What are the current trends in the fiancial markets that would affect a financial advisor's approach?
Question:
Answer:
Im my opinion, the biggest aspect influencing the financial markets is globalization. That is not to say that that is the only factor, you also have an increased demand for commodities, and a whole lot of geopolitical uncertanty. To make things even more interesting, you have Al Qaida possing a huge unknown. Higher energy prices are act as an unrecoverable and unbeneficial tax on the economy, but you can take advantage of that by positioning into the right types of investments that benefit from expensive energy, same with commodities to rebuild the world's aging infrastrure and emerging BRICK economies (BRICK stands for Brazil, Russia, India, China Korea in case you didnt' know that. Globalization has to be the most powerful force affecting the financial markets right now though. That is because through globalization, we have a virtual guarantee of cheap prices for many years to come. That is because globalization is a highly counterinflationary force becasuse it supplies plenty of cheap labor. Right now, it is India and China, and when their standards of living rise causing their labor to get expensive, then cheap labor will shift to the next third world country... so you can really see how it is likely that in the future even Africa could become industrialized (and as a footnote, if you missed the movie Syriana which made an excellent point of this, places like the middle east will go nowhere because they refuse to get with the program and instead of developing their intelectual resources, they keep using up their natural resources to continue serving their political higherarchies IE, energy will eventually not come from there, then the'll be screwed.) But back to inflation and globalization. Just look at the bond market if you don't believe me. Yields on the long bond (30 year treasury) are lower than yields on the 2 year treasury. That is the bond market saying: "there is no inflation" in the future. Along with globalization comes the commoditazation of skills and knowledge. That is what all the outsourcing of tech jobs is all about. Same with manufacturing. The internet and the 747 plane have allowed for pretty much everything to be commoditized through easy access to information, and an easy means for delivery of phisycal products. Even the Financial Advisors job is being commoditized at a huge rate. Evidence is that now you can go to the Fidelity web site and buy bonds for a max of $500 mark up, no matter how large the principal ammount. Also MSRB has made it mandatory to post principal profit within minutes from a trade posting. Then, you have Ameritrade and its likes doing a trade for an unbeatable amount. So Globalization is upon us, and in the words of Darwin: "It is not the smartest, or the strongest who survive, it is the most adaptable who live..."
Globalization and free trade = more markets and more competition = good companies do well, bad companies do bad. Also, foreign stock or companies that do business in developing countries have room to grow.
Rising Energy costs due to instability and increased demand from developing countries (see above) = higher costs for companies = downward pressure on stock prices (if energy costs go down, the opposite would be true)
Rising interest rates = increased cost of borrowing = reduced consumer spending = companies don't sell as much and their stock goes down
Having said all that, the economy is pretty robust and stocks are staying flat or growing a bit, not going down.
This is all about stocks, don't know much about bonds or treasuries.
Real Estate is probaby the best investment if you are going to live in the house.
More Related Questions & Answers...