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Wednesday, February 17, 2016

Random Thoughts: Macroeconomic Concerns

Currently, investors are in a quandary on where to invest their money.  So many experts are providing a farrago of ideas to invest their money, as this creates even more uncertainty with most investors. This creates an austere position with investors and their cash. While all of these maybe viable options, there are some macroeconomic concerns that need strong consideration before doing any sort investing.

Is there another Market Correction imminent? 

Many experts feel another “bear” market coming along. They feel this many reasons, but I will limit it to simply a couple reasons in this article.  First of all, the yield curve between short term Government debt and long term Government debt is shrinking. As per the Expectation Theory, any time the yield curve begins to “invert”, this means that a market correction is near.

The Fed’s Monetary policy 

Up until recently, the fed has kept interest rates historically low. Based on the Fed’s logic, this is to help stimulate the economy. The Fed has also performed other sorts of strategies to help jump start the economy, as Operation Twist is an example of this. In short, Operation Twist purchased Government debt, over time starting in 2008. Now, there is a large amount of Government debt residing on the Fed’s balance sheet. What is the exit strategy? How will these bonds get unloaded? If the Fed continues to raise interest rates, how does this alter the exit strategy? Currently, by expanding the money supply, this impacts retirees, as this is a recipe for inflation. The United States has a large number of baby boomers reaching retirement age. How this plays out is very uncertain.

The Presidential and Congressional Races 

With the Presidential and Congressional races upcoming, fiscal policy will be altered.  How will taxes play a role with the new President and new members in Congress? If taxes are raised on the “rich”, this will impact the economy. Typically, the “rich” are individuals who still trade time for dollars. In this case, this will also include retiring baby boomers. Another consideration: Obama care. How will the economic costs play out for this program?

Conclusion

These are just some random thoughts as we progress through 2016. If you are not reviewing your economic plan, start this process immediately.  Contact us to see how you can properly navigate through the tempest of marco economic concerns.  Your financial plan can be a bulwark against these financial storms.

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