SPOKANE, Wash., Feb. 5 /PRNewswire/ -- Investors have been conditioned over the last 20 years to expect a stock market that goes through minor corrections before continuing up in a never ending climb toward greater and greater riches. They've been led to this belief as the result of a convergence of several economic factors that took place creating the longest running bull market in history. However, we are now entrenched in an economic climate where historically gross excesses exist at a time when our ability to deal with serious problems is in question.
Jim Shepherd, founder of The Shepherd Investment Strategist ( http://www.jasmts.com ), says that 1982 was the beginning of an investment scenario created by a combination of circumstances that is unlikely to ever be repeated, certainly in our lifetime. Following a period of high interest rates that were used to defeat the inflation problems of the 1970s, a 20-year decline in interest rates began. This signaled the start of a new bull market, and as interest rates fell, investors continued to refinance and re-mortgage at lower and lower rates. Instead of saving or lowering their debt, they increased debt by buying larger homes, extra vehicles, vacation properties and by throwing money at the stock market with no concern as long as the bull was alive. In the mid 1990s two elements of the greatest investment bubble in history were falling into place as investors discovered internet stocks and Wall Street convinced them that valuations of companies like Amazon.com, Nortel Networks, and Lucent, no longer mattered in the new economy. In 1998 two of the final investment gifts were handed to Americans when the Asian economies collapsed. This led to a massive flight-to-quality flow of foreign funds into our already overvalued equity markets and allowed us to keep spending our new found wealth on even cheaper foreign imported products.
However the beginning of the new millennium brought a new bear market and a recession, and now the world edges closer to a deflationary economic spiral. Illiquid companies are collapsing, forcing workers into unemployment lines with little hope of finding new jobs. Those without savings will be forced to sell assets into falling markets that will further depress prices, and so the spiral continues. They'll sell stocks, vacation property, and extra vehicles and eventually start visiting neighborhood pawnshops as they struggle to make minimum payments on credit cards. Although the crash in 1987 was predicted by Shepherd's Model, it was obvious to him that the effects would only be temporary since the economy was still strong and earnings were rising. That market recovered six months after the crash, but it's Shepherd's contention that, because of excessive debt levels, rapidly falling profits and expanding worldwide economic downturn, "This time, it's going to be different."
About The Shepherd Investment Strategist: Based on a market-forecasting Model created by Jim Shepherd in 1982, the company provides advice about approaching major directional changes of U.S. markets. The Model has never failed to correctly forecast a change. The service advises clients and subscribers around the world on the timing of and the entry and exit of various asset classes including stocks and bonds and occasionally on real estate and precious metals. The Shepherd Investment Strategist is a Service of JASMTS Inc.
Excerpt from a Business
The South Sound Business News Resource
Serving Tacoma/Pierce County, Federal Way, Olympia and South Puget Sound (Washington State)
October 15, 2001
South Sound may weather recession better than most.
By Steve Dunkelberger
Business Examiner Staff
South Sound appears destined to escape the severest effects of the current recession, according to local and regional analysts. “I think they are going to be fairly insulated from this,” says Jim Shepherd, founder of the Spokane-based Shepherd Investment Strategist. “It’s not going to be the boom and bust cycle experienced by other areas.”
This pillow comes about because of the higher-than-average number of government jobs in South Sound cities, Shepherd explains. Those jobs are more recession resistant than private sector jobs. And many people who’ve held those jobs and hold them today apparently are among those sharing their good fortune with the rest of the country in the wake of terrorist attacks on New York and Washington, D.C.
The impact of patriotism on Wall Street has been seen in the buoyancy of stocks since the market reopened in the wake of terrorist attacks on New York and Washington, D.C. But you have to be at grassroots to witness the patriotism itself.
“I had never seen anything like it,” says Patrick McClelland, executive vice president and investment services manager at First Community Bank Financial Services in Lacey. “We had half a dozen folks call up between the first Monday and Tuesday after this whole event. They wanted to buy stocks to be patriotic.”
“I took 99 percent buy orders,” Edward Walsh, broker at Edward Jones in Olympia, says of activity the week after the terrorist attack. “I don’t think everybody was doing it out of patriotism, but there were some.”
The market dropped in the days immediately following the market’s reopening the Monday after the terrorist attacks, the brokers conceded, but for the most part, the losses were more than made up for by the time the United States retaliated with bombing strikes on Afghanistan Oct. 8. It appears the sell-off was mainly by large institutional investors, says Walsh.
