Central banks and your retirement finances
Posted on June 24, 2016 by Bob Carlson
Are you ready for retirement?
With the first third of the year behind us, let’s take a look at how different assets have performed so far in 2016. It has been a wild ride, but some trends are becoming apparent.
The dominant theme, as has been the case for several years, is that central banks rule and roil the markets. The Federal Reserve and European Central Bank don’t have to take significant actions any more. They move markets and business behavior by making carefully worded statements.
Currencies are what the central bankers most want to influence. Most now want to cheapen their own currencies relative to others. That’s been good for gold. It has been the main insurance against central bank mistakes. After a bear market in gold since 2011, the precious metal is up more than 20 percent so far this year. The dollar’s down against most major currencies, but many emerging economy currencies are appreciating.
Stocks generally have been in a trading range, albeit a very wide one. The S&P 500 is up only 1.64 percent. The Dow Jones Industrial Average is down 1.3 percent. The All-Country World Index is up 0.93 percent. Emerging markets are doing well, up 3.54 percent for the year. The Russell 2000 index is down 0.59 percent.
Bonds generally have done well since the bankers said they want interest rates either to be lower or stay low for a while. Long-term treasuries are up 8.20 percent, though they are below their highs for the year. Treasury Inflation-Protected Securities (TIPS) are up 4.56 percent. High-yield bonds are up 4.57 percent.
Energy-based commodities are up 3.30 percent. Broad-based commodities are up 7.22 percent.
The effectiveness of all of this central bank easing varies. The Fed’s efforts have less effect in the United States than they did a few years ago. But they appear to have very positive effects on commodities and emerging economies. Japan’s central bank is having trouble moving its economy forward. The European Central Bank appears to be doing the least amount possible to keep the continent’s economy growing at a slow rate.
At some point, these efforts won’t be very effective. Monetary policy has to be accompanied by pro-growth fiscal policies, and we don’t see much action in that direction in any of the major countries. Even in the U.S. presidential election, it seems to be the one issue no one wants to talk about much. But strong policies are needed to increase economic growth, improve corporate earnings and reduce debt. Without them, we’ll continue to have very modest growth and repeated crises or near-crises.
Click for Full Text!
Poster Comment:
Obummer wants to seize your IRA to help pay off the debt. What if the Chinese and all the other short term debt holders get rid of their Treasury Notes? Can you say, "When the chickens come home to roost?" Can you spell INFLATION?