|Written by Rob Goldman|
Recent events in particular have prompted real concerns about the stock market’s direction and what potential events could torpedo the current rise. We remain bullish on stocks’ prospects but are admittedly worried that the government will ruin the party for everyone with its economic, domestic and foreign policy gaffes. See how the government’s mistakes may cost you money next year.
Will the Gov’t Stop the Rise in Stocks?
Given the short trading week, this week’s issue of The Goldman Guide is short but critical to investors’ success and will be followed up on Wednesday with our 3rd Annual Thanksgiving Treats and Turkeys Report.
Recent events have prompted real concerns about the stock market’s direction and what potential events could torpedo the current rise. We remain bullish on stocks’ prospects but are admittedly worried that the government will ruin the party for everyone.
Too often, investors gloss over the effect of policy on stocks. Economic policy, changes in oversight, along with domestic and foreign policy shifts can have a real impact on stocks on both the upside and the downside for a meaningful period of time. As we near the end of 2013, current and pending future policies initiated by or under the Obama Administration bear scrutiny as we believe that they could hold the key to either aiding the current market rise or crushing it.
The most obvious example of how stocks are affected by economic policy has already reared its ugly head this year. Even a modest mumbling of word that the Federal Reserve would lift its current monetary easing and debt procurement practices which have helped stimulate the economic recovery and lifted financial markets causes stocks to tumble sharply. While the easing of this policy has not yet occurred, it is believed that it could commence sometime in 2014.
Some economists believe that new Federal Reserve Chairperson Janet Yellen is a” taper fan” but would limit its practice once indications of GDP growth comfortably above the 2.5% mark occurs next year. Once that occurs, it would likely trigger a sell-off and could spark a long-awaited rise in interest rates which is never a good thing for stocks, given that bonds would then become an attractive investment haven, unlike today where yields are depressingly low. Hopefully, the easing will be only modest, thus not slamming the breaks on stocks’ rise.
It has not been a good few weeks for the Obama Administration as the rollout of the Affordable Care Act websites and exchanges has been an abject disaster. More important, millions were formerly at risk of losing current coverage and have received a reprieve for a year but are unsure of what lies ahead. Others have witnessed huge increases in premiums with lower quality health care offerings, and word is that millions of workers could lose their existing health care employer plans as well.
While this is a serious issue, given Americans’ penchant for procrastination, we may dodge a bullet in the near term as we do not see the issue coming to a head until next year. But it could get ugly in 2014. If the government can initiate modifications to appease the masses, rather than cripple them financially, than the negative effect on consumer spending, and the stock market will be muted. However, if the Administration continues to drop the ball as many bipartisan leaders have claimed in recent weeks, it could get ugly and no amount of monetary easing would curb concerns.
Much like the health care powder keg, the recently announced interim nuclear agreement with Iran has politicians on both sides of the aisle lambasting the deal with the belief that it is a huge mistake and risk that could quite literally blow up. Frankly, between Obamacare and this situation, it reeks of weakness and amateur hours, neither of which portend good things.
Geopolitical risks are always hard to quantify unless you are investing directly in a foreign, emerging market. Still, in the case of the Middle East, there is a serious potential for major spikes in oil and the use of our armed forces in combat situations, which always has a negative effect on stocks. If the current deal results in a nuclear weapons-capable Iran, it could cause a sustained price in oil and volatility in global equities. Already reports are that Israel is preparing for strikes on Iran’s facilities using Saudi Arabia (historically one of its primary enemies in the region) as launching point since the Kingdom has the greatest to lose if Iran goes nuclear. News of a strike in the coming weeks could make the markets jittery at best, even though Israel would be doing the rest of the world’s dirty work and making itself vulnerable. Still, if the Administration is proved correct, the largesse of our current domestic oil resources (due to the Administration’s opposition) could result in a decline in oil import dependence, and be a positive for stocks.
Clearly, government policies can greatly affect the stock market and have a trickle-down effect on stocks and investor sentiment. By being aware of the potential big picture landmines ahead, it is possible that investors can prepare for these issues and not be caught unaware, thus limiting the downside impact on their investments.
All the best...
