Apparently, everyone is too busy to sit and read everything in the news these days so the format seems to have shifted to a more condensed, simplified version. Never wanting to be the square peg in a round hole, I too will adjust the layout of this blog and give you my top 10 reasons to invest. The first half of 2017 has been a great investment period, and those sitting around in cash must be regretting their investment choices. Before I move on to a much more interesting subject, I need to cover the first half of 2017 investment results.
The month of July was an excellent month, just as all of 2017 has been. During the month of July, the Standard and Poor’s index of 500 stocks was up a cool 2.1%. For all of 2017, it is up 11.6% and for the one-year period ended July 31, 2017 it is up 16%. The Dow Jones Industrial Average was up 2.7% for the month of July, 12.3% for the year and 21.8% for the one-year period ended July 31, 2017. The NASDAQ Composite was the best performer of the major indexes up 3.4% during July, 18.7% for the year 2017 and 24.4% for the one-year period ended July 31, 2017. All three major indexes have been significantly higher for the year 2017 and even higher for the one-year period then ended. Just for purposes of comparison, the Barclays Aggregate Bond Index was up 0.5% for the month of July, up 2.6% for 2017 so far, but down 0.7% for the one-year period ended July 31, 2017. As you can see, all of the major stock indexes were up double digits for the one-year period ended in July, while the bond index was down for the one-year period then ended. As I have been pointing out in these posts over the last few years, bond investing is currently counter intuitively more dangerous than investing in the stock market.
Needless to say, the profitability of Wall Street has been staggering over the last few years. However, I did run across a quote that I found quite amusing. It seems that the cash held by the largest corporations in America today exceeds $2.2 trillion. One company, Apple, owns a staggering $261.5 billion in cash. Just to put that amount into perspective – that is more than the market value of 490 companies in the large-cap S&P 500. Let me try and explain it in layman’s terms so you can appreciate these amounts. If you spend $1 million of Apple’s money each and every day of your life, it would take you 716 years to go through this pile of cash. Oh, and by the way, that is assuming that your cash is earning zero going forward.
And now, my ten most important reasons why you should be invested are as follows:
1. Corporate earnings have been nothing short of spectacular. It appears that when this quarter is finished earnings will be up double digits over a similar period prior-year. This is coupled with a first quarter gain that also saw a double-digit increase. You very rarely see corporate earnings growing this rapidly with such a large base of corporations reporting. However, if there is one important thing that is controlling the upward projecting of the stock market, it is that corporate earnings continue to outperform.
2. Inflation, year over year, is virtually flat or gaining only a small amount. While this may not affect you individually, it is extraordinarily important from a monetary standpoint. With no inflation and a very strong economy, the Federal Reserve has no reason to increase interest rates any time soon. If we were in a hyperinflation mode, you would see the Federal Reserve increase interest rates to slow down the growth of the economy. We are clearly in a Goldilocks environment when it comes to inflation. Not too strong, not too weak – just right. At the current time, with inflation barely nudging up, I rather suspect that we will see only one and maybe no interest rate increases for the rest of 2017 and remain very low.
3. Compared to last year, the dollar has been falling in value for most of the year. When the dollar is falling, that means that U.S. corporations compete more favorably overseas, and therefore they have the opportunity to make more profits. It is believed now that of the Standard and Poor’s 500 Index of stocks, almost 50% of their sales are outside of the United States. With the dollar down, these companies can now compete with local manufacturers and is one of the principal reasons why corporate profits are up so significantly in 2017.
4. Congress is totally dysfunctional and that is a good thing! It has been proven by numerous surveys that the stock market does best when Congress just leaves it alone. The fact that Congress cannot get anything approved is very much a positive thing for the stock market. Some of the best years ever enjoyed by stock investing were during the President Clinton years. With a Democratic White House and a Republican Congress nothing got accomplished during that time. Now we have a similar Congress that cannot even approve a day off, and for those of us who do the investing, that is as good as it gets.
