When analyzing an investment vehicle, there are different ways to determine value. Two of the most basic ways are: (1) determining the price at which assets can be sold in the current market and subtracting from that price liabilities; and (2) determining value based on projected future growth. The first method works in any market. The second method is more complicated.
In our opinion, the stock market performed well during the political landscape of the early 80’s when President Reagan was in office and mid to late 90’s when President Clinton was serving for a number of reasons. One of the biggest reasons was the certainty that surrounded policy making and its effect on business. Business people felt that the rules affecting their operations would not drastically change in a negative way. One of the biggest problems that pervades the United States and the global economy today is the rapid rate of change in the political landscape and its impact on future policies that affect business. Because of this, market analysts have trouble forecasting how companies will adapt and what impact it will have on future growth. As such, projections of future profitability get lowered and, consequently, stock prices fall. In the United States, uncertainties about our federal debt and the corrective measures needed to address it – regulations, taxes, etc. – have also hurt stock prices. The monthly bailouts in Europe have created uncertainty around the globe as markets speculate which policy initiatives will be enacted to help the global economy.
When analyzing investments today, the political uncertainties have to be accounted for. That is the reason why most of our recent market updates have addressed these issues.
Another point of view
A few market updates ago we talked about government worker pay. We addressed this issue in the context of how it affects the investment world. We do not have the resources to analyze the data ourselves, but rely on third party sources for the information we present. A long-time client expressed some concerns about our portrayal of this issue and provided us with links to two articles that contain a different point of view. Here are those links.
We wanted to share these links with all of you because we believe the articles make some good points. We know there is a lot of information out there and we do our best to provide full and accurate information, but on occasion we may miss something. If any of you have thoughts different than those that we express, please feel free to share them with us. Our intention is to address issues that we believe may have an impact on your portfolios.
Your THOR Team