MONEY 40 - STOCK MARKETS

THIS IS MY 40^TH BLOG ON UNDERSTANDING MONEY TOOLS

Let’s take a look at the stock markets. It is important to note the writing and dates in regard to markets as they fluctuate quickly with varying news and reports. (This written on March 17, 2004….Happy St. Paddy’s Day!) Again, please note my writings are not to be taken in extreme depth in any subject matter, however to give a quick overview and insight as to how I see things.

As previously noted, the US stock markets are seeing highs and historically quite overpriced in relationship to price to earnings of companies and overall capitalizations. Why is this?  There are a few reasons:

1)    Stocks are very manipulated by Wall Street and the media coverage.

2)    Currently, the stock markets are the only game in town so to speak, they have rendered a good return on investment and liquidity.

3)    World economic issues and problems have had wealthy investors seeking stability of the United States.

4)    Janet Yellen, the new Federal Reserve Chief, is following similar financial philosophies of her predecessor, Mr. Bernanke.

Here is a brief breakdown on each of the above topics. Stocks are greatly manipulated. Good news from the media usually takes the overall markets up, bad news here, or perhaps worldwide can take markets down. Several top analysts think the market still has more upside in 2014, perhaps in the 6-8% growth range.

The economic reports indicate the US economy is doing better and perhaps have a Gross Domestic Product (GDP) of 3%, I don’t see much above 2%, and that is leaving us flat, and unemployment high. Too many of the big companies are leaving their trillions of dollars in profits abroad and that money is not circulating or helping us here in the USA. Recent figures for non-taxable personal and corporate money abroad is around $7.9 trillion.

I thought that after Russia did an outstanding job with the winter Olympics their stock markets would have gone up.  Then, came the Ukraine problems and their markets have been hard hit. With Western economic sanctions unfolding on Russia, their markets will get further hit. What is the major problem? As I see it, Russia doesn’t want to let go of the satellite countries it once controlled, and major to this are the pipelines for oil and natural gas from Russia to Europe. It’s usually over money and control. (Go to Google and look at the oil/gas pipelines from Russia to the ports and seas.)

Point 2 above covers where to put money. We have talked a lot about what happened to the “American Dream” of home ownership and real estate. Younger people want to rent, not have families, have smaller places to live, not be tied down and have seen real estate lose 60-75% of the high values. No guarantees in life! Real estate can lack liquidity, which means selling and getting your money out.  Stocks are normally liquid. You can call up a stock broker, exit the company and get your money. Emerging countries have weakened economic forecasts, thus more money into our markets. Also, some South American countries have issues such as Venezuela, Argentina and to some degree Brazil.

The US dollar and markets have always been the safe haven of the world.

Regarding point 4 we have touched upon the topic in the past. Quantitative Easing has pumped almost $4 trillion dollars into the economy and banks. The big banks have been investing in the markets. The philosophy of Janet Yellen is to continue to hold interest rates low, try to keep our economy moving forward and Wall Street loves the news.