Jeff Voudrie’s Weekly Stock Market Commentary – Cyclical Downturn
The International Monetary Fund can be considered the worlds’ central bank. As such, the IMF has its finger on the pulse on economic activity globally. So when the IMF and the head of IMF, Christine Lagarde, begins to sound an alarm it behooves investors to take note:
“After more than a decade of stellar growth, emerging markets are falling headlong into new era of anemic output and market turmoil. Investors are pulling cash out in droves, fueled by an unexpectedly fast deceleration in China, the world’s second-largest economy. The IMF warns of a coming wave of corporate defaults after five years of gorging on central bank-fueled cheap credit. Emerging-market woes risk fomenting contagion in U.S. markets.”
Here are some more quotes from the article that are worthy of attention:
“…Christine Lagarde faces some of the most volatile conditions in global markets since the financial crisis, a reflection of deep-seated worries about the world economy’s course.”
“To help the global economy avoid another downturn, Ms. Lagarde will… nudge finance leaders into what she says is an urgent policy upgrade. “Action is required now.”
“The fund, owned by its 188 member nations, will issue sharp warnings this week that the global economy faces a long period of anemic growth, or even stalling, if policy makers fail to act in concert to boost growth.”
“My biggest concern is if the combination of downside factors should happen all at the same time,” she said in a recent interview.”
And from other news:
The WSJ’s Ian Talley @IanTalley: IMF sees 50% chance of global growth below 3% next year, a level below which is “equivalent to a global recession.”
In its half-yearly update on the health of the world economy, the Washington-based fund predicted expansion of 3.1% in 2015, 0.2 points lower than it was expecting three months ago and the weakest performance since the trough of the downturn in 2009…
What does all this mean?
I believe it is further anecdotal evidence that we are in the early stages of a cyclical downturn. In other words, despite the best efforts of government to eradicate the economic cycle it is still alive and well.
Their efforts have caused the current expansion to last much longer than it normally would, but the risk is that we will see another decline on par with the crashes in 2000 and 2008.
That’s why I (generally) don’t have any exposure to stocks in this environment. The volatility of owning stocks (the risk) is much higher than normal and that risk continues to increase. I evaluate the data on a daily basis and will change my mind as the data does, but the trends that are currently moving our markets evolve over months and quarters, not days or weeks.
In the meantime, I strongly suggest that investors who are retired or near retirement minimize their exposure to stocks and increase their exposure to cash and US Treasury bonds. There are exchange-traded funds that provide access to different parts of the yield curve.
I have recently added exposure to the shorter end of the UST yield curve in the ETFs with the symbols IEI and IEF. This is designed to allow my clients to maintain the value of their accounts in the midst of the higher than normal stock market volatility while allowing them to earn dividends along the way.
For Common Sense Advisors, I’m Jeff Voudrie.
Have a wonderful and blessed week…
The recent Fed decision to not raise interest rates has resulted in Jeff changing his clients exposure to stocks and bonds. If you would like to have a 30 minute consultation about your allocation and get his feedback.
You can go here and schedule your FREE 30 minute consultation now.