The Case for Optimism

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Written by Dave Young, President of Paragon Wealth Management

In August, BusinessWeek ran a cover story called “The case for optimism.”

The premise was simple:

Beyond the issues facing the global economy, there are many underlying positives that give cause for optimism looking forward.

Powerful forces under the surface will drive economic growth, and that growth will drive stock prices. Examples include the positive impact of technology, the recovering U.S. housing market, the revitalization of economies and the incredible energy from the developing world’s educated youth and emerging middle class.

Leading indicators show that the recession likely ended in June.

Our indicators also showed that the end of June was the turning point, and have only strengthened since. We believe this recovery is real. Contrary to what the pessimists say, it appears to be very sustainable.

The FED is in easing mode. Usually they keep interest rates low until 20-30 months after the end of a recession. The low interest rates should power the economic turnaround. We don’t expect rates to move up until unemployment starts declining, and that is at least 18 months out. We are not concerned about inflation at the moment, but it is one of the factors we will be watching.

The markets are back into a positive, upward trend.

All 42 of the global markets we track are above their 40-week moving average, which is very bullish. That’s what markets do. They go down, and then they go back up. Then they repeat the cycle. It’s pretty basic, but it’s the way it’s always been.

We will continue to run our models and adjust our portfolios accordingly. The biggest wild card is to what extent politicians jump in and slow down or disrupt the cycle. Their actions won’t kill the recovery, but the debt they are piling on will likely slow it down.

In 1907, U.S. financier J. Pierpoint Morgan single-handedly averted a banking panic among U.S. investors. Later in life, someone asked him his best guess as to the direction of markets.

His answer: “They will go up, and they will go down.”

One hundred years later, that’s still the best answer for a short-term market forecast. No one can predict market movements in the immediate period ahead.

At Paragon, we will continue to follow our models and adjust our portfolios to whatever the market throws at us. No one likes volatility, but for most of us it’s the necessary price to arrive at our ultimate destination.

Paragon Wealth Management is a provider of managed portfolios for individuals and institutions.  Although the information included in this report has been obtained from sources Paragon believes to be reliable, we do not guarantee its accuracy.  All opinions and estimates included in this report constitute the judgment as of the dates indicated and are subject to change without notice.  This report is for informational purposes only and is not intended as an offer or solicitation with respect to the purchase or sale of any security.  Past performance is not a guarantee of future results.