In South Walton, our business appointments and leisure sojourns are often influenced by rain. Most of us know that when we get the kind of prolonged and heavy rain that hit us recently, that venturing out by car is troublesome. On rainy days, fewer folks find the beach and visitors pack the roads, searching for off-beach entertainment and dining. When the sun is brightly shining, more people populate the beach and the roads are freer for travel.
During summertime, every Floridian is an amateur weatherman by necessity.
From early August through late October, we all keep an eye peeled for disturbances in the Gulf, and then are prepared to run for the hills or hunker down and get hammered. Either way, everyone breathes a sigh of relief on Nov. 1.
Lately, unprecedented variations in patterns of weather have been matched only by the vagaries of volatility in the market.
First, a few weather notes. It snowed in Arkansas about eight weeks ago, the first time that state has recorded May snow since they began keeping records in 1894. Meanwhile, I have relatives in Fayetteville, lifelong Arkansans, who claim that last summer was the hottest they’ve ever experienced. Go figure. Last week, it was 94 degrees … in Alaska. Folks were baking in a broiling sun in a little community that experienced 30 degree temperatures only two weeks prior. It was 122 in Palm Springs and a mild 119 degrees in Phoenix last week.
Yet, I have been living in Florida for 27 years and this past spring was easily the coolest I can recall. In fact, I am hopeful that we are trading weather patterns with Pacific Grove, Calif., which boasts brisk mornings, with fog rolling in from the ocean, even in late summer. Wouldn’t that put a crimp in hurricane season?
These extreme weather changes are exactly the kind of unprecedented volatility we have experienced in the markets since 2008. Lately, market gyrations partly represent a reaction to Federal Reserve Chairman Bernanke’s hints that the Fed may begin tapering quantitative easing, possibly in December, well before the originally announced 2015 timeline. Negative market trends from Asia and Europe also contributed to a temporary but decided downturn. During the next 72 hours, though, the Dow enjoyed the best 3-day win streak of the year. Now that’s volatility.
But this is only the latest example. The VIX, or level of volatility, has been rising steadily since 2008. Torrid volatility characterized 2011. In early August of that year, the market dropped 635 points in one day, the largest single day nosedive since 2008. What Andrew Ross Sorkin in the New York Times called “intractable problems” in the EU was part of the volatility equation. Now, a not-so-soft landing in China is significantly impacting global markets.
It is a documented economic tenet that markets overreact to bad news and under-react to good news, so extreme volatility requires investors to prep their portfolios with downside protection, such as dividend paying equities. Dividend payers which have increased their shareholder dividends also serve as a hedge against inflation.
As Chairman Bernanke inevitably edges forward with future QE tapering, markets are likely to remain volatile.
When it rains, it pours.
Margaret R. McDowell, ChFC,, AIF, a syndicated economic columnist, chartered financial consultant and accredited investment fiduciary, is the founder of Arbor Wealth Management, LLC, (850-608-6121~www.arborwealth.net), a fee-only registered investment advisory firm located near Sandestin. Arbor Wealth specializes in portfolio management for clients with $250,000 or more of investable assets.