Goodbye to overwrought speculation – Hello to enlightened reality.
When? Likely right away as delayed tax-driven selling starts in January.
Why? Because optimistic excitement always gives way to sensible analysis. When easy money gains reverse, speculators exit.
Where? Mainly in stocks, but bonds, real estate, and cryptocurrencies are all game, as well.
From my previous article, “2025 Outlook – Expect A New Investing Cycle,” here is the list:
Bond market – The “bond vigilantes” have returned to reset interest rates to reality. That means investors should focus on economic and financial fundamentals, not the Federal Reserve.
Stock market – The meme stock games that began in 2021 are stretched, the artificial intelligence bubble is bumping into realities, and the hundreds of walking dead companies are stumbling towards oblivion. Therefore, the focus shift is to companies with real, not imagined, attractive fundamentals.
Real estate – Higher mortgage rates and higher house prices are once again limiting demand. There is no viable “fix” because the markets are properly reflecting today’s economic and financial conditions.
U.S. government bonds – The level of borrowing is historically high. Remember that a year ago, Moody’s dropped the rating outlook for U.S. Government debt to “negative.” The rationale was the large debt, the growing interest payments (now over $1 trillion), and the political polarization that could prevent agreement on curative measures. Worse, the recent machinations in the House with President-elect Trump’s interference shows that political polarization is ramping up.
President-elect Trump’s policies – Two primary actions could have large and highly uncertain effects on the U.S. economy and financial system:
· Sizable tariffs on major trading partners, including Canada and Mexico
· Deportations of millions of illegal immigrants and their families
The bottom line: Focus on reality, not reassurances
Start with ignoring the Federal Reserve. It created the inflationary problems and its minimal attempts to cure the harm now are being recognized. From The Wall Street Journal Editorial Board: ” The Fed Admits an Inflation Mistake – Yet the central bank still cuts its target rate by another 25 basis points. Its explanation isn’t convincing.”
Likewise, view all U.S. government spending increases as inflationary wastes that can lead to Moody’s converting its negative outlook into a real negative credit rating adjustment.
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