Updated - Thoughts from Austin - April 2018

We have been in a bull market for so long that dealing with falling stocks is almost
hard to understand. Growth is solid, the job market is strong, optimism is high and we just got a massive tax cut, but in February stocks were hit with the largest surge in volatility ----Wall Street's code word for falling stock prices ----in market history. What is going on? There are concerns in the market ----like the president's ever-changing cabinet and endless speculation in the press about what it means ----but let's face it: there has always been something to worry about. For instance, the North Korean threat, though intensifying, is not new; nor are concerns about Iran and the centuries-old Middle Eastern conflict. We could blame trade tensions as the Trump administration has sought to get better deals from trading partners, but the market hits came before significant concerns about global commerce surfaced. Brexit (the United Kingdom's exit from the European Union) was seen as a major disrupting event in the global financial system in the summer of 2016, and yet it became a fantastic buying opportunity. The stock market was fine because the market looked through these destabilizing events anticipating a better future. 

 

Today, even though the investment environment looks so promising, the market might be looking ahead and considering several key issues: 1) going on 9 years, this is now the 2nd  longest bull market in history and is much closer to the end; 2) we have gone 105 months without a recession, getting close to a record-long expansion, and a downswing is increasingly probable in the next year or two; and 3) high government and corporate debt, as well as the Fed's ability to handle the next downturn with interest rates so low, will likely make the next recession quite severe. It is not surprising that the price of financial insurance has remained strong this year. Gold is the only time-proven vehicle for completely removing wealth from the financial system.