Your Money & Your Life
As I’ve said to many clients, the first item on any financial planner’s job description should probably be something like: “can accurately foresee the future, allowing clients to make money in all market conditions and be perfectly insured against all adverse events.” I’m sorry to say that I can’t do either. However, the investment world has a long, if not particularly distinguished, history of people attempting to do so, especially regarding market action. Sometimes, the predictions are offered as general advice, sometimes specifically for clients or subscribers, and sometimes just to sell books.
In my thirty-plus years as an investment professional, two common predictive approaches I’ve encountered are that we’re going to get more of what we’ve recently experienced – or just the opposite. In 1999, Harry Dent wrote a bestselling book called The Roaring 2000s, in which he predicted the continued upward movement of the stock markets during that decade. He assumed tech stocks would continue to increase in value as they had through the late 90’s. Dent had an MBA from Harvard and used lots of charts and graphs to make his point. He appeared on various talk shows, sold a lot of books, and even advised a mutual fund into which people invested over a billion dollars. The NASDAQ index was about 4100 when he predicted it would be between 13,000 and 20,000 by 2010. In fact, the NASDAQ went down more than one-third, finishing at 2650 in a decade that has been called “lost” by many investment commentators. About ten years later, the index did exceed 13,000 (in January of 2021) and has been over 20,000 a few times so far in January of this year.
Presidential candidates seem to run on the economy, either taking responsibility for its success or promising to fix it. Recently, that discussion has focused on inflation. It’s certainly too early to conclude that inflation has been “cured.” Some indications seem promising, but there are still economic headwinds to be navigated. That said, we believe this is likely to be a reasonably good year for stock markets, but we are not expecting a third year of greater than 25% returns from the S&P 500.
Returning President Donald Trump has laid out an ambitious plan to renew previous initiatives and add multiple new ones. One likely win will be the extension of his signature 2017 tax cuts, which will expire at the end of this year. Renewing the measures would retain the higher standard deduction and lower income-tax rates, keeping the top bracket at 37%. While campaigning, he said he’d like to eliminate taxes on tips, Social Security income, and overtime pay. Predicting whether these measures will become law and how they will affect our economy goes beyond my abilities, but reduced tax revenues must be made up somewhere. Since he has promised tariffs on imported goods and China, Mexico, and Canada are our largest trading partners, I fear the added costs to consumers will bring rising inflation back into the headlines before long.
Regardless of his plan to “drill baby, drill,” oil producers are capitalists, and capitalism has exhibited a remarkable ability to adapt. Higher oil prices tend to bring additional capacity into service, while lower prices do the opposite. The ability of “frackers” to produce oil and natural gas without the need for deepwater exploration and huge infrastructure costs suggests that that’s where any marginal changes in overall production will originate.
If I might, I’d like to return to Mr. Dent as I conclude my thoughts. His mutual fund was eventually closed, and its remaining assets were combined with another AIM fund, but he hasn’t given up on making forecasts. He predicted another bull market in his 2006 book The Next Great Bubble Boom, just ahead of the market’s 2008 crash. His 2009 book, The Great Depression Ahead, was published just in time for the market boom, which saw the S&P 500 move from around 900 to a recent high of 5800. Perhaps his most recent market-related book, What to Do When the Bubble Pops, will prove more prescient, although I’m not encouraged by his track record.
Even as I make a few very general predictions, I know that I don’t have a secret window into the future. Today’s title comes from a comment by CNN correspondent Jeff Greenfield about making predictions: “It's the least intellectually taxing question that somebody can ask or the least intellectually taxing answer somebody can give… You're not actually talking about history, culture, facts. You're talking about what one of my law school professors used to call breezy speculation, or the initials thereof.”
Warren Ward, CFP®
Senior Investment Advisor
To learn more about Warren, you can read a brief biography here.
Certified Financial Planner Board of Standards Inc. owns the certification marks CFP®, Certified Financial Planner® and federally registered CFP (with flame design) in the U.S., which it awards to individuals who successfully complete CFP Board’s initial and ongoing certification requirements.
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