Streetwise for Friday, December 29, 2017

It is the winter of discontent and some 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.

Meanwhile, fanning the flames of enthusiasm for the bulls is the promise from the Trump administration that corporations will profit from a more business-friendly landscape, lower taxes, an ability to repatriate funds, reduced regulatory burdens, and a promise of robust infrastructure spending.

At the same time, many investors are terrified the market will crash leading to another great recession and stating that they believe that they are facing potential losses and what should they do.

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.

“Families with no financial reserves face enormous stress,” the report says. “Reserves amount to life preservers. Low- and middle-income families who do have some wealth often don’t have any liquid assets at their disposal. 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 would appear to go in the opposite direction.

While 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, or 178 million people.

As the institute points out, 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 not to belittle the wealthy. Rather just the opposite. Building an equity portfolio will not give you a pass into the billionaire’s club but it could potentially, over time, 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. Unfortunately, myopia often prevails over farsightedness.

Note to Readers: I will be teaching one course, Advanced Investment Analysis, beginning on Monday, January 8, for the Ringling College’s Lifelong Learning Academy. Call 941-309-5111 for registration and information.

My 9th annual talk sponsored by the non-profit American Association of Individual Investors (AAII), titled: Wall Street 2018 – Where Do We Go Now?”, will be on Thursday, January 18, at the Hyatt Regency, 1000 Blvd. of the Arts. Registration/Social/Refreshments 3:00 P.M., Program 4:00 to 5:30. Please call 941-706-3449 to register. $10 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