By Bob Landaas
For years, people have been fretting that inflation was going to skyrocket because of the financial bailout, because of quantitative easing, because of all sorts of reasons.
It’s time to give those fears a rest. The worry that I have had wasn’t whether inflation was going to go up or whether interest rates were going to rise. I kept worrying what if inflation – and with it, interest rates – went down and just stayed down?
I’ll be darned if that’s not what happened. Interest rates fell, and they stayed down. That presents a whole different set of problems to worry about.

By Bob Landaas
The stock market in the United States has stabilized recently after the most extreme price swings since the financial crisis. The abrupt actions of China sparked a worldwide sell-off in the markets after the Chinese government devalued its currency and analysts became concerned about the country’s dramatic reactions to its financial problems.

By Bob Landaas
At midyear, stocks in the U.S. are up 3% against a backdrop of economies that are growing modestly around the world. After a disappointing start to the year with the U.S. economy held back by one-time events, growth resumed in the second quarter.

By Bob Landaas
Equity markets tend to move in cycles from being undervalued in the early stages of an economic recovery to being overvalued in the latter stages of the business cycle. Historically, inflationary pressures build as wage growth, higher commodities prices and restraints in capacity create pricing pressures and higher inflation. The normal response is for the Federal Reserve Board to increase short-term interest rates to discourage spending in the hopes of reducing inflation. The vast majority of recessions since the end of the Second World War have been caused by higher interest rates used to combat inflation.
Things are very different in this current business cycle.

By Bob Landaas
I normally cringe when people tell me, “This time, it’s different.” This time, though, it truly could be different when it comes to corporate earnings. Analysts expect first-quarter earnings to decline 3%-4% compared to a year earlier. It would be the first time in six years that earnings have declined so much. This time, though, we’re looking at fairly unique circumstances.

By Bob Landaas
Many actively managed stock funds are outperforming the indexes so far this year. I find that reassuring.
There has been a litany of articles in the press about the average actively managed fund not performing as well as the index funds in 2014. That always gets my goat. What they fail to mention is that there are dozens and dozens of funds that consistently outperform the averages.

By Bob Landaas
We’re not going to come to any sort of equilibrium in the markets until oil levels off. Wall Street hates uncertainty. When the markets do well lately, it’s either because oil’s flat or it’s on an uptick. When the markets go down, it’s because oil’s going down. Everybody is trying to figure out where the floor is for oil. If you can scratch that off your worry list, you have one less thing to fret about.

By Bob Landaas
One of the key issues that investors are struggling with right now is how much is the price of oil dropping due to the global slowdown, and how much is due to oversupply? At some point, perhaps when the price levels off, people are going to realize that it’s more a supply issue, not a collapse in demand. They’re going to realize that the global economy is not as weak as people think.

By Bob Landaas
Clients asked me twice in one day recently, “Hey Bob, aren’t’ things really volatile right now?”
Actually, the last three years have been very tranquil. Tranquility is the outlier for the stock market. The norm is volatility. We got lulled into complacency, for the most part, without any significant sell-off since 2011. So, we’re back to the norm more in volatility.
I think we can expect more of that as people try to get a grasp on what is going to be the fallout with the sell-off in the emerging world. What really is going to be the fallout from a 56% decline in the price of oil since June? How is that going to affect the credit markets? How is it going to affect the equity markets?

By Bob Landaas
Investors have a conundrum. They need to reconcile the differences between the bond market and the stock market.
The bond market is suggesting that the economy is slowing, that perhaps we are heading into a recession and that the lack of economic growth is causing interest rates to go down along with prices for oil and gas and most other commodity groups.
On the other hand, the stock market is at all-time highs, suggesting that the economy is growing, that the index of leading economic indicators is accurate in forecasting better times ahead.

By Bob Landaas
If you’re looking where to point for the recent market sell-off, blame Europe. The markets re-priced themselves largely because of the slowdown in Germany, along with the rest of the Continent. While the U.S. markets have almost fully recovered from the sell-off that started in mid-September, the rebound in Europe still has a ways to go.
The United States was early in stimulating its economy, but Europe – and to a lesser extent Japan – has lacked the political will to turn their economies around. All this coincides with the slowdown in China that started last year.

By Bob Landaas
The people who have been screaming that inflation has to go up should give it a rest. Politicians need to come up with something else to scare us about because this isn’t happening. […]