You Are Here

Investors need a “you are here” label to gauge where they are and what lies ahead as they attempt to navigate their course safely toward acceptable rates of return in the financial markets.

In this blog post I present up to the minute data from a multitude of disciplines that I hope will firmly affix the “you are here” label while gaining a glimpse of the road that lies ahead.

Let’s take a look at global psychology first; since the onset of awareness of the debt crisis in Greece and fear of widespread contagion, governments have lost the political will to address fiscal problems correctly while avoiding a global growth deceleration capable of reversing the awesome stimulus packages of the recent past.

Austerity is very in vogue across the globe, and its promoters currently enjoy the moral high ground as most major governments around the globe are under intense pressure to remove government spending support from their economies. This could lead to one of the largest contractions in government support in decades. World governments are now focused on raising taxes on income and consumption on top of poorly targeted expiring stimulus packages expected to sap 1.3% from American GDP in 2011, a figure that could rise considerably if Congress were to prevent the extension of George Bush’s tax cuts. Globally this theme will result in a roughly 1% reduction in GDP, the biggest synchronized budget contraction in at least four decades.

Investors are now recognizing that their past fears of inflation were unjustified, rather the much darker enemy – deflation – is spreading through the economic system like a cancer sickening the already weak balance sheets of consumers whom were just beginning to believe the growth story world governments have been promising. Central planners missed by a country mile the only stimulus package that could have simultaneously addressed devastated consumer balance sheets and those of banks – a rebate to every American household of the federal taxes it had paid over the past three years, with a requirement to pay down household debt with 50% of the rebate.

The total costs of this type of stimulus would have been less than what has been expended to date to prime the banking system pump while completely ignoring the stalled consumer pump. Think for a moment how such a stimulus package would have affected your financial situation. Each and every taxpaying citizen would have received stimulus either permitting them to whether the storm, or to opportunistically invest in the very asset classes that have devastated so many households.

The labor department just released data suggesting that the current job market has suffered losses that are triple as much as what occurs at the lows of average recessions/job loss cycles. More importantly this data provides further evidence that the current economic recovery has begun to cool, this will have an impact on future consumer spending at precisely the time governments embrace spending cuts.

Globally the picture is generally the same, governments embracing austerity and considering raising taxes to shore up their own balance sheets, banks are largely insolvent with little incentive to risk capital by lending it to consumers who may not be able to pay it back given the impact of job losses and depreciated household balance sheets.

Investors begin to focus on stock market technical indicators when the fundamental indicators fail to generate any enthusiasm for investing. Yes, markets are probably oversold; however some of the greatest declines in history came from oversold levels. In fact we just got another bear market confirmation on Friday from Dow Theory where by both Transports and industrials hit new lower closing lows, and the 50 day moving average has just crossed through the 200 day average in the S&P – what some technicians call the Death Cross, a very bearish indicator that will likely have the S&P below 875 and the industrials below 8500. Alpha Fiduciary currently follows three of the most well respected technicians whose expectations range from negative to catastrophic.

While the only thing worse than writing these thoughts is reading them, take comfort in knowing that you not only know “you are here” but that Alpha Fiduciary as your guide invests its clients across ten diversified asset classes and has developed unique selection criteria to optimize the results derived from each asset class versus its benchmark. We also enjoy the freedom to express each asset class in the direction our vast research and technical work has determined prudent. There has never been a better time for our tactical, directional investment approach toward risk reduction, and opportunistic allocation of our client’s portfolios.

We are particularly excited to announce that we have recently succeeded in having our investment models adopted onto a top notch 401K retirement plan platform. If you would like to explore how this development can help you manage your retirement plan assets through the aforementioned environment, please email Mike Shea at Michael@alphafiduciary.com.

Be Well.