In the past few months we've seen major market volatility, bitcoin's parabolic move up, Greenspan's remarks on the bond market and much more. We sat down with Money Crashers' Andrew Schrage to help navigate the markets for us.
Consumers Advocate - On February 5th, 2018, the S&P plummeted to 4.1%, the largest drop since August of 2011. On the same day, the Volatility Index had it's biggest one day rise in history. Do you think the equity markets have seen their highs for 2018?
Andrew Schrage - This has been such a tough year to try to predict the direction of the markets. Some are saying that there could be a bigger drop coming in the near future - others say that the so-called "corrections" are over with. I think the "volatility" was more of a correction and then a rebound than anything else, but it could be a warning sign of negative things to come in the future. As always, your approach to investing should be more of a buy and hold strategy, where this short-term stuff shouldn't really come into play when making your decisions. That's a challenge no doubt, but it can be done.
CA - The Federal Funds rate is currently at 1.5%. The Federal Reserve has projected a 0.5% annual increase for the next three years - finishing at 3% in 2020. Effectively rising from zero, it's a huge percentage increase, yet historically, rates are still very low. Do you think markets will view the rise as rates normalizing, or or will it perpetuate volatility even further?
AS - I don't know that you can absolutely count on the Fed's rate increase prediction, as those things are generally decided on regarding more current events, so the actual results might not be what they are predicting. Even with some increases, rates will still be low historically speaking. Unless the Fed goes further than a 0.5% increase each year, the markets will probably view this as more of a normalization reaction.
CA - Alan Greenspan is saying "The bond market is beginning to unwind." Can you speak to that a little? Is this "The Big Correction" we've been hearing about over the past 7 years truly happening or is it just another year in the market?
AS - Alan Greenspan isn't wrong very often, but he could possibly be here. It's probably too soon to say if there's a big correction coming or not, as it could very well be just another year.
CA - Bitcoin is on everyone's radar right now. In December of 2017, Bitcoin made a parabolic jump from around 4K to 20K, and has now settled in around 10K. Despite many large institutions and countries nay-saying Bitcoin, it appears that deregulated digital currencies are here to stay. What are your thoughts on Bitcoin specifically ?
AS - It's possibly a good investment option, but buyer beware. There's tons of volatility that could be on the horizon, and safety and security concerns as well. To date, this isn't something to be jumping into head first.
CA - Recently, Amazon, Berkshire Hathaway and JP Morgan announced they would form an independent healthcare company for their employees. Can you see that spreading nationwide with respect to healthcare?
AS - Now that Obamacare has been dismantled to an extent, it's probably likely that more of these healthcare cooperatives may be in the making. It probably represents a good sign for consumers, as these types of things generally result in lower prices.
CA - Amazon is sometimes referred to as the 'Ultimate Disrupter.' - There's a lot of talk lately that they should go into the banking business. What do you think about that? --
AS - If Amazon were to go into the banking business, more than likely they'd do it right and present a product or service that would be generally beneficial and advantageous for consumers who want to take advantage of what they have to offer.
CA - Let's end on a fun one! - With algorithms running everything, blockchain technology and artificial intelligence exploding, are we at the point where college students should just major in computer science and minoring in everything else?
AS - College students should think long and hard on what they should major in. Computer science is obviously a rather good choice in today's environment, but other majors could prove to be fruitful as well.