Over the last few weeks we have seen a number of prominent financial experts such as Alan Greenspan suggesting that various elements of the US investment markets are in danger of collapse. As a former chairman of the Federal Reserve Alan Greenspan has been there and done it and perhaps investors should be a little more welcoming of his views? He’s not the only one to pour scorn on the ongoing rise in US stock markets but so far investors appear to be ignoring these warnings.
It would be wrong to suggest that the US is the only country in the world which will suffer, in the long term, from the never-ending supply of cheap credit available today. We only need to look at consumer debt, which has increased dramatically over the last few years, to see the signs of potential problems going forward. Many consumers have no issues financing their debts at current base rates but once interest rates do start to rise how will they cope?
When you bear a mind that returns from savings accounts and money markets are negligible this is yet another reason why investors are looking towards stock markets. While US real estate markets have come back to life in recent times with forecasts house price growth of 5% for 2017 against 5.1% in 2016 many are still hoping for higher returns from their stock market investments. What started as a trickle of excitement when Donald Trump was voted into the White House has continued to gather pace in recent months pushing markets to all-time highs. However, even Donald Trump is beginning to suffer from investor concerns about the way he is acting in office.
As we have mentioned on numerous occasions, there is a growing belief that stock markets are pushing ahead despite of Donald Trump not because of him.
Living on a hope and a prayer
It is perhaps a little dramatic to suggest that investors are living on a hope and a prayer that short to medium term trading will improve and support current “extended” stock market ratings. Donald Trump is forecasting significantly higher economic growth than the Federal Reserve and while many investors were previously siding with Donald Trump perhaps they put their trust in the wrong party?
It would not take a major slowdown in economic growth to bring the current bull market to at least a short-term juddering halt. A reality check, profit-taking, whatever you want to call it there is perhaps more downside potential than upside potential from current levels. You also get the impression we are only one slipup from a potential change in the presidency as talk of impeachment and investigations into Donald Trump just will not go away.
When will investors heed the warnings?
At this moment in time Donald Trump is like the Teflon kid because nothing seems to stick and he always seems to come out with his reputation intact. However, he has made many mistakes, continues to make mistakes, and refuses to take advice from those who have a different view to him.
You get the impression it will take a major issue to open the eyes of many investors to exactly what is going on. True, fundamentals alone are perhaps extended/overstretched at the moment but in a perfect world, improvements in the economy and improved trading would bring fundamentals back into line. The problem is that nothing is ever certain where Donald Trump is involved, forecast growth in the US differs between the White House and the Federal Reserve and who knows how long Donald Trump will remain as president. All in all, the risks are starting to mount up?