Analyst: Robert Goldman
Rob Goldman founded Goldman Small Cap Research (GSCR) in 2009. Rob has over 20 years of investment and research experience as a senior research analyst and as a portfolio and mutual fund manager. During his tenure as a sell-side analyst, he was a senior member of Piper Jaffray's Technology team. Prior to joining Piper, Rob led Josephthal & Co.'s Emerging Growth Research Group. Rob has also served as Chief Investment Officer of two boutique investment management firms, where he managed Small Cap Growth and Balanced portfolios and The Blue and White Fund. As an investment manager, Rob's model portfolio was once ranked the 4th best small cap growth performer in the U.S. by Money Manager Review. In addition to his work at GSCR, Rob is the editor of The Stock Junction (www.TheStockJunction.com.)
I, Robert Goldman, hereby certify that the view expressed in this newsletter accurately reflect my personal views about the subject securities and issuers. I also certify that no part of my compensation was, is, or will be, directly or indirectly, related to the recommendations or views expressed in this research publication.
This newsletter was prepared for informational purposes only. Goldman Small Cap Research, (a division of Two Triangle Consulting Group, LLC) produces research via two formats: Goldman Select Research, which typically highlights small cap and mid cap companies, and Goldman Opportunity Research, which includes micro cap companies. The Select product reflects the Firm’s internally generated stock ideas while the Opportunity product reflects sponsored research reports.
It is important to note that while we may track performance separately, we utilize the same coverage criteria in determining coverage of all stocks in both research formats. Please view the company’s individual disclosures for each engagement, which can be found in each company-specific report. All information contained in this newsletter and in our reports were provided by the Companies or generated from our own due diligence. Our analysts are responsible only to the public, and are paid in advance to eliminate pecuniary interests, retain editorial control, and ensure independence.
Goldman Small Cap Research is in not affiliated in any way with Goldman Sachs & Co.
The information used and statements of fact made have been obtained from sources considered reliable but we neither guarantee nor represent the completeness or accuracy. Goldman Small Cap Research did not make an independent investigation or inquiry as to the accuracy of any information provided by the Company, or other firms. Goldman Small Cap Research relied solely upon information provided by Companies through filings, press releases, presentations, and through its own internal due diligence for accuracy and completeness. Such information and the opinions expressed are subject to change without notice. A Goldman Small Cap Research report, note, or newsletter is not intended as an offering, recommendation, or a solicitation of an offer to buy or sell the securities mentioned or discussed. This report or newsletter does not take into account the investment objectives, financial situation, or particular needs of any particular person. This report or newsletter does not provide all information material to an investor’s decision about whether or not to make any investment. Any discussion of risks in this presentation is not a disclosure of all risks or a complete discussion of the risks mentioned. Neither Goldman Small Cap Research, nor its parent, is registered as a securities broker-dealer or an investment adviser with the FINRA or with any state securities regulatory authority.
ALL INFORMATION IN THIS REPORT OR NEWSLETTER IS PROVIDED “AS IS” WITHOUT WARRANTIES, EXPRESSED OR IMPLIED, OR REPRESENTATIONS OF ANY KIND. TO THE FULLEST EXTENT PERMISSIBLE UNDER APPLICABLE LAW, TWO TRIANGLE CONSULTING GROUP, LLC WILL NOT BE LIABLE FOR THE QUALITY, ACCURACY, COMPLETENESS, RELIABILITY OR TIMELINESS OF THIS INFORMATION, OR FOR ANY DIRECT, INDIRECT, CONSEQUENTIAL, INCIDENTAL, SPECIAL OR PUNITIVE DAMAGES THAT MAY ARISE OUT OF THE USE OF THIS INFORMATION BY YOU OR ANYONE ELSE (INCLUDING, BUT NOT LIMITED TO, LOST PROFITS, LOSS OF OPPORTUNITIES, TRADING LOSSES, AND DAMAGES THAT MAY RESULT FROM ANY INACCURACY OR INCOMPLETENESS OF THIS INFORMATION). TO THE FULLEST EXTENT PERMITTED BY LAW, TWO TRIANGLE CONSULTING GROUP, LLC WILL NOT BE LIABLE TO YOU OR ANYONE ELSE UNDER ANY TORT, CONTRACT, NEGLIGENCE, STRICT LIABILITY, PRODUCTS LIABILITY, OR OTHER THEORY WITH RESPECT TO THIS PRESENTATION OF INFORMATION.
For more information, visit our Disclaimer: www.goldmanresearch.com.