2015: Through a Glass Darkly
I asked Riley, our golden retriever, what she thought would happen in 2015. She just ignored me and continued to focus on the three golden retrievers coming through the park. The poor dog walker looked like Ben Hur in the chariot race trying to keep the dogs in line. Nonetheless, Riley watched them quietly go by although she tugged on her leash a time or two just to check to see if I was paying attention.
That is probably the best summary of 2015 that I could make. There are three things (at least) moving along that may or may not cause trouble depending on who is paying attention: oil prices, the action/non-action of the Federal Reserve with regard to interest rates, and the stand-off between Congress and the President.
Impact of Oil Prices:
The rise of the US as an oil and natural gas producer/exporter has shaken up the oil markets around the world in ways that are still unfolding. It is hard to see how the various precariously balanced Middle Eastern countries will withstand economically and socially the significant and continuing loss of petro dollars. ISIS may be just the tip of the iceberg. Who would have thought Iran might be challenged in its own backyard...and from an even more evil gang of bandits. Meanwhile, here at home, many oil and gas oriented businesses are starting to struggle as the increase in supply of oil and natural gas drives down prices and revenue. Who “wins”? Some say the consumer wins due to falling gasoline prices, but that is far too simplistic.
The famous “Quantitative Easing” practice by the Federal Reserve to buy bonds and thereby inject cash into the banking system to spur the economy by holding down interest rates is proving to be just another government spending exercise. Since the Fed stopped the process, interest rates have fallen not risen. Demand for US Treasuries has actually increased as foreign investors flock to the US currency as their own country’s economy and currency sour. American exceptionalism at work?
Political Stand Off:
Finally, there may be a stand-off between the Republican Congress and the Democratic president where no one wants to blink first on any number of issues from tax reform to government waste and corruption as the clock clicks down to 2016.
So, Riley had it right. The issues will play out and the best strategy is to keep your position and let them go by. Warren Buffett famously said that “forever” was his favorite holding period. Given all the turmoil in the world and in markets since Buffett started tracking the performance of Berkshire-Hathaway in 1965, keeping calm, holding steady, and not chasing across the field may be the best strategy when potential adversaries pass through your pocketbook.
Happy 2015…and keep your cash dry.
CPA CFP EA
IRS Circular 230 Disclosure: if this newsletter contains any type of tax advice, please be advised that, based on current IRS rules and standards, the advice contained herein is not intended to be used, nor can it be used, for the avoidance of any tax penalty that the IRS may assess related to the matter.