Is The Stock Market In Trouble? Show 67

In news that’ll make you do a double take, the Wall Street Journal reported last week that Robert Kaplan, a guy who sits on the board of the Federal Reserve, made multiple million-dollar-plus stock trades in 2020.
The Federal Reserve is a group of non-elected regulators who help determine what our interest rates will be, and whether the government should create currency to buy government bonds to stimulate the economy.
This is important to understand because is effects everyone’s purchasing power. Right now, the government is purchasing $120 billion of bonds per month. This is referred to as quantitative easing. This is a tax that never has to pass to Congress, because it lessens the value of the money we hold. The government uses this to lessen the felt impact of financial problems at the expense of feeling the impact in the future. Kaplan is pictured below.
Robert Kaplan from Google images
The officials like Kaplan are required to file public disclosures, and his fillings indicate that his trading represented at least $27 million. This is nothing out of the ordinary, though. Past board members have operated similarly. It just makes me scratch my head and think: should people who stand to directly benefit from the Fed’s decisions get to have a say in the Fed’s decisions?
Last year, the government was buying bonds issued by Apple. Kaplan’s disclosure indicates that he was trading Apple stock. Do you see what’s going on here? If there was ever an ethically gray area, this is it.
If you ever turn on CNBC, you may have seen a bald guy wearing a tie commenting on the stock market. His name is Jim Cramer. He’s normally bullish on the stock market, but last week he began blowing the alarm whistle. Cramer is pictured below.
Jim Cramer from Google images
He sees multiple reasons to be worried about the stock market this month. His first reason for pause is large publicly traded companies like Sherwin Williams and other home builders are issuing guidance that states they may not meet their projected results due to supply chain problems and rapidly rising material costs.
The second issue he sees is the Federal Reserve is under mounting pressure to try to curb inflation. Their bullet to do this is increasing interest rates, but this may cause a slowdown in the economy or volatility in the markets.
Then there is the whopper spending bill making its way through Congress. Our politicians seem to think we can spend our way to economic prosperity, so a $3.5 trillion spending bill has been moving through the process. The moderate Democrat senator from West Virginia came out over the weekend stating he would not support the massive spending bill. This may cause the bill to have revisions and a more scaled down version to be passed.
Cramer thinks if the original bill is passed it may create more jobs, but there are already 10 million open jobs in the U.S. Wages would have to go up to attract help, which is not good for stock prices.
The next issue: Taiwan produces semiconductors which, in layman’s terms, are electronic components found in many things like computers and smart phones. China is threatening Taiwan’s independence and could disrupt the world’s supply of these parts. Cramer sees this as a potential issue for global manufacturers.
Cramer concluded, “Here’s the bottom line: At the end of the day, I think we can deal with any of these issues, but not all at once—at least not without lower stock prices, and lower stock prices is what September is all about.”
Sowell quote from Twitter
Bloomberg News wasn’t far behind CNBC in reporting that “top banks came out with a nervous message about the stock market.” Deutsche, Goldman Sachs, Morgan Stanley, Citi Group, and Bank of America all weighed in that the stock market is vulnerable to a pullback.
“Valuations are at historical extremes, stocks have rallied non-stop for seven months, the economy looks soft and the Federal Reserve is preparing to taper stimulus.” In the article linked here, you can read each of the bank’s outlooks on the market.
From the Wall Street Journal, “The analysts’ cautious outlook for U.S. stocks presents a contrast to the so-called TINA—or ‘There Is No Alternative’—motto that has dominated investors’ outlook for much of the past year. Because yields on other assets such as bonds have been so low, many investors have justified their continuous bullish positioning in stocks. Accommodative monetary policy from the Federal Reserve has provided a continuous boost for equities this year too, as has the lure of big investment returns from a swath of companies, ranging from meme stocks to Covid-19 beneficiaries.” There are alternatives that retirees can utilizes to lessen the impact of market pullbacks.
Are you getting sucked in to the market at what may be its top? Or have you allocated your savings in such a way to minimize the downside risks? If you’re aggressively allocated right now, just imagine the person at the casino table pushing all his chips toward the center of the table. That’s where we are.
The S&P 500 doesn’t get to close at 54 record highs without the major risk of a dramatic pullback. Do you know how much risk you have in your accounts? If we do nothing else for you, we’d be happy to show you so you can be informed. If you’d like to take us up on a risk report, just reply to this email or call our office at 864.641.7955.
Until next week,
David C. Treece,
Financial Advisor
Investment advisory services offered only by duly registered individuals through AE Wealth Management, LLC (AEWM). AEWM and Clients Excel, LLC are not affiliated companies. Investing involves risk, including potential loss of principal. Any references to protection, safety, or lifetime income, generally refer to fixed insurance products, never securities or investments. Insurance guarantees are backed by the financial strength and claims paying abilities of the insuring carrier. This podcast is intended for informational purposes only. It is not intended to be used as the sole basis for financial decisions, nor should it be construed as advice designed to meet particular needs of an individual’s situation. Clients Excel is not permitted to offer and no statement made during this show shall constitute tax or legal advice. Our firm is not affiliated with or endorsed by the U.S. Government or any governmental agency. The information and opinions contained herein provided by third parties have been obtained from sources believed to be reliable, but accuracy and completeness cannot be guaranteed by Clients Excel.

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