Those who stepped in to help pick up the slack have far fewer resources than the institutional investors, he adds.
“These were not wealthy folks, for the most part,” he [sic] says Walsh. “These were mom and pop.”
The stock market at press time was within 5 percentage points of where it was before Sept. 11, McClelland notes.
“Defense stocks are hitting highs,” says McClelland, “Airline stocks have not recovered much yet, but Boeing has rebounded $9 from its low. That’s good news.”
Investors should remember that after every downturn is an upturn, says Walsh.
“The question is when,’”, he adds. “I get asked about Boeing. It’s a good company, even though it has had to lay off 30,000 workers. Its main competitor is a company whose employees work 32-hour workweeks and get six weeks of vacation every year. Why would Airbus ever be No. 1?”
The attack of Sept. 11 and the recent military strikes have changed the expectation for the nation’s business climate in the current and up-coming quarter, but the long-term outlook for the U.S. economy remains very positive.
Experts in the world of finance forecasted the coming recession months ago. The terrorist attacks and military actions that followed simply sealed the deal.
Shepherd says he began seeing sign of a slowdown more than [a] year ago. He also warns that the debt levels saddling public and private sectors could drag it out longer than necessary.
“I don’t think we are going to see anything long-term like we did in the ‘80’s,” he says. “But I think we will see at least a year of a sluggish economy.”
A decisive military resolution to the current hostilities and a massive stimulus package could speed things up, he concedes but neither investors nor traders should expect the economy to spring back immediately.
“That is not going to solve the underlying problems in the economy,” he says. “These things always take longer than people plan.”
The Shepherd Investment Strategist: The Stock Market Can Only Ignore The Economy For So Long!
SPOKANE, Wash. - April 19, 2001 -- The Federal Reserve's unexpected half-point cut to the federal funds rate target yesterday gave the Nasdaq and the Dow Jones industrial average much-needed gains, but one prominent market strategist is warning investors not to get bullish just yet. Jim Shepherd, founder of The Shepherd Investment Strategist (http://www.jastmts.com) and a veteran investment advisor with nearly 20 years' experience in the markets, said today that the Fed lowered the interest rate outside of its regularly scheduled meetings because previous rate cuts have been unsuccessful in heading off the possibility of a recession.
Shepherd added that yesterday's rate cut should come as no surprise to those who are watching the performance of the economy rather than the performance of Wall Street in the financial media.
"This is the Fed's way of saying that the economy is continuing to slow very rapidly in spite of previous attempts to halt the slide, while world economic slowdowns are beginning to have a negative effect here at home and a negative wealth effect is now being reflected in a declining business outlook," said Shepherd.
Although the rate cut will undoubtedly have another short-term positive effect on the equity markets, Shepherd pointed out that this action underscores the inherent and growing economic problems faced by the U.S. "This should be viewed as good news only in the short term. In the overall scheme of things, however, this move is indicative of the concern of the Federal Reserve over growing problems in the economy," he said. "Increases in the retail prices of gasoline, electrical energy and natural gas are having an inflationary effect on the economy that has not gone unnoticed by the Fed. The combination of these inflationary pressures, a slowing economy and rising debt problems has to be particularly disturbing to the members of the Federal Reserve, making their decisions increasingly difficult."
Compounding the problem, the Federal Reserve Bank of Cleveland reports that the average consumer is now carrying a monthly credit card balance of $5,800 - which means debtors making only minimum monthly payments would take over 30 years to pay off their credit card debts. Credit counselors and bankruptcy trustees in many states are seeing a dramatic increase in clients coming to them with serious debt servicing problems.
"The amount of debt, currently at an all-time high, has to be another concern of the Fed," said Shepherd. "In the last few years the public has, in many cases, been mortgaging their homes up to 125% of appraised values to continue a wild spending spree. The downside of that spending is now showing up in a rapidly increasing debt servicing problem."
Shepherd predicts that rapidly rising layoff statistics will soon start to show up in the unemployment numbers that have been fairly benign to date. "The Fed is no doubt alarmed by several factors that are now starting to show up in the economic data it is examining," he said.
Shepherd himself has seen positive gains in the slowing economy, having advised subscribers of The Shepherd Investment Strategist in late 1999 to exit the stock market and to purchase 30-year T-bonds - avoiding the large-scale losses in the stock market carnage that followed and increasing their portfolios by an average of 23% through the end of February of this year. Shepherd's subscribers are currently awaiting his proprietary Model's next signal indicating either an 'all clear' or a further significant drop in the market.
This page last edited
February 05, 2002