Is the Market Rigged? Yes.

Perhaps you saw the recent "60 Minutes" segment in which author Michael Lewis said the stock market is "rigged."  There has been a lot of talk and press about it since.  A few comments.

First, Michael Lewis has a book out, so kudos go to his publisher and PR firm for landing the "60 Minutes" gig.  He'll sell lots of books.  That said...

Investment professionals will surely take issue with the word "rigged."  They should.  Yes, some firms with the latest communication and computer technology can and do gain an edge over slower-moving institutions and larger investors.  I won't defend that.  That said, individual investors get far better executions, with lower commissions, now compared to any time in the past.

If a "60 Minutes" producer reads this blog, I suggest he or she do this:  Try a segment on how the stock market is overwhelmingly "rigged" in favor of long-term investors in high-quality stocks with rising earnings, not day-traders and especially not high-frequency traders.  The evidence:  every long-term chart of the market starts in the lower left corner and ends in the upper right.  The long-term return on stocks is close to 7 percent after inflation.  When I entered the business, the Dow stood at 2,200.  Now it's 16,550.  Yes, the market is rigged, rigged in favor of long-term investors.

Consider also the Forbes 400 richest Americans.  Most own stock in companies they founded or expanded.  Some are real estate developers.  Will you find any high-frequency traders on the list?  I doubt it.  Not now, not ever.  If the stock market were truly "rigged against investors" they'd be there.

The way to build wealth is not to day-trade but to own leading equity ETFs and quality companies that increase their earnings and in most cases dividends year after year.  That's the message "60 Minutes" should give investors.

David Vomund

Information on Vomund Investment Management is found at www.ETFportfolios.net.  Post performance does not guarantee future results.  Consult your financial advisor before purchasing any security.

Yellen Speaks

Fed Chair Janet Yellen held her inaugural post FOMC press conference.  Here are our thoughts:

http://www.etfportfolios.net/bonanza/2014-03-27.pdf

David Vomund

— David Vomund is an Incline Village-based fee-only money manager.  Information is found at www.ETFportfolios.net or by calling 775-832-8555.  Clients hold the positions mentioned in this article.  Past performance does not guarantee future results.  Consult your financial advisor before purchasing any security.

 

A Shaky Start

The market is off to a shaky start to 2014.  Why the small setback?  Simple.  Economic data here and abroad are calling into question the global growth story.  China's growth is slowing, and some emerging markets are in turmoil.  Recent economic data here show weakness as well, especially in manufacturing and car sales.  Frigid weather on the east coast had something to do with that.  Who wants to go for a test drive when it's 5 below or look at houses to buy?  

Here's my take:  economic growth will be faster than last year, but not by much and not good in the first quarter (maybe 2 percent) due to the weather.  Interest rates will tick higher, maybe to 3.5 percent for the ten-year Treasury later in the year.  What won't be rising are short-term interest rates, which will remain near zero all year and beyond unless growth accelerates (most unlikely given the jobs picture).  For that reason alone stocks won't be falling far and in fact will be the best asset class for the year.  Traders and short-term trend followers fail to see that.  Some were caught up in the brief downdraft and imagined much worse to come.  That won't happen as long as short-term rates stay low because the alternatives are not and will not be attractive anytime soon.  Sound familiar?  So investors will continue to buy the dips.

As for emerging markets, while there have been many times that selling in emerging market stocks and bonds briefly impacted U.S. equities, including last May, the effect was very short-lived and did not undermine a bull market, not in the late 1990s, not last May, and not during times in between.  Nor will trouble in Turkey or Argentina and elsewhere torpedo the bull market now.   Rattle it yes, which is understandable after a long bull run, but not derail it.  

Real estate brokers advise buying the best house you can afford in the best neighborhood.  That's also good advice when it comes investing.  The U.S. economy is the best neighborhood, so to speak.  Stocks are the best asset, the present turbulence notwithstanding.  So far, the stock market has retreated 5.7 percent.  In a perfect world, stocks would steadily advance in line with earnings, but our world is not perfect and sell-offs happen.   We've seen many and we'll see more.  Over the last four years those who bought the dips were rewarded.  I expect that now too.

 — David Vomund is an Incline Village-based fee-only money manager.  Information is found at www.ETFportfolios.net or by calling 775-832-8555.  Clients hold the positions mentioned in this article.  Past performance does not guarantee future results.  Consult your financial advisor before purchasing any security.