U.S. Economic Strength a Buffer Against Stock Market Declines

Stock markets in the U.S. and around the world have had a rocky week, triggered by economic problems in China. Investors everywhere are wondering when the market’s slump will end and how low prices will drop before they stabilize. The Miller Group’s CEO, Rudy Miller, discusses the situation and explains his perspective on the days ahead in this report.

Miller says that the current stock market slump is not unprecedented, “although it’s a major milestone.” Miller remembers the stock market crash of 1987 and says it was the last time he owned any stocks in his portfolio on margin. Margin calls very much affect the market at a time like this.

Rudy Miller

Rudy Miller

But, as Miller points out, “We’re sitting on a very solid U.S. economy.” The housing market is in excellent condition. There have been economic problems in China and Greece, but those problems have not damaged our economy. Europe has seen a huge influx of immigrants from Syria and from Africa, the largest since World War II. But the problems related to that immigration have not affected the U.S. economy.

There has been some concern about news that the Federal Reserve would raise interest rates by a quarter of a point in September. Miller does not see a prospective raise in interest rates as a problem. Miller points out that “We’ve had a zero-based economy for seven years.” But the proposed rate increase has already been “baked in” with Wall Street and America’s banks. The increase is largely symbolic. There may be some adjustments, but there will be no serious problems. Miller says that the U.S. “can’t have zero money forever and a $19 trillion dollar debt.” The Fed looks a host of data in making decisions. Miller believes that, among other things, the Fed looks at the S&P 500 in deciding what to do.

Any problems the U.S. suffers in the near term are not a financial crisis such as we had in 2008 and 2009. The real estate problems of that time are gone. Miller points out that, last year, 44% of all home sales “were cash deals.” In other words, home buyers can afford the homes they are buying, and they plan to live in those homes, not flip them as part of an investment scheme. There is a lot of investor money going into housing purchases.

Miller believes the Fed will move slowly and firmly going forward, avoiding the problem of “every ninety days rolling out another rate hike.” Miller reiterates that it is important for the U.S. to move forward from zero-based money, even though the low interest rate got us through the bad years and helped the economy to start moving forward again. Miller thinks the market will react positively to the interest rate increase because it shows that “we are slowly going in the right direction.” One of China’s problems is that it has in recent times had government-owned companies trying to prop up its stock market by using cash to buy securities instead of investing in the economy.

Miller is optimistic “and realistic” about the future of the stock market and the U.S. economy. He believes that the latest stock market correction has shaken loose “retail investors” who are not in it for the long run. Miller says he is “a long-term hold of good quality companies.” Their earnings are good, as are their ratios. But all money has to be invested somewhere. And the U.S. economy is not having a problem. There is presently an international economic crisis, but it is not an American economic crisis.

Rudy R. Miller is the Chairman, President, and Chief Executive Officer of The Miller Group as well as Miller Capital Corporation, an affiliated company The Miller Group, established in 1972. He was the Founder and Chairman of the Board of Miller Capital Markets, a FINRA member investment banking firm, from 2006 through 2012. He has over 35 years of executive-level experience owning, operating and advising corporations, from large NYSE listed public companies to emerging-growth private companies. His extensive operating and advisory experience provides clients with a comprehensive understanding into the challenges of successfully navigating a business through varying economic climates. The Legal Broadcast Network is a featured network of Sequence Media Group.