Recently, I’ve been writing about collapsing commodity prices relative to the potentially devastating negative impact on the “Investment” component of national and global economic measures of economic health. I’m certainly not enough of an expert to even start to try to assemble all the moving parts in terms of economic impact and, in turn the stock market. However, it’s got me confused enough to personally think about being far more conservative about my stock investments.
I’m already conservative, as you know, trying to always make sure a company’s balance sheet is highly equity supportive of my buying price (as described in my book, “Choose Stocks Wisely.”) So, a translation for my own sense of “heightened” risk aversion is to be more of a bystander to stocks as of this moment unless a potential investment candidate is pretty convincing that it could run against the grain of a plausible major adverse economic change. Now, that’s just me.
What’s not just me is the market’s incredibly bearish valuation of virtually all commodity stocks at this time. What does it mean? What should and “will” the Fed do next?
This week, I’m going to provide some links on the topic of deflation. Many experts lean more toward this possibility than that of inflation, especially given the crash of commodity prices amid an economy that is still trying to gain traction, having been chronically nurtured by an accommodating Fed since the Great Recession of 2008 and 2009.
The first two links below provide a description and information about “deflation.” There are more sophisticated descriptions but I try to keep it simple in these posts, because I need to keep it simple for myself to understand. The third link includes a video interview with Bill Gross, sometimes referred to as the bond king, relative to the topic of deflation.
Go here and here for the deflation information.
Go here for the Bill Gross deflation reaction.
Friends, I’m an optimist in life, regardless of the surroundings, because Jesus is my Lord and my eternal Hope and secures my way. So, the purpose of this post is surely not to trouble but to present relevant observations of the times in which we live. Sound financial stewardship involves making sound financial decisions. This is certainly a more challenging time than I’m accustomed to for making decisions.
See you next time.
Proverbs 3:5-6English Standard Version (ESV)
5 Trust in the Lord with all your heart,
and do not lean on your own understanding.
6 In all your ways acknowledge him,
and he will make straight your paths.
Could it be that commodity prices have fallen because of a world wide lack of demand or slow down in growth? That makes sense to me and as I ponder the past the price declines seemed to be a catalyst over time to spur growth. For example, the lower price of energy has a ripple effect on the economy in many ways as every day families save a few hundred dollars a month commuting to work and either spend it or save it and invest it back into the economy. Likewise products are shipped and someone saves money on the shipping and the savings results in increased profits for companies or lower prices for consumers or both. Of course you could think of many other examples but I can’t think of any of them that end up being negative for the economy in the long run. Of course that just my simple thinking but it makes me optimistic in spite of the increased government spending in Washington.
Harold, thanks for the good points. Lower energy prices will surely be beneficial to the consumer and to many businesses. Hopefully, it will also drive future investment too. With regard to individual stock selection, this could also be cause for optimism that there could be some exceptional buying opportunities down the road a bit.
Thanks for your comment, because it brings some clarity. While a discussion of deflation does not set a tone of optimism (by the very subject matter), your comment about falling commodity prices spurring growth is one I also favor. The governmental intervention effects are the ones least understood at this time, I think.