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Checking The Vital Signs

What do financial markets and blood pressure have to do with each other?

At a conference our team attended this week in Cleveland, I overheard several conversations about the current state of the financial markets, and what folks are thinking is going to happen in the coming weeks and months. People look back at the crash of 2000, the crash of 2008, and then at the current rally and think we’re inevitably due for another crash. 

The thing is, the markets don’t remember what happened in the past any more than a roulette wheel remembers what color came up on the last spin. While some folks look at a good rally in the market and see it as a terminally ill patient whose death is imminent, I like to think that maybe it’s a 7- or 8-year-old without any looming health problems. Maybe this 8-year-old won’t have any issues until it turns 16 and starts driving. 

Now, I’m no better at predicting the financial markets than anyone else, but we all have to agree that checking vital signs is important. Maybe the patient is relatively healthy and hasn’t developed any blockages, but perhaps there’s a little plaque build up and some moles to check out. A couple things to keep an eye on, in other words, but nothing life threatening.

When you look at the vitals for the financial markets – employment, gross domestic product (GDP) growth, average wage increase (this is ticking up for the first time in six or seven years), and consumer price index – they’re indicating that, right now, the patient is pretty healthy. It’s akin to a doctor taking a person’s blood pressure, glucose and cholesterol levels and declaring that person good to go – for now, at least. 

But, as with any healthy person, they could dehydrate and suffer a heat stroke, or eat nothing but fast food for a month and destroy their body. My point is that it’s presumptuous to think that, because the market is near an all-time high, that a crash has to occur. I do compare the markets to the human body here – it doesn’t remember what’s happened in the past. If it did, there would never be a second child! (Yes, the human body is amazing.) 

Keep in mind that I’ll never tell you to invest with abandon and throw caution to the wind. It’s much more prudent to base your investments on actual economic data and monitor that data for change in patterns, just like it’s a good idea to check your blood pressure from time to time and make sure you’re still healthy. This is a much better long-term strategy than saying either, A) I’m going to take my money out and wait for a crash, or B) I’m not going to put any more money in until it crashes. 

At the end of the day, neither of us knows if today happens to be the market top, or if the fix is in and what we are experiencing will be remembered as the greatest manufactured bull market in the history of the world. But until then, we can keep checking the vitals.

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