bonds yielding next to nothing and will likely continue to be that way throughout the year and maybe even 2017. Where in this environment is money treated best?
Where do we stand today in relation to where we’ll stand tomorrow. Investors and non-investors alike seek the answer to this question. For investors, forecasting can help unlock the answer to what tomorrow holds.
In his recently released book, The Next Boom: What You Absolutely, Positively Have to Know About the World Between Now and 2025 by Jack Plunkett, a broad stroke depiction of where we’re headed as a world is provided. Thought he author readily admits he is bullish on what the future will bring, obstacles are noted, but they’re not a focus of his grand tour.
What I’ve found most helpful in reading this book is not only the subject matter presented, but the way in which it is presented. Daily news does not do a very good job of giving a big picture view of actions of the day and how they fit into overarching developments and trends. This book helps readers understand where things are set to progress. Though the trajectory provided might not be exactly as it is in the future, a general frame of reference is presented based on current states of affairs and likely outcomes.
When you’re thinking about your investment strategy and where you should spend your time researching, it’s very helpful to have a frame of reference regarding where certain economies and industries are headed. Plunkett provides a clear view of where he sees a number of economies and industries moving within in the next 25 or so years. Much of what he talks about pertains to demographic trends which are already set in motion.
Although I’m not fully done with the book, I will say that the bullishness that Plunkett expresses throughout the book in his forecast for the future could be a drawback for readers looking to use the book strictly as a guidepost for their investment decisions.
Even if all that is stated in the book comes to fruition in the time frame provided, investors will likely not succeed if they run out and buy X, Y, Z sectors, industries or economies. Corrections will occur over the period. Think of the path of progress like that of a hike to the peak of a mountain. From the start until you reach the peak you will experience some periods of decline, some shallow and some deep. Ultimately you will get to the top, but it’s not a straight climb up.
For investors or those interested in what lies ahead, I would highly recommend reading The Next Boom: What You Absolutely, Positively Have to Know About the World Between Now and 2025 by Jack Plunkett.