Currently, the U.S. is stimulating our own economy by printing over $85 billion a month and using these dollars to buy back short term US Treasury debt.

This helps to push dollars into our markets and keep markets strong, interest rates low and strong gains in the market. To add to this problem, the entire developed world is doing the same thing, stimulating to keep their sluggish economies moving. This will result in 3 issues: inflation, falling currency values and high interest rates. These are problems that we will not see tomorrow, but can expect to see in the next 2-5 years.

What does this mean for our financial future now?

These stimuli will continue to pressure stock prices to rise. This is where more traditional investments in companies that sell basic products is recommended. Like I said before, PATIENCE is key. As there are risks related to this stimulus that we are seeing, it is not always the case that the end result is inflation, falling currency value or high interest rates, but we need to be careful not to invest in these areas of the market until the risk becomes reality. There are 3 factors to be aware of and continue to watch as we move forward.

  1. The current price of a barrel of oil versus last year’s price. When the price of oil goes up by over 80% or more in one year, we tend to see the stock market sell off at 30% or more. This is a red flag to exit the market.
  2. The value of the U.S. Dollar versus the Euro or Yen. Watching the U.S. Dollar in relation to other currencies is key. If the U.S. Dollar starts to lose value in relation to the Euro or Yen, then we need to worry. It is also a telltale sign when we see a developing currency gain value and popularity, such as the Chinese Yuan or see these currencies become an alternative to the U.S. Dollar.
  3. U.S. Treasury Bond Rates on 10 Year Bonds. Currently, these rates are paying between 1.6% and 2.5% annually. We watch this rate to see when it starts to rise about 3%, which helps us see when the Federal Reserve begins to lose control of keeping interest rates down.

Knowing these risks and being aware of where the market is helps us to look for warning signs as we move forward. Investing in a traditional way provides financial security in a market that peaks and plunges on a daily basis. Remain conservative until our market becomes stable.