Change Afoot!

At this time of year, I look both back and forwards. In looking back, I see that we are better off, overall, this year than we were a year ago, from a financial perspective. Looking toward next year, I believe we will be better off than we are today. That being said, some interesting things on the horizon could have a significant impact on financial matters. If the agreement with Iran goes through, it could mean significantly lower oil prices for Eastern and Western Europe. This would be good for their economies and also for world economies as discretionary income would grow. The new Fed Chairman, likely to be Janet Yellen, will bring a softening to monetary changes that will be enacted by the Fed during 2014. This should result in less shock to the financial system as the stimulus is discontinued, and should reduce the risk of a major market correction.  The big unknown on the negative side is what Congress will do about the budget and deficit reduction.  I am guessing that the Republicans will not want a repeat of October as we head into an election year. We will see.

Thanksgiving is my favorite holiday. I wish each of you peace, joy and the blessing of living in a country like the United States of America!

Ed Mallon 

Market Conditions

There was a front page article in the Wall Street Journal this morning about “Mom and Pop” now entering the stock market, after an absence since 2008. It seems that by the time “Mom and Pop” enter the market, it’s at the top! I can’t say I completely agree with this but it does reflect how fast the stock market has gone up this year and the amount of new money being invested. According to Warren Buffett, a simple way to look at the market is to measure the ratio of the aggregate value of the stocks in the Wilshire 5000 to the U.S. GNP. If this ratio is under 100% stocks seem priced to buy. If it is over 100% stocks are pricey and will likely come down. According to this idea, back in 2009, when the ratio was 76%, it was a time to buy. As of September 30^th the ratio was 109%. Does this mean that stocks are headed for a tumble?

There are many ways to look at the stock market none of which has proven infallible. The market is based on what a willing buyer will pay a willing seller. We all know the stock market goes up and down and it is difficult to determine when it will do either. The best way to address this issue is to have a diversified portfolio of stocks and bonds that have a relatively low correlation to each other. As an investor you do not want to be “chasing” yield, but to set your investments in accordance with your risk tolerance. I am sure that Warren Buffett is not selling most of his investments in fear of a downturn in stock values, but he may be limiting new purchases until such time as he feels that there are better values.

Ed