News flash — I am a big guy. This week I had a conversation with a very close friend who pointed out that I am much healthier and agile than people would suspect. Honestly, I had hoped doing the cha-cha in front of 510 people at the Paramount Theatre would have helped with that misconception, but that is another story! It is human behavior to look at the visual evidence and then draw conclusions even when those conclusions are wrong.
The U.S. equity markets hit bottom a year ago as our real economy was buried in a deep financial crisis. We witnessed major corporations disappear from the financial world, the government take over private industry and even sacrificed long-standing laws in the name of protecting the economy today. Honestly I am glad I wasn’t in the shoes of those making the ultimate decisions during the middle of the crisis as there were no perfect answers.
My concern is not so much the decisions that were made — that is in the past — but rather the implications from those decisions coming down the pipeline. Economics in a normal period of time is confusing to most let alone processing information coming from the financial tsunami of 2008.
This time a year ago, the S&P500; was off nearly 28 percent after finishing 2008 deep in the red. There was nothing that looked good or felt good. The visual observation suggested the U.S. economy was suffering from a terminal disease. A number of investors questioned that demise and started buying back into the U.S. market. Many active managers started buying in February — too early — or delayed buying back in until April – too late assuming you expect somebody to pick the perfect day.
As the market moved upward; more and more investors joined the party based on the appearance of the equity markets. The higher it goes the better they feel! The patient appears healthier all the time! That is not because we have fixed the structural problems that still exist inside the economy, but the illusion that “the coast is clear” is front and center. The patient has flowing hair, a small waist and is drinking a protein drink!
There are many bright spots in our economy today — there really are. The point of this article is not that the market is crashing, but rather acknowledging everything is not as it appears. In our opinion, the market was over done last March and is probably close to where it should be right now. There are very serious problems that still must be dealt with that aren’t as easy as taking a pill for cholesterol. Spending habits, taxing philosophies, municipality issues, underfunded pensions and my largest concern — commercial real estate valuations — still remain as serious issues.
The lows produced a year ago and the new highs of the recent days mixed with obvious economic issues still in the windshield should prove to you that things aren’t always as they appear. Be careful out there.
Joseph “Big Joe” Clark is a Certified Financial Planner and managing partner of the Financial Enhancement Group, LLC. He is a registered principal offering securities and Registered Investment Advisory Services through World Equity Group Inc., member FINRA/SIPC.
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