A Conversation With ... Ron Penney

The Dow Jones industrial average hit its highest point since 2008 last week. What’s spurring this movement?
Everything is driven by earnings plus or minus people’s opinion. What I’ve done for many years is try to explain that like it’s a teeter-totter. Things are worth what’s at the fulcrum and they stay that way about 15 seconds. If greed is more dominant or fear is more dominant, the teeter-totter sways. I call the line of balance the teeter-totter confusion. As people run up and down the teeter-totter, the balance line goes up and down and so does the market. The whole cycle of information we have now makes people run faster and go further. You can have a fear, support your fear, reinvent your fear and resupport it all in an hour.

Basically, right now interest rates are extremely low and the government is extremely accommodative to try and make things happen. The political system is still disruptional. Companies are making earnings that are good. That cash comes in and makes them look good, so stock prices keep rising.

Is the stock market due for a correction?
We are always due for a correction. It’s always there. Volatility picked up drastically about three months ago. I’ve been tracking it now for 30 years and break it down a month at a time, because most people are too close to the trees to know what’s going on. In the month of December, the market moved less in the whole month than it did in any of the days. The Dow moved down five points for the entire month and there isn’t hardly a day out there that it didn’t move more than five points. The (Standard & Poor’s 500 index) moved nine points for the month, but there were days that moved major. People were running afraid. If it moves 100 points in a day, people are in panic. The market plunges 100 points, but out of 18,000 that’s just getting your toes wet.
 
If the Dow is only moving five points in a month, what is that telling us?
People are confused. They are running back and forth on that teeter-totter. There are “X” number of people in the world who are buying and selling investments, and most of that is done electronically now. In