5. During 2016, the U.S. economy was strengthening as the year progressed, but the rest of the world was lagging far behind. And now, in 2017, there is a big change with Europe’s economy strengthening. For the first time since the 2008 financial crisis, Europe is growing again. As I pointed out in my last blog, I personally witnessed the strong economy in Europe with money being thrown around by consumers everywhere and for the first time in a long time, growth prospects in Europe is outstanding. Also, we are seeing a rebound in Japan and virtually all of Asia. We all know China has been productive for a long time, but now we are seeing both India and Southeast Asia growing by leaps and bounds. While the U.S. market is almost fully valued, there are many gains to be realized in Europe and Asia where stocks are cheaper, the economy is growing and the prospects for profits have rarely been higher. We invest where profits are found.
6. Interest rates continue to be extraordinarily low. We are still talking about 30-year mortgages on homes at less than 4%. As pointed out in many of these blogs that I write, interest rates have never been this low for so long. I do not anticipate that we will see a major downturn in the housing market until interest rates turn around and go in the other direction. It looks like that will be years away instead of months. Therefore, my projection is for all of 2017 we will probably only see one quarter point increase and probably only two rate increases for 2018. With such low interest rates, cash is paying virtually zero to income investors. Therefore, given the very low rate of interest earned by cash and bonds, seemingly to me, stocks are the only place to invest.
7. The economy is extraordinarily strong and is only getting stronger as we move through this year. The unemployment report was recently announced at 4.3% - this is the best rate in over a decade. Every time one person gets a job, they support many people around them. Not only their families, but also the corner drug store and other places where they spend their money. Every segment of the economy now reports that it is virtually impossible to find qualified workers and that is a really good thing for stock market investing. While the consumer is 70% of the U.S. economy, the more money you put into the pockets of consumers, the more likely they will spend that money. Frankly, it just does not get any better than this financially, to have a growing economy with low inflation, low interest rates and earnings that are going up.
8. We have a current administration that is thankfully killing government regulations with both hands. For years, the economy has been bootstrapped by a congress that defers regulations without thinking of the ramifications they will have on businesses. This president is eliminating regulations and freeing business to operate as it should. There is no question that the more regulations that are dropped off the books, the more likely corporate profits will continue to grow. This is a win-win for all Americans. Maybe I should tweet it!
9. Regardless of what you hear on television, read in the newspaper, or what you actually believe, tax rates are going down. This is not a policy that is wanted only by Republicans, but by all members of Congress. Everyone wants to cut tax rates for both corporations and individuals. It most assuredly is going to happen this year in 2017. The economic effects of these tax cuts will be enormous. Corporate profits will increase dramatically and the consumer will realize improved cash flow, giving them more buying power that is likely to be turned into commerce. I can hardly put into words how important these tax decreases will become. The stock market has every reason to stay up at the current time, but throw all the good news listed above on top of that and an income tax decrease and you will see enormous profit growth.
10. It defies imagination that more people are not talking about the repatriation of foreign dollars to the U.S. as it could single handedly change the American economy. It is also hard to believe that for the last decade Congress has completely ignored this potential source of revenue. If it does happen, which I believe it will, Congress will pass a repatriation tax of 10% rather than the current 35%. It is believed by many that there is at least $1 trillion to $3 trillion in overseas accounts owned by American companies. If they get the opportunity to repatriate that money back to the United States at a tax rate of 10%, there will be enormous good created by these funds. It is hard to believe how little congress has understood about this situation in prior years. The Democrats wouldn’t approve such a repatriation tax because according to them, American companies would only use that money to pay corporate bonuses and/or dividends to their shareholders. How naïve are they to not realize that both of those items create substantial income tax to the U.S. Treasury? Take it one step further and assume that 100% of the repatriated tax would go directly to infrastructure building in America. Just envision how many people would be put to work at really good, high paying jobs, if say $2 trillion came back at 10% and we had $200 billion of roads and bridges to build. If you then couple those jobs with the private sector providing much of the capital over the next decade you could have infrastructure spending of close to $1.5 trillion. Meaningful money for the economy and it is coming.
There you have it, my ten reasons why you need to be invested. Frankly, I could have written more. Nothing earth shattering and essentially the same facts that I have been pointing out over the last two years. With cash earning virtually zero and bonds appearing to be in a lost position, your best choice for investing is the stock market. I do not anticipate any change in that forecast for the next 12 months or so.
Once again, we invite you to visit with us. Due to the slow summer months, we have plenty of time to sit down with you and discuss the stock market, investing or any other subject you would like. Please call our offices and set up a convenient time.
