Making Financial Sense
James C. Knapp, AIF®
Settling into 2019, you will soon be celebrating Women’s History Month (March) and Earth Day (April 22). According to www.WomensHistoryMonth.gov, we celebrate and recognize “the great contributions that women have made to our nation.” According to www.History.com, Earth Day is an annual event where various events worldwide are held to demonstrate support for environmental protection.
Society, as a whole, commemorates these as we find the value in them. The value coming from the fruits of women’s labor and the essential protection of Earth’s life-sustaining qualities.
Appreciating historical context leads to better understandings. You may seek tangible ways to protect and preserve the Earth’s environment or learn more about women’s historical contributions. As noble as your intentions are, you may become absorbed by life before making your planned impact on the environment.
I would suggest learning how to protect your hard-earned, investable assets is just as important. We can all agree that the lack of knowledge may lead to making poor investment decisions.
This knowledge will help guide you to develop your own practical investment process. This process is one where you understand and appreciate the varying dynamics and possible outcomes. This can also help you derive your own opinion on the economy, investment opportunities, and what you think is an appropriate manner to proceed.
I believe having applicable insight will better enable you to make smart decisions with your money, thus creating a lifetime of financial confidence. I believe this is vital as you will find cogent arguments for strategies recommended to you. It is your responsibility to fully appreciate the pros and cons of each and work through them to decide which is best suited for you.
Many news outlets, as well as market strategists, discuss the yield curve. They also reference the inverted yield curve. The yield curve is the difference between the interest rates on the short term United States government bonds and longer term United States government bonds.
Typically in a healthy economy, the rates of long term bonds will be higher than the short term bonds. The extra yield (aka interest) is to compensate for the risk that economic growth will likely cause an increase in prices (aka inflation).
New York Federal Reserve President John Williams said the yield curve inversion is “a powerful sign of recessions.” According to research from the Federal Reserve Bank of San Francisco, every recession of the past 60 years has been preceded by an inverted yield curve.
A resource I have used for yield curve data is from the Federal Reserve Bank of St. Louis (https://fred.stlouisfed.org/graph/fredgraph.png?g=mMGv). This resource will chart the 10 year Treasury Constant Maturity minus the 2 year Treasury Constant Maturity as of February 7, 2019. (Shaded areas represent U.S. recessions; Source Federal Reserve Bank of St. Louis)
You also may read or listen to various news outlets debating whether the United States economy is currently in, or will be entering, a recession. I believe this may be missing the most important point. Going back to World War II, LPL Financial Research found there have been 14 bear markets, with seven taking place during a recession and seven without an accompanying recession.
Current events can also impact your investment portfolio. I believe your investment strategy may need to account for them due to their market and political implications. These range from increased trade risks, potential future government shutdowns, troubling headlines on geopolitical issues, global growth slowdowns, etc. Some examples to keep in mind may be:
The recent, record-setting 35 day government shutdown, which was temporarily funding governmental operations through February 15, 2019;
Thursday February 7, 2019, President Trump indicated he does not plan to meet Chinese president Xi Jinping ahead of the March 1 trade deadline;
The United Kingdom’s scheduled exit from the European Union on Friday March 29, 2019 after 46 years of membership;
The European Commission cut its GDP growth forecast for 2019 from 1.9% to 1.3%, warning that Brexit and China may worsen the outlook. Italy's revision was the most negative, from 1.2% to 0.2%. The latest data told the same story, as industrial production in Germany contracted in December by 0.4%, versus expectations for 0.8% growth, suggesting the country may have entered a technical recession in the fourth quarter. In addition, the Bank of England cut its U.K. economic growth forecast for 2019 from 1.7% to 1.2%-and noted that Brexit risk had risen. Finally, Europe's economic surprise indexes have lagged far behind those in the U.S., Japan, and China in recent months and
St. Louis Federal Reserve President James Bullard, a Fed voting member, said in a speech on February 7th, 2019 that the Fed must “tread carefully” in future policy changes, and noted that he views inflation-adjusted rates as “a little bit restrictive” at this point.
I hope this article gives you a good start building your knowledge base focusing on preserving your hard earned resources. I believe that when women have a voice, options, information and a community in which to learn, they are able to make smart decisions with their money, thus creating a lifetime of financial confidence.
The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. All performance referenced is historical and is no guarantee of future results. All indices are unmanaged and may not be invested into directly.
The Standard & Poor’s 500 (S&P 500) is an index of 500 stocks seen as a leading indicator of U.S. equities and a reflection of the performance of the large cap universe, made up of companies selected by economists.
The Bloomberg Barclays U.S. Aggregate Bond Index is a broad-based flagship benchmark that measures the investment grade, US dollar-denominated, fixed rate taxable fixed income.