Skip to main content

Sound Advice: June 16, 2021

Don't Expect Another Big Gain 

As has often been the case after the market has turned in an unusually broad advance, the gurus of Wall Street continue to build their cases for more of the same.  This most certainly is a replay of a recent film entitled Dumb and Dumber. 

Successful investors are best served by planning for the worst while hoping for the best.  That's especially so in the wake of a few years when almost every asset class delivered fine returns.  But a bet on a back-to-back bingo of this sort ignores the writing on the wall, which is anything but encouraging.

For starters, stock valuations are stretched.  To be sure, there are seers who find ways to look ahead and opine that when you look far enough ahead today's prices don't seem that high.  The problem with this approach is that Wall Streeters don't use binoculars.  For these folks, the future is a concept that views the next few quarters, not the next few years.  When seen that way, it's not very pretty. 

Let's start with the fact that corporate earnings have been on a sugar high, thanks initially to the 2017 tax cut and more recently to the infusion of “rescue” payments from Washington.  Add to that the pandemic, which put substantial constraints on consumer spending.  This produced a hefty level of savings already working their way back into the economy. 

For a short time, what we saw was a major bottom-line acceleration while overlooking the massive increase in the country's debt burden, which now stands north of $23 trillion.  Outstanding debt goes hand in hand with ongoing interest payments, which account for an increasing share of the federal government's annual expenses.  As interest costs go up, the funding available for other areas shrinks. When rates rise, the situation will get even worse. That may not happen soon, but it seems inevitable.

If and when Congress makes progress in moving toward reduced deficit spending, taxes will almost certainly move higher.  More likely than not, higher taxes will put the brakes on spending, both consumer and corporate.  This is not something to look forward to, nor a favorable wind for the investment markets.

While interest rates remain extremely low and spending continues to expand at a brisk rate, current conditions may continue.  But, as in the past, there will be bumps along the way. 

N. Russell Wayne, CFP®

Sound Asset Management Inc.

Weston, CT  06883




Questions?  Please contact me at


Popular posts from this blog

Sound Advice: August 19, 2020

10 Things Investors Need To Know Market forecasts are totally meaningless.   There are numerous seers in the media who with great seriousness provide definitive thoughts about where the market is going tomorrow, next week, next month or next year.    What's important to understand is that short-term market movements are heavily influenced by changes in investor psychology, which are unknowable.   And for that matter, please ignore pronouncements from so-called technical analysts who attempt to divine the future from recent price patterns.   That is what the Brits call rubbish.   The rewards of real fundamental analysis (profitability and financial health) are reflected in changing market prices over long periods of time, i.e., market cycles of three to five years or more, not in the next few weeks. Target prices are nonsense.   Take a look at Yahoo! Finance, enter a ticker symbol, and up comes information about the stock in question, including a target price.   At bes

Sound Advice: August 26, 2020

How To Forecast Future Stock Prices . . . Usually Wall Street research can be extraordinarily useful in helping to gain a better understanding of the inner workings of companies.   Having been on the research side of the investment world for many years, I've had extensive experience in exploring the nuts and bolts of dozens of companies, both through analysis of numerous financial reports and regular contact with corporate executives.   Some of it was useful; some was not.   In all cases, the goal was to come up with estimates of where company earnings were likely to be in the year ahead and the years beyond. As analysts, we looked for consistency of progress and the potential to grow at above average rates.   The task of coming up with these kinds of conclusions was a matter of translating discussions of ongoing operations and developments into numbers that made sense. Once that was done, we viewed the current analysis against the backdrop of the past.   The range of p

Sound Advice: August 12, 2020

"A goal without a plan is just a wish" Antoine de Saint-Exupery Planning for one's financial future is a straightforward exercise, but one in which the nuances can dramatically change the outcome.  When you start on the path ahead, you have the option to change direction as you move along toward your goal.  If you don't start, as is the case more often than not, you have no options other than struggling to deal with unforeseen consequences, which may well be less than desirable. A financial plan has four main elements: what you own (your assets), what you owe (your debts), how much you are earning (your income), and how much you are spending (your expenses).  If your assets are greater than your debts and your income over time exceeds your expenses, assuming nothing untoward happens, you're probably in good shape. But a plan is based upon assumptions that may or may not be on target.  Among these are the rate of inflation, the rate of investment ret