Streetwise for Friday, December 28, 2018

It is the winter of discontent and the bears are certainly not in hibernation. Their growls of displeasure stem from a belief that the equity markets are over-bought with the inevitable correction being right around the corner, due in no small part to mixed signals emanating from the White House.

Hoping to fan whatever small flame of enthusiasm remains for the bulls was an assurance by top financial regulators to Treasury Secretary Steven Mnuchin during a hastily organized call earlier in the week that they are seeing nothing out of the ordinary in markets. Unfortunately, many on the Street took it more as a negative omen than what Mnuchin had hoped would be spirit lifting.

Despite knowing that the markets’ volatility is directly the result of the government shutdown and turmoil emanating from the Trump administration, many investors are terrified the market leading up to a crash and the start of another Great Recession. 

The result of course is that many are unsure of what to do next. You need to take heed and guard against joining the lemmings as they run for the sea, frenzied by the sounds of the bears. 

Reckless remarks such as, “sell everything – buy gold – the government is going to take control of your money,” reminds me of a voice-over trailer for a finance-themed horror film.

Over the years, the most successful investors are those with an unwavering belief in the stock market’s continued resiliency. Yes, financial instruments fluctuate in price, that is the nature of the beast.

At the same time, there is a stark dichotomy between the top and the bottom economic strata. The bottom 19 percent of Americans are financially underwater, meaning they have zero or negative net worth, according to a report by the Institute for Policy Studies. According to the report, over 60 percent of Americans report not having enough savings to cover a $500 emergency.

The Institute suggested several tax strategies that might combat the wealth inequality. Specifically, raising taxes on higher incomes, increasing capital gains tax rates and expanding the estate tax. Yet, the tax reform recently passed by Congress goes in exactly the opposite direction.

Although there is no question that financial rewards to those who earned it is certainly defendable. Still, you must wonder a bit when Microsoft’s Bill Gates, Amazon founder Jeff Bezos and Berkshire Hathaway CEO Warren Buffett collectively have more wealth than half the population of the United States.

The wealthiest 25 billionaires have more than $1 trillion in wealth. That is equivalent to the wealth of 56 percent of the U.S. population. We have not witnessed such extreme levels of concentrated wealth and power since the first Gilded Age a century ago. 

Such staggering levels of wealth inequality threaten our democracy, compounds racial and class divisions, undermine social cohesion, and destabilizes our economy.

I mention these statistics to point out that Building an equity portfolio will not give you a pass into the billionaire’s club but over time it will likely enable a more enjoyable and less worrisome life style.

The statistics speak for themselves. Over the past 30 years the S&P 500 index has a compounded annual growth rate of over 8 percent total return adjusted for inflation. Yes, there were intervals when stock prices declined, such as we are seeing now. Unfortunately, myopia often prevails over farsightedness.

Note to Readers – Save the Date: I will be teaching Advanced Investment Analysis, starting Monday, January 14, for the Ringling’s Osher Lifelong Learning Institute. Call 941-309-5111 for registration and information.

My 9th annual talk sponsored by the non-profit American Association of Individual Investors (AAII), titled: “Tactics for Tough Times – Deciphering Wall Street in 2019”, will be on Thursday, January 24, at the Hyatt Regency, 1000 Blvd. of the Arts. Registration/Social/Refreshments 3:30 P.M., Program 4:00 to 5:30, Q&A 5:30. Please call 941-706-3449 to register. $15 per person at the door.

Lauren Rudd is a financial writer and columnist. You can write to him at Phone calls accepted between 9 AM and 3 PM at (941) 706-3449. For back columns please go to