As always, the foregoing includes my opinions, assumptions and forecasts. It is perfectly possible that I am wrong.
Best Regards,
Joe Rollins
The month of July was an excellent month, just as all of 2017 has been. During the month of July, the Standard and Poor’s index of 500 stocks was up a cool 2.1%. For all of 2017, it is up 11.6% and for the one-year period ended July 31, 2017 it is up 16%. The Dow Jones Industrial Average was up 2.7% for the month of July, 12.3% for the year and 21.8% for the one-year period ended July 31, 2017. The NASDAQ Composite was the best performer of the major indexes up 3.4% during July, 18.7% for the year 2017 and 24.4% for the one-year period ended July 31, 2017. All three major indexes have been significantly higher for the year 2017 and even higher for the one-year period then ended. Just for purposes of comparison, the Barclays Aggregate Bond Index was up 0.5% for the month of July, up 2.6% for 2017 so far, but down 0.7% for the one-year period ended July 31, 2017. As you can see, all of the major stock indexes were up double digits for the one-year period ended in July, while the bond index was down for the one-year period then ended. As I have been pointing out in these posts over the last few years, bond investing is currently counter intuitively more dangerous than investing in the stock market.
Look how fast they grow!
Ava (age 2)
Ava (age 6) and CiCi
Needless to say, the profitability of Wall Street has been staggering over the last few years. However, I did run across a quote that I found quite amusing. It seems that the cash held by the largest corporations in America today exceeds $2.2 trillion. One company, Apple, owns a staggering $261.5 billion in cash. Just to put that amount into perspective – that is more than the market value of 490 companies in the large-cap S&P 500. Let me try and explain it in layman’s terms so you can appreciate these amounts. If you spend $1 million of Apple’s money each and every day of your life, it would take you 716 years to go through this pile of cash. Oh, and by the way, that is assuming that your cash is earning zero going forward.
And now, my ten most important reasons why you should be invested are as follows:
1. Corporate earnings have been nothing short of spectacular. It appears that when this quarter is finished earnings will be up double digits over a similar period prior-year. This is coupled with a first quarter gain that also saw a double-digit increase. You very rarely see corporate earnings growing this rapidly with such a large base of corporations reporting. However, if there is one important thing that is controlling the upward projecting of the stock market, it is that corporate earnings continue to outperform.
2. Inflation, year over year, is virtually flat or gaining only a small amount. While this may not affect you individually, it is extraordinarily important from a monetary standpoint. With no inflation and a very strong economy, the Federal Reserve has no reason to increase interest rates any time soon. If we were in a hyperinflation mode, you would see the Federal Reserve increase interest rates to slow down the growth of the economy. We are clearly in a Goldilocks environment when it comes to inflation. Not too strong, not too weak – just right. At the current time, with inflation barely nudging up, I rather suspect that we will see only one and maybe no interest rate increases for the rest of 2017 and remain very low.
3. Compared to last year, the dollar has been falling in value for most of the year. When the dollar is falling, that means that U.S. corporations compete more favorably overseas, and therefore they have the opportunity to make more profits. It is believed now that of the Standard and Poor’s 500 Index of stocks, almost 50% of their sales are outside of the United States. With the dollar down, these companies can now compete with local manufacturers and is one of the principal reasons why corporate profits are up so significantly in 2017.
4. Congress is totally dysfunctional and that is a good thing! It has been proven by numerous surveys that the stock market does best when Congress just leaves it alone. The fact that Congress cannot get anything approved is very much a positive thing for the stock market. Some of the best years ever enjoyed by stock investing were during the President Clinton years. With a Democratic White House and a Republican Congress nothing got accomplished during that time. Now we have a similar Congress that cannot even approve a day off, and for those of us who do the investing, that is as good as it gets.
5. During 2016, the U.S. economy was strengthening as the year progressed, but the rest of the world was lagging far behind. And now, in 2017, there is a big change with Europe’s economy strengthening. For the first time since the 2008 financial crisis, Europe is growing again. As I pointed out in my last blog, I personally witnessed the strong economy in Europe with money being thrown around by consumers everywhere and for the first time in a long time, growth prospects in Europe is outstanding. Also, we are seeing a rebound in Japan and virtually all of Asia. We all know China has been productive for a long time, but now we are seeing both India and Southeast Asia growing by leaps and bounds. While the U.S. market is almost fully valued, there are many gains to be realized in Europe and Asia where stocks are cheaper, the economy is growing and the prospects for profits have rarely been higher. We invest where profits are found.
6. Interest rates continue to be extraordinarily low. We are still talking about 30-year mortgages on homes at less than 4%. As pointed out in many of these blogs that I write, interest rates have never been this low for so long. I do not anticipate that we will see a major downturn in the housing market until interest rates turn around and go in the other direction. It looks like that will be years away instead of months. Therefore, my projection is for all of 2017 we will probably only see one quarter point increase and probably only two rate increases for 2018. With such low interest rates, cash is paying virtually zero to income investors. Therefore, given the very low rate of interest earned by cash and bonds, seemingly to me, stocks are the only place to invest.
7. The economy is extraordinarily strong and is only getting stronger as we move through this year. The unemployment report was recently announced at 4.3% - this is the best rate in over a decade. Every time one person gets a job, they support many people around them. Not only their families, but also the corner drug store and other places where they spend their money. Every segment of the economy now reports that it is virtually impossible to find qualified workers and that is a really good thing for stock market investing. While the consumer is 70% of the U.S. economy, the more money you put into the pockets of consumers, the more likely they will spend that money. Frankly, it just does not get any better than this financially, to have a growing economy with low inflation, low interest rates and earnings that are going up.
8. We have a current administration that is thankfully killing government regulations with both hands. For years, the economy has been bootstrapped by a congress that defers regulations without thinking of the ramifications they will have on businesses. This president is eliminating regulations and freeing business to operate as it should. There is no question that the more regulations that are dropped off the books, the more likely corporate profits will continue to grow. This is a win-win for all Americans. Maybe I should tweet it!
9. Regardless of what you hear on television, read in the newspaper, or what you actually believe, tax rates are going down. This is not a policy that is wanted only by Republicans, but by all members of Congress. Everyone wants to cut tax rates for both corporations and individuals. It most assuredly is going to happen this year in 2017. The economic effects of these tax cuts will be enormous. Corporate profits will increase dramatically and the consumer will realize improved cash flow, giving them more buying power that is likely to be turned into commerce. I can hardly put into words how important these tax decreases will become. The stock market has every reason to stay up at the current time, but throw all the good news listed above on top of that and an income tax decrease and you will see enormous profit growth.
10. It defies imagination that more people are not talking about the repatriation of foreign dollars to the U.S. as it could single handedly change the American economy. It is also hard to believe that for the last decade Congress has completely ignored this potential source of revenue. If it does happen, which I believe it will, Congress will pass a repatriation tax of 10% rather than the current 35%. It is believed by many that there is at least $1 trillion to $3 trillion in overseas accounts owned by American companies. If they get the opportunity to repatriate that money back to the United States at a tax rate of 10%, there will be enormous good created by these funds. It is hard to believe how little congress has understood about this situation in prior years. The Democrats wouldn’t approve such a repatriation tax because according to them, American companies would only use that money to pay corporate bonuses and/or dividends to their shareholders. How naïve are they to not realize that both of those items create substantial income tax to the U.S. Treasury? Take it one step further and assume that 100% of the repatriated tax would go directly to infrastructure building in America. Just envision how many people would be put to work at really good, high paying jobs, if say $2 trillion came back at 10% and we had $200 billion of roads and bridges to build. If you then couple those jobs with the private sector providing much of the capital over the next decade you could have infrastructure spending of close to $1.5 trillion. Meaningful money for the economy and it is coming.
There you have it, my ten reasons why you need to be invested. Frankly, I could have written more. Nothing earth shattering and essentially the same facts that I have been pointing out over the last two years. With cash earning virtually zero and bonds appearing to be in a lost position, your best choice for investing is the stock market. I do not anticipate any change in that forecast for the next 12 months or so.
Once again, we invite you to visit with us. Due to the slow summer months, we have plenty of time to sit down with you and discuss the stock market, investing or any other subject you would like. Please call our offices and set up a convenient time.
As always, the foregoing includes my opinions, assumptions and forecasts. It is perfectly possible that I am wrong.
Best Regards,
Joe Rollins
