3.13.17
Beware the Ides of March
At a time when optimism and momentum are pushing stock markets higher – this is the moment when
Main St. investors abandon risk management and instead chase a stock market (not an economy) that
appears as though it will never recede. Typically this has signified a market top as big money managers
and CEO’s are selling and the little guy is just getting brave enough to buy risk laden and overpriced
stocks. We saw it in 1999 (before a 46% decline) and we saw it in 2007 (before a 55% S&P 500 decline).
The Ides of March is a day on the Roman calendar that corresponds to March 15th, the day Julius Caesar
was assassinated and a major turning point in Roman history. This week will be marked by some “Ides”
of its own as a crucial Federal Reserve meeting and a always disconcerting debt ceiling debate on
Wednesday come into play on March 15th. If that wasn’t enough there are a growing number of
skeletons in the global political and economic closet that are sure to cause some disruption to the best
laid hopes.
Potential Triggers for a Correction
Implementation or delays to Healthcare Reform, Tax Reform, Border Tax, Infrastructure package: It
was optimism and hope that pushed markets higher post-election. As these measures wind through
Congress, any disappointment in their implementation date, size, scope or integration will be met with
dismay.
Federal Reserve Raising Rates: The Federal Reserve is bent on raising interest rates at a time when the
economy is growing at a near recessionary rate of 1.2% in the first quarter of 2017. Higher rates without
accompanying economic growth and wages will be a headwind to growth in a world already saturated in
debt. Higher rates on personal, corporate and governmental debt translate to growth restraints.
Debt Ceiling Debate: It’s been four years since our last debt ceiling crisis. At that time the Republican
Party opposed an increase to the already $16.4 trillion ceiling. Many think tanks argued that any rise in
the debt ceiling should be accompanied by a plan to balance the budget within ten years. Four short
years later and we stand at $20 trillion of national debt!
China Debt Crisis: Live by the debt sword, die by the debt sword. The size of China’s above ground
banking system combined with their shadow banking system has outweighed its economic growth and
was used to mask contractions in its core economy. With its credit risk reaching all time highs, caution
will be the word.
European Election Results: The spotlight always seems to come back to Europe. Wednesday’s election
in the Netherlands will set the tone for the French elections in April. The popularity of candidates who
espouse leaving the European Union continues to increase. Every time the “leaving” fever grows, the
European financial system buckles (Deutsche Bank fell 30% in two weeks during Brexit).
Reversion in Oil prices: Two months of skyrocketing oil inventories and lower gasoline demand (down
6.1% year-over-year) led to a 10% decline in oil prices last week. Economies that are dependent on oil
took a beating (Russia -5%, Brazil -4%). Domestic junk bonds fell 2% for the week. A continued trend will
make it difficult for stocks to move higher without ever increasing oil prices.
As always, we will continue posting articles that we believe to be of great informational value on our
website, under the “Great Articles” tab, which is linked here:
http://summitplan.com/cgi-bin/htmlos.cgi/great_articles.html.
Additionally, the “Summit Planning Financial Hour” will be live this week on Radio 570-WSYR at 10AM on
Saturday. Don’t forget to tune in for a recap of the week’s events. If you cannot tune in, check out our
radio show archive on our website at http://summitplan.com/cgi-bin/htmlos.cgi/radio_shows.html.