The Wind At our Backs, January 2013

Finally, tentatively, and more probably than possibly, the wind is beginning to turn in our favor and nudge us gently from behind.  This has been a long time coming, and reminds me of the summer of 1969 when I bicycled solo around Europe on a 3 speed bike. For three days I was pedaling south from Inverness, Scotland at 15 miles per hour, but the wind was blowing north from 10 to 20.  You can only fight the wind so long before dejection takes over.  Haven’t we sometimes felt like this since the crash of 2008?  We’ve gained ground numerous times, only to lose it over and over again.  The European Union Credit Crisis blew fully in our face from January 2010 until this last fall.  The winds were so severe in late July of 2011 that the E.U. crisis sent our markets spinning backwards 18% in just three weeks, threatening to reverse all market gains since the recovery began, and potentially setting the stage for another global debacle.  Our own Congress didn’t help much with the Debt Ceiling debates in the late summer of 2011, the Fiscal Cliff theatrics following the recent elections, and now Debt Ceiling Cha Cha number two.  But the winds are turning.  This fall, Mario Draghi of the European Central Bank promised that all necessary actions would be taken to support the E.U., and as a result, the European fiscal threats seem to be contained for the first time in three years.  In Washington, it appears that the more extreme factions are losing ground, so that the Debt Ceiling debates may eventually lead to adult dialogue. As frightening as our debt imbalance is, I’m hopeful that strong leadership will eventually emerge to negotiate reasonable strategies for more balanced revenues and spending. Meanwhile, the U.S. economy is gaining traction, and is beginning to show a little of the Big Mo!  Building permits and housing starts continue to increase, real estate values are showing solid signs of recovery, new car sales are setting records, and quality manufacturing is beginning to return to this country from Asia.  And, amazing as it sounds, the U.S. is expected to become the world’s largest oil exporter by 2020. Moreover, the stock market indices have reached their highest levels since the recovery started in March, 2009, and are now approaching the historic highs of October 2007.

How should we best interpret these recent green lights, and will this positive trending continue?  From a long term global perspective, there are literally hundreds of millions of people who are emerging from bare subsistence income and moving towards some level of discretionary spending. This dramatic evolution will drive global growth for years to come, and those corporations that are nimble and smart enough to respond to the opportunities will enjoy significant success. From a stock market perspective, I believe that we should disregard those pundits who claim that a bull market has run its course and that a serious correction is in order.  Rather, our economy is still recovering from a near-fatal blow, and we are just now regaining a basic level of stability and market confidence.  Despite our political dysfunction we cannot discount our economic momentum. Stock prices and market values will continue to increase as economic prosperity returns.  Let’s not be overly concerned with the amount of gain we might expect, but breathe a sigh of relief that stability and positive trending may continue for several years.  I believe that the wind is indeed shifting to our backs.  It is now time to begin transitioning from bonds to stocks, and to look for more international opportunities than we have in the last few years.  Let’s make this transition carefully, because we know the winds can change.  Always, protection first and growth second.

Van Mason, CFP™, CLU, MBA

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