March 2016 Newsletter to Clients

Enjoy this month’s edition that features…

Election: The political environment will continue to build steam as we approach the election in November. Both parties are planning for a long battle. The Republican Elite, better known as the Establishment is suffering an overthrow by the American people as they are showing their support for Mr. Trump. The Democrats are fully supporting Mrs. Clinton. All Americans are ready for change.

Economy Overview: Recall the Goldilocks economy, low inflation steady growth (not too hot and not too cold). That’s where we are today and it looks like for the balance of 2016. Low oil prices, no longer the $4/gallon, now pricing gasoline around $2 will help fuel (pardon the pun) consumer spending and therefore economic growth. The recent stock market setback was a natural phenomenon which occurs when prices rise beyond justifiable levels consistent with the economic conditions and outlook. 

Economic growth last year was at about 2.1% whereas experts predict 2016 growth at 2.4%. The unemployment rate has fallen to levels close to what statisticians consider full employment. Workers are more productive but not earning much more, a problem for politicians. Inflation levels remain low, 1.6% for 2016 possibly rising to 2% by 2018. Interest rates will follow the inflation rate. We favor floating rate income investments which necessarily provide protection against rising interest rates. However, the value of fixed income investments (bonds) will fall as interest rates rise.

Picture a company which regularly borrows money from the public by selling bonds. One year ago the company sold bonds for $1,000 paying $30 per year, or 3%. Over the next year, all things with this company being equal, interest rates rise to 4% so the company must promise to pay new investors $40 per year on its $1,000 bonds. The hapless investor from one year ago who wants or has to sell his bond is not likely to find an investor to pay $1,000 for his bond paying $30 when the potential buyer can buy one paying $40. The result is a decline in the value of last year’s bond to a price level which provides the next purchaser a yield of 4%.

Kimberly Amedeo, a U.S. Economy Expert, puts forth these predictions:

• The Stock Market Will Set New Highs
• The Housing Market Will Strengthen
• The Fed Will Gradually Raise the Fed Funds Rate
• Gas Prices Will Creep Up a Bit in the Spring
• Congress Might Actually Help the Economy
• The Strong Dollar May Reverse Course

Technology: Check out the refreshed Moneywatch Advisors’ website. Tell a friend.

Thank you for your continuing confidence.

Past performance is no guarantee of future results. The opinions expressed are those of Moneywatch Advisors, Inc. and are no guarantee of the future performance of any particular fund. This information is for educational purposes only and is not intended as investment advice. Please consult your financial advisor for more detailed information or for advice regarding your individual situation.