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Over the next few weeks watch for my blog posts on:
- Market updates
- Tax changes
- Retirement planning
- Social Security
- Other timely topics
In this article I have summarized (from my perspective) the keynote address, Guide to the Markets, by David Kelly, JP Morgan Funds.
Guide to the Markets: By David Kelly, JP Morgan Funds
Mr. Kelly opened with a great statement; our job as advisors is to see the present with clarity, not to see the future with a crystal ball. Look at the broader markets, and see what is out of balance. Invest and wait. Markets always return to balance. Simple, yes. Easy, no. Attempting to determine when the market will end the year is folly.
Today, millions of Americans are making poor decisions, because they are overly pessimistic.
The US economy is growing, an average of 2.2% annually since the recession. Sluggish pace is primarily a result of uncertainty and “help” from Washington.
What is most important about the US debt is not the debt in total dollars, but the debt as it relates to GDP. If the economy grew at 5% similar to historical norms, and the deficit was 4% of GDP, we would make slow progress toward reducing out debt.
The bad news is we have a dragging economy, so this is not possible in the short term.
The recent tax act did add certainty to individual (not corporate) tax rates, which is positive for markets, but the elimination of the 2% FICA tax holiday will be felt by retailers, like Wal-Mart, and will slow overall growth.
Consumer balance sheets are in much better shape. Americans now have $5 in assets for every $1 of debt, and most of this debt is mortgage debt, now refinanced at historical lows. Currently, we use less of our household income servicing debt than anytime since 1980. Corporate balance sheets are exploding with cash, as they wait for long term clarity on tax rates.
Many markets indicate room to grow, such as housing. For example, we are now building 900,000 homes annually in the US, and having 2.2 million marriages. Eventually these 2 data sets will merge and fill the pent up demand for housing.
Mr. Kelly suggests that today the market is undervalued, and recommends overweighing stocks given valuations based on historical P/E ratios. Indications are the next 5 years will be strong for equities. Be sure to have enough cash and short term bonds to weather short term corrections.
We are unlikely to see heightened inflation through 2014, maybe 2015. Watch for real returns on bonds to be negative soon and consider underweighting fixed income allocations with the exception of high yield bonds.
As for the rest of the world, the dollar will edge down over time. This will raise values of overseas markets. There is no expectation for growth in developed overseas markets. As for emerging markets, demographics will drive potential.
Today’s challenge is the psychology of investors. Long term markets always return to balance.
As always, at Mackey Advisors™, we recommend you invest with regard to your cash flow needs and your goals, values, and intention. We welcome you to update your plan or invite you to learn more about our award winning planning process, The Prosperity Experience™ by calling Mackey at (859) 331‑7755 ext. 103.