The Anna Maria Island Sun Newspaper

Vol. 14 No. 34 - June 18, 2014


Anna Maria Island Sun News Story

Stock market may move higher

Investment Corner

In the 1960s there was a TV show called “Lost in Space.” The robot became famous for a phrase still used today by those of us who grew up watching the show. “Danger Will Robinson” was heard on just about every episode when the robot warned the young boy on the show to get ready to run.

In the last few months we seem to be having warnings of “Danger Investors” from many of the talking heads on financial television and website based advice shows. Stocks here in the U.S. are certainly not inexpensive after a five year run, which has seen major indexes move up by over 150 percent. The only correction greater than 10 percent during that run came in the summer of 2011 with the decline bordering on bear market territory – a 19 percent decline for the S&P 500 Index.

I’m not a Pollyanna. I know that there will be corrections, bear markets, recessions, and a crisis of some form in our future. But I also know that bull markets rarely come to an end because of old age. Bear market corrections almost always start because of external reasons. The most common is a rising interest rate environment as the Federal Reserve attempts to slow economic growth to achieve its mandate of keeping the rate of inflation under control.

The other possible reason for a significant decline would be a dramatic over-valuation of an asset class, like stocks. Back in the year 2000 we had both rising interest rates and a very overvalued market. The result was an 80 percent decline in the NASDAQ Index, where the most ridiculously valued stocks were traded.

In 2007, stocks were not overvalued per se, but the Fed had been raising rates to cool the excessive speculation in the real estate market, exposing the overly aggressive lending practices of banks and mortgage lenders, leading to the worst recession in decades. Stocks suffered even though they were not overvalued entering the crisis.

I cannot predict the future (if you can, I have a job for you at my firm), but a review of the current landscape shows we are not in a rising rate environment yet. Yes, the Fed is reducing its stimulus of the economy now that we are on firmer footing than a few years ago, but it has not begun to raise the federal funds rate yet.

A review of stock valuations around the globe reveals that U.S. stocks are a bit above average, developed international markets are about average and emerging markets equities are cheaper than they have been in a long time. When comparing equities to other alternative investments like bonds, which are still offering very low yields, equities don’t appear to be a bad value at all. This is especially true in the context of an expanding economy.

Never turn a blind eye to risk in your investment plan, but it is not a good idea to ignore the facts because of what someone said on a TV show. Expect volatility to increase from the very low levels we’ve experienced lately, and keep your investments allocated appropriately for your situation. We just don’t think it’s time to head for the exits quite yet.

Tom Breiter is president of Breiter Capital Management, Inc., an Anna Maria based investment advisor. He can be reached at 778-1900. Some of the investment concepts highlighted in this column may carry the risk of loss of principal, and investors should determine appropriateness for their personal situation before investing. Visit


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