Day 27: The $50 Trillion Question


Mother's Little Helper Portfolio was UP +1.33% for a gain of +8,044.67 today. The DOW crossed above 20,000. In August I'll be 56. The Madison River has 1 million fish per mile. My car gets 18 miles per gallon and there are 10 digits in my phone number. Let's see, were there any other 'important' numbers to look at today? DOW 20K was important from a psychological point of view but not for any real fundamental reason. I see it this way, the stock market is basically an organic organism, it grows and expands as a whole variety of other things grow and expand; populations, businesses, earnings, consumer demand, household formations and more. The market has to continually grow, it has no choice.

The numbers that made me far more enthusiastic about this market are the NASDAQ and S&P 500; both cleared new highs. Seeing all three major indexes move higher says this is a broad market rally, while interest rates are going up and the dollar, crude oil and gold all eased lower, suggests that the economy is strong and money is starting to come off the side lines. According to BlackRock Capital nearly $50 Trillion dollars is sitting on the side lines being held by nervous 'former' investors. BlackRock estimates that nearly 75% of that $50 trillion is earning 1/2% or less, while the remaining 25% is being held at negative interest rates. Verizon is paying over 4%, 3M pays a 2.5% dividend, I can go on and on wit stocks of great company that pay excellent dividends that far exceed these so called safe investments. Why would anyone let the bulk of their cash sit in a 1/2% investment.

So, the $50 Trillion dollar question is, what's it going to take to get that money invested again? Bring on the interest rate hikes! There is no statistical or historical data that suggests to me that raising interest rates by another 1/2% to 1% will hurt markets; the opposite is true. Higher rates will simple make investing profitable again. Higher rates will make banks more profitable and prevent them from making high risk, systemically dangerous loans (think mortgage backed securities, loans to oil companies at $100/barrel, derivatives, etc).

In case we all forget, consider these miles stones for the DOW.

1980 DOW closes above 1,000 for the first time (I graduated high school)

1987 DOW closes above 2,000 for the first time (7 years to double from 1,000)

1991 DOW closes above 3,000 for the first time. (Gulf War ends)

1995 DOW closes above 4,000 and 5,000 (about 8 years to double from 2,000 to 4,000)

1996 DOW closes above 6,000 (Alan Greenspan is delivering his "irrational exuberance speech")

1997 DOW closes above 7,000 and 8,000 (2 years to double from 4,000 to 8,000)

1998 DOW closes above 9,000

1999 DOW closes above 10,000 and 11,000 (just 4 years to double from 5,000 to 10,000)

Some bad things happened - dot com bubble bursts

2006 DOW closes above 12,000

2007 DOW closes above 13,000 and 14,000

Some bad things happened - Financial crisis

2013 DOW closes above 15,000 and 16,000 (about 16 years to double from 8,000 to 16,000)

2014 DOW closes above 17,000 and 18,000

2016 DOW closes above 19,000

2017 DOW closes above 20,000 (a little over 17 years to double from 10,000)

The portfolio closed the day UP with a gain of +1.33% for +8,044.67, for an overall portfolio gain of +$8,690.24 (+1.44%) Currently we have 77 companies in the green and 44 still in the red.

Stay Invested

Clay Baker

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This material is provided for informational purposes only, as of the date hereof, and is subject to change without notice.
This material may not be suitable for all investors and is not intended to be an offer, or the solicitation of any offer, to buy or sell any securities.

© 2016 by Clay Baker all rights reserved