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Fireworks! Crouch Connection, January 2016


The New Year has certainly started out with fireworks this year! Although fireworks are fun to watch on New Year's Eve, most of us would have preferred they not continue on Wall Street the following week. In a moment we will consider how we believe 2016 will play out after this unpleasant start, but first let's look at how we did in 2015.


We believe most investors found 2015 to be a frustrating experience, with very little to show for all the effort. Since we are not allowed to publish our results (yet), let's just say that we are generally very pleased with our performance this year.

The Good

OIL PRICES. The obvious place to start is where we got it right -- oil prices and interest rates. Anyone who has been reading the "Connection" since 2008 knows we have been convinced that there was too much oil in the world, and that it would eventually result in a waterfall collapse in oil prices. Timing on a call like this is very difficult, if not impossible, to predict, but the market finally agreed with our thesis and we have all enjoyed the fall in gasoline and diesel fuel prices. I saw gasoline for $1.55 a gallon in Fairview on the way to a Rec League basketball game Saturday... that's the best price I've seen since I was a kid (seems like)!

We believe 2016 will see continued pain in the oil patch, with too much oil chasing too little demand. The "$64,000" question this year is whether there will be room to store all of the excess oil in the tanks and ships available around the world before production slows down. Our belief is that this will become a huge problem this year, and that we will see $20 oil (just over $30 a barrel right now) before this is over.

INTEREST RATES AND UTILITIES. We started 2015 just like we have started the past several years... the "consensus" view was that interest rates would rise during the year, which caused some investors to avoid the utilities... one of our favorite groups. The "consensus" turned out to be wrong again, and interest rates were relatively calm during the year.

2016 will be a more difficult call when it comes to interest rates. The Fed has now completed the first of several rate increases they have wanted to do for many months. This makes the bankers happy because you may have noticed that the prime rate went up within minutes of the Fed announcement. Unfortunately inflation is still hard to find in the publicly circulated numbers, and inflation is supposed to be the "problem" the Fed usually fights. We will just have to wait and see if the Fed can actually follow through on its plans. Call us skeptical on that one.

The Bad/The Ugly

We'll repeat the concerns we have mentioned in our message for the past two months:

  • FED RATE HIKES. Historically the Fed has only raised rates when the economy was heating up and in danger of creating inflation. The fact that they insist on raising rates in such an unstable economy concerns us, to say the least, and could cause some unintended consequences that we don't need.

  • A STRONGER DOLLAR. A strong dollar is hard on American firms operating outside the U.S., and the earnings reports have reflected that. In addition, U.S. products are at a distinct disadvantage in the competitive marketplace when the dollar pushes the price of U.S. products higher on world markets. The combination of higher U.S. interest rates and weaker economies in emerging markets could result in a sharply higher dollar, with negative implications around the world.

  • LOWER OIL PRICES. As much as consumers enjoy cheaper fuel prices, the turmoil in the oil industry is tough on our economy, and we expect that will continue this year. Hopefully the benefits of lower consumer prices will keep the U.S. economy on a positive plane or, at best, keep us out of a recession.

  • CHINA AND EMERGING MARKETS TURMOIL. The financial publications last weekend were full of articles with concerns about the China economy and the debt bubble they have created. China's real estate and bloated debt makes the real estate disaster of 2008 look like chump change. The pied piper is coming to China, and it is possible that it could create problems for all of us.

  • JUNK BOND PROBLEMS. The recent problems in the junk bond markets do not help. The slowdown in the commodity and oil markets is causing cash flow problems for not only the producers, but also for many of the countries around the world that had enjoyed the benefits of high prices for the past several years. We suspect that these problems will spill over to the bond markets as low prices persist.

Bottom Line It is easy to find negative forces to rant on about, but we don't want to be entirely bearish. Many of these sentiments are already priced into the market (some of them just this past week), and our challenge is to try to determine when the maximum possible pessimism is priced into the markets. We believe that is the best of all times to be buying!

It is time for our annual portfolio review meetings, and Kim Blackburn, Branch Operations Manager, is coordinating those this year. If you want to have yours sooner rather than later, just let us know . We will be glad to get you on the calendar right away. As always, we appreciate your business and are happy to assist in your financial affairs in any way we can help. Happy New Year!

"We simply attempt to be fearful when others are greedy, and to be greedy only when others are fearful."

-- Warren Buffett

The Story Behind Cowboy Logic

Our gratitude goes out to Kit Pharo with Pharo Cattle Company in Cheyenne Wells, Colo. for the Cowboy Logic quotes. I have enjoyed receiving his weekly newsletter and his weekly Sabbath Day Devotion since 2002. He has given us permission to use his humor to share with our clients... his only request is that we share his website with you so you can sign up for his missives if you would like -- Most important, he is one of the top cattle breeders in the West and can provide you with some excellent cattle genetics. Thanks, Kit! --Dave

The information contained in this report does not purport to be a complete description of the securities, markets, or developments referred to in this material. The information has been obtained from sources considered to be reliable, but we do not guarantee that the foregoing material is accurate or complete. Any information is not a complete summary or statement of all available data necessary for making an investment decision and does not constitute a recommendation. Any opinions are those of Dave Crouch and Cherie Hammond and not necessarily those of RJFS or Raymond James. Expressions of opinions are as of this date and are subject to change without notice. Investing involves risk and you may incur a profit or loss regardless of strategy selected. Past performance may not be indicative of future results.

Raymond James is not affiliated with Pharo Cattle Company..


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