Half-Full or Half-Empty?

Posted by on Jun 14, 2013

While there was little US economic news to affect the markets this past week, each of the three major US stock market indicators ended lower by about 1%. (1) Even though that overall loss is pretty benign, each session during the week was its own little mini volatility play, having some major intra-day swings. Those were partially due to the uncertainty about the timing of any change in the Fed’s policies, as well as the monetary policies in Japan. Welcome back to global markets…

The new government in Japan is trying to induce inflation, i.e., “Abenomics,” in an economy that’s had little growth over the last 20 years. That market (represented by the Nikkei Index) dropped over 6% last Tuesday (2) due to concerns the Bank of Japan (BOJ) hadn’t made a strong enough commitment to that goal. While the Nikkei had recovered by the close on Friday, the selloff rippled into markets around the world throughout the week, helping to move our markets down to the levels at which they ended.

This week, the Fed will be releasing its most recent meeting minutes for review – likely down to the molecular level – so traders can try and anticipate any coming change. That’s scheduled for Wednesday, so you may want to lay in a supply of popcorn ahead of time as you watch the “what did Ben really mean” show…

Market views

With the markets relatively quiet – and while they’re trading around historic highs amidst this uncertainty about the effect and timing of less monetary easing – I thought I’d cast my net to see what kinds of opinions I could gather about our potential market direction from some well-regarded sources to help you decide what actions, if any, you may want to take. Here’s some samples of what I pulled in…

Richard Bernstein, CEO of Richard Bernstein Advisors / He said in the 9 June issue of Barron’s that, “The S&P500 has outperformed emerging markets now for five years. Nobody cares and it pains people to admit that the US market has been outperforming.” That last sentence is pretty sad, especially after what the S&P has done since March, 2009 and especially how emerging markets, in general, have done over the past month.

Bob Janjuah, market strategist, Nomura Securities / To say that Bob is a bear is quite an understatement. It’s said that his name is becoming a synonym for market drops. In any case, he thinks there will be a Fed tapering and that it will be gentle “to avoid creating an excessive leverage-driven asset bubble.” He also thinks that the market won’t get the Fed’s message. He doesn’t hedge much as he goes on to say, “we can certainly see a dip or two between now and the final top/turn. But it may take until 2014 before we get the true onset of a major -25% to -50% bear market in stocks.” (3) What I like about bearish folk is that they always leave a little room to wiggle so they can adjust their doomsday views when things don’t go quite like they had suggested…

Jim O’Neill, former Chief Economist at Goldman Sachs and Chairman of GS Asset Management / Writing for the Bloomberg View last Tuesday, he said that, “a return to normality eventually implies a benchmark 10 year Treasury yield of 4%, or more. It won’t happen all at once, but that’s where we’re heading. With (10 year) yields at roughly 2.1%, there’s a long way to go. This transition will mark a recovery of the equity culture and the cooling of investors protracted love affair with bonds.”

Bob Doll, Chief Equity Strategist, Nuveen Asset Management / “A return to a healthier economic climate that allows a normalization of monetary policy should provide signs of a bull market for risk assets, rather than a bear market. A monetary exit, whenever it comes, will likely be messy. Stocks and bonds could suffer as investors realize the hyper-accommodative mon­etary environment is coming to an end. But, in our opinion, any setback for stocks would be temporary, given that overall expectations about the economy and earnings would be improving”. (4)

Thomas Lee, chief US strategist, JPMorgan / “There’s still a risk aversion in the economy, and that’s playing a big role,” he said, regarding the stronger performance so far in the defensive sectors. “And until people feel there’s a lot more evidence of stronger underlying economic growth – not just in the US, but globally – I think people do like that safety net. For now, we still have a market that people only reluctantly believe.” (5)

Ken Fisher, CEO, Fisher Investments / “Now, for bond investors, concern is understandable, since rising interest rates mean existing bond prices fall. With rates so low, even a modest upward rate move can have a big impact on bond prices. For example, if interest rates rise 100 basis points in a year (not an unreasonable move), holders of 10-year Treasurys will see their bond values fall by 5.69%. Holders of 30-year bonds will see bond values fall by 13.93%.” (6) You can review your bond fund valuations over the past couple months to see how, or if, the recent interest rate increases have affected your holdings.

Liz Ann Sonders, Chief Equity Strategist, Charles Schwab / “We could be in the beginning stages of an adjustment toward a more ‘normal’ monetary policy environment, with attendant volatility. This once again illustrates the importance of diversification and focusing on long-term goals when investing. We continue to believe the US equity markets are an attractive place for assets and recommend buying on pullbacks to the extent that you need to add to equity exposure. Additionally, continue to exercise caution around fixed income allocations and focus more on the developed markets vs. emerging markets.” (7)


Dr. Philip Tetlock, Leonore Annenberg University Professor of Psychology at the University of Pennsylvania, writing in his book, Expert Political Judgment: How Good Is It? How Can We Know? (2005), described a twenty-year study showing that analysts having the most confidence in their predictions have some of the worst track records. Those with the best records are constantly examining their beliefs. Further, his study determined that those analysts with the highest media profiles also have some of the worst track records. What a surprise – not.

It’s my belief that none of the people above fit those negative criteria. While well-known, they are all also well-grounded in reality and provide investors a clear picture of how they see the market world. Right now, I think Liz Ann does a particularly fine job of encapsulating the current market condition and appropriate attitude. Save this note and look back in a few months to see how closely any of them tracked reality.

Finally, as we approach what is likely to be a period of market transition and more volatility, I suggest that you pay attention more to what the market is doing in a historical context, instead of being concerned about explanations of what the market is doing on a daily basis.

In other words, disregard the headlines and pay greater attention to the overall trends. Getting all caught up in the “film at 11” mentality can create an emotional response and cause you to make bad decisions. I believe you’ll find that focusing on those broader trends will, more often than not, reduce your stress level at the time and help you to stay on track with your long-term goals.





  1. CNBC,      14 June 2103
  2. CNBC,      11 June 2013
  3. Business      Intelligence, 14 June 2014
  4. CNBC,      12 June 2013
  5. NAM      Market Letter, 10 June 2013
  6. MarketMinder      blog, 14 June 2013
  7. Advisor      Perspectives, 15 June 2013

Securities and investment advisory services offered through KMS Financial Services, Inc.

To get an overview of economic conditions, use this link. It’s updated monthly.


Past performance is not indicative of future returns. Investing in securities of any type involves certain risks, including potential loss of principal. Investment return and principal value in a bond and/or securities portfolio will fluctuate so that investments, when sold or redeemed, may be worth more, or less, than the original investment.

Investing in sectors may involve a greater degree of risk than investments with broader diversification. International investments are subject to additional risks such as currency fluctuations, political instability and the potential for illiquid markets. Investing in emerging markets can accentuate these risks.


Michael J. Maehl, CWM®

Senior Vice President

Opus 111 Group LLC

400 S. Jefferson, Suite 400

Spokane. WA  99204-3142

509-747-3323  office

509-944-1790  cell