3 ETF Investing Themes For A Wobbly U.S. Bull

Presumably, the Great Recession ended in June of 2009. Three months earlier on March 9, the stock market anticipated the modest recovery that is still intact. In essence, stocks began to rally well in advance of the actual turnaround in the U.S. economy.

Similarly, the 10/09/2002-10/09/2007 bull market ended roughly three months before the start of the mammoth economic collapse (12/2007). In a sense, stock barometers were (and are) leading indicators of things to come.

For those who wish to believe that stocks will avoid a 20%-plus bearish setback on a combination of monetary policy gamesmanship and perceived economic strength, they might want to consider the history of recessions as well as the history of central bank stimulus. With some 50-odd contractions over the last 225 years, one should expect expansions to falter, on average, every four-and-a-half years. The current recovery? Five-and-a-half and counting. It is also worth noting that past recessions required the U.S. Federal Reserve to lower overnight lending rates by 3%-4% to combat recessionary forces. Even if the Fed manages to get the Fed Funds rate up to 0.5% in 2015 – even if policymakers succeed in pushing it up to a “whopping” 1% in 2016 – wouldn’t they have to return to 0% and more quantitative easing (QE) when the inevitable economic contraction returns?

Central bank QE as well as zero percent interest rates (ZIRP) have lowered the costs to service higher household and government debts; they have increased the rewards for risk-taking in real estate as well as as market-based securities. Yet these policies have not done a great deal to assure prosperity, as median household income is lower than it was in the heart of the Great Recession. Equally troubling, survey stand-out Gallup determined that business closings have exceeded the number of new businesses created each year since 2008. According to some analysts, the opening/closing business data may even be responsible for the Bureau of Labor Statistics (BLS) overstating job growth by as much as 600,000 jobs annually.

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ETF Expert is a web log (”blog”) that makes the world of ETFs easier to understand. Gary Gordon, MS, CFP is the president of Pacific Park Financial, Inc., a Registered Investment Adviser ...

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