Sumnicht: Investors must be flexible

By Chief Executive Officer MBA, CFP®, Vernon C. Sumnicht on June 1, 2017

For USA TODAY NETWORK-Wisconsin
Originally published for Post-Crescent

The quote “wisdom requires a flexible mind,” couldn’t be more appropriate for investors today.

Despite the substantial uncertainties hanging over the heads of investors like the sword of Damocles:

• North Korean geopolitics.
• U.S. debt up 5,271 percent since 1971 and double what it was in 2008.
• President Trump’s tax cuts that could add $2 trillion more debt over the next 10 years.
• Money supply and bank lending are both down and these tend to lead to recessions.
• Retail sales are in decline causing retail stores to go bankrupt at a record pace.
• U.S. economic growth was stagnant in the 1st quarter and the lowest growth in 3 years.

There are many positive indicators:

• The volatility index (VIX) is at a 24-year low.
• NASDAQ, DJIA, Dow Transportation, Russell 2000, AMEX show positive momentum above 65 week moving average.
• France appears to be staying in the EU.
• Great housing numbers.
• Unemployment at 10-year lows.

The stock markets, which look six to nine months ahead, are clearly suggesting there is no U.S. recession developing. As a matter of fact, the stock markets are indicating that worldwide economies are gaining steam.

Although I’m recommending my clients stay invested, I’m also reminding them about the wisdom of staying alert, diversified and flexible. Don’t forget, a lot of the current economic growth was engineered by the central bankers worldwide. Much of this engineering was experimental. The world has never experienced the results of central bankers printing trillions of dollars to buy back government bonds (i.e.) QE 1, 2, 3 in the US, EU and Japan.

This experiment continues today per Danielle Di Martino Booth, an ex-Federal Reserve insider who has indicated that central banks have purchased $1 trillion in new securities through April 2017. However, central banks have already bought so many bonds that interest rates fell to zero. Therefore, to continue their “easy money” policies, they have resorted to printing money to buy huge quantities of stocks. For example, central bankers in Japan are the largest shareholders of more than 55 different companies and Switzerland’s central bank owns about $500 billion in equities from markets worldwide.

We certainly know that printing money eventually leads to inflation. As a matter of fact, inflation has been rising this year, finally reaching the Federal Reserve’s target after five years.

In addition to rising interest rates and inflation, we have been seeing the dollar fall lately relative to other major currencies. Gold tends to go higher as the dollar goes lower. Therefore, I suggest you own some precious metals bullion. I’d consider purchasing enough to cover at least three to six months living expenses for emergencies. As inflation and interest rates begin to move higher, stocks (as we are seeing) will do well. However, higher interest rates and inflation will eventually cause stocks to fall and you want to remain flexible enough to begin moving investments into real assets, like gold and other commodities, to protect the purchasing power of your savings.