Market Forecast With Peter Morici and David Scranton – December 31, 2017
Guest: Peter Morici
The Income Generation With David J. Scranton
Here’s a fun fact, many Americans claim that they’d much rather clean a toilet than calculate a tip in a restaurant…thank you I guess. But it doesn’t have to be that complicated, using the seven core values I outlined in my book you too will be able to build a life based upon the right core principles. Cut… Return on Principle isn’t just a book about financial investing it’s about investing in your life, I know for a fact that you’re going to love it. Okay, now it’s just getting weird here… If you’re near or in retirement head over to the Income Generation dot com and download your special report written specifically for the needs of the Income Generation. Again those born before nineteen sixty-six. I’m David Scranton and you’ve been watching the Income Generation. Let’s face it, you simply cannot talk about the stock market today without talking about animal spirits. That’s the term coined by economist John Maynard Keynes to describe human behavior driven by instinct and emotion. And as I pointed out earlier I believe we have a stock market today based far more on those factors than based on economic fundamentals for example. I believe Animal Spirits are running rampant today on Wall Street. The Market has set something like seventy new record highs this year, while the economy has not really broken any new records. In fact, as I discussed this earlier based on some key details it’s not doing a whole lot better than it was two years ago. But the animal spirits keep howling, louder than ever since the Trump election. And the result is what we call froth. Froth on the market an impressive head of form on top of a glass that was already full to overflowing, in other words, overvalue. Another term for it is Market blow off and a blow off can last a surprising long time especially in the era of post quantitative easing. And that’s why I based my market forecast on double-digit movement in either direction, if there is enough continued economic progress and again, don’t need records but just enough positive progress to keep that Froth building and the bloth going. I believe we could see double-digit growth again in two thousand and eighteen. In fact, I definitely believe that the momentum will continue in the beginning of the next year, possibly through med year. Whether it continues the entire year is a whole other question. The more important question for investors near retirement though is, is it worth the risk when the potential for a double-digit loss is equally possible this year, as the double-digit gain? If you’re still not sure, consider one more thing which is this. The market is pretty clearly over-valued during the blow-off period, but to a large extent it’s always over valued for every day investors. Think about it for a moment, you know big investors like Warren Buffett, for example, don’t invest the same way that you and I invest. They typically buy enough stock in a company to have a controlling interest, perhaps they buy a seat on the board, in any case, they have some control over whether that company succeeds or fails. Average investors on the other hand, have no such control, we’re buying minority shares and crossing our fingers and toes in hopes that the company does well. Basically, we’re gambling. That controlling interest is so valuable in fact, that investors like Warren Buffett will pay nearly twice as much to buy fifty-one percent of a company compared to buying forty-nine percent of a company. Why? Because fifty-one percent is the amount that gives them control. For two percent more they’re willing to pay almost double. So, why is it then that when one company buys out another public trading company the stock price they pay for the purchase is never doubled? It’s often only ten or twenty percent higher. Is it because the board of directors of the selling company is being generous by accepting a lower price to give up control or is it because we the average buyer, the average investors are been forced to overpay every single day when we buy minority shares of a particular company? You can make a decision for yourself but personally, I believe it’s the latter not the former.
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