February 2016 Financial Markets Summary
It’s the Fed’s fault. Or the European Central Bank’s. Or the Bank of Japan’s. Perhaps ISIS. More likely China. Maybe Putin and Russia. Probably the folks in Washington. Could be fears of recession. Conspiracy theories are everywhere in this era of 24/7 news channels. We don’t like uncertainty. We want simple explanations. Unfortunately the financial media are oh so eager to offer them. The list at the beginning of this paragraph includes just a few of the explanations offered by talking heads to explain January’s markets. The same experts and other self-anointed gurus have made some totally off-the-wall predictions for the year, ranging from cataclysmic decline, advice to sell everything, to gains of 12-15%. Many of these people have no real understanding of the markets, but they are treated as if their crystal ball is direct from Maserati or Rolls Royce.
Aside from oil, which we have discussed previously, much of the blame for the market’s struggles has been heaped on China. We would like to make a few comments on this. First, if you think things happen in China by accident, you don’t understand very much about China and its thousands of years of history. Interest rates are controlled, the economy is controlled, the currency is controlled, and most companies are controlled. There may be some random events, but rest assured the Chinese government knows where it wants to go and will steer a course toward that goal at all times. Second, China has more tools available to steer that ship than any other nation or region. It has about $3 trillion dollars of foreign exchange reserves. It is not a debtor nation, and its currency is now a world reserve currency. Word is, China has more than 30,000 metric tons of gold reserves with which to back their currency. The U.S. has 4,200 metric tons in Fort Knox. Looking only at the Chinese stock markets is looking at the wrong things.
Guild Investment Management, whose insight has been about as good as anyone, believes interest rates will rise modestly in 2016. Because of the fluctuating confidence in the growth of the U.S. economy, Guild predicts only two small interest rate increases this year, not the four increases many were predicting a couple of months ago.
We cannot stress enough the importance of a long-term, diversified investment strategy. We have been through periods of market disruption many, many times before. Be sure that the investment strategy you have in place is appropriate and that your expected withdrawals for the next 3-5 years are protected. Patience, while darned hard to maintain, is indeed a virtue. Children’s author Howard Garis wrote how the elderly Uncle Wiggily was frequently bedeviled by unsavory characters Skeeziks and Pipsisewah. Just as Uncle Wiggily fended off these two recurring bullies, investors must fend off the scare tactics and off-the-wall predictions of talking heads. Always remember that today’s headlines and tomorrow’s reality are seldom the same.
| Asset Index Category | Category | Category | Category | 10-Year |
| 2016 To-Date | 3 Months | 2015 | Average | |
| Dow Jones Industrials – Large Cos | -5.5% | -6.8% | 7.5% | 4.2% |
| S&P 500 Index – Large Companies | -5.1% | -6.7% | 11.3% | 4.3% |
| S&P 400 Index – Mid-Size Companies | -5.8% | -8.8% | 8.2% | 5.4% |
| Russell 2000 Index – Small Companies | -8.9% | -10.9% | 3.5% | 3.5% |
| MSCI EAFE Index – Developed Intl. | -7.2% | -10.2% | -4.9% | -1.1% |
| MSCI EM Index – Emerging Markets | -6.5% | -12.4% | -4.6% | 1.8% |
| Short-Term Domestic Bonds | 0.2% | -0.4% | 1.1% | 2.8% |
| Multi-Sector Bonds | 1.1% | 0.1% | 5.1% | 0.8% |
| Global Government Bonds | 0.1% | -1.3% | 1.7% | 3.8% |
| Bloomberg Commodity Index | -1.7% | -15.8% | -24.4% | -6.8% |
| Dow Jones U.S. Real Estate | -4.3% | -3.1% | 27.7% | 5.1% |
| World Allocation Global stocks, bonds, commodities | -3.7% | -5.7% | 1.5% | 2.6% |
Please remember that past performance may not be indicative of future results. Different types of investments involve varying degrees of risk, and there can be no assurance that any specific investment, strategy, or product or any non-investment related content, made reference to directly or indirectly in this newsletter, will be suitable for your individual situation, or prove successful. This material is distributed by PDS Planning, Inc. and is for information purposes only. Although information has been obtained from and is based upon sources PDS Planning believes to be reliable, we do not guarantee its accuracy. It is provided with the understanding that no fiduciary relationship exists because of this report. Opinions expressed in this report are not necessarily the opinions of PDS Planning and are subject to change without notice. PDS Planning assumes no liability for the interpretation or use of this report. Consultation with a qualified investment advisor is recommended prior to executing any investment strategy. No portion of this publication should be construed as legal or accounting advice. If you are a client of PDS Planning, please remember to contact PDS Planning, Inc., in writing, if there are any changes in your personal/financial situation or investment objectives. All rights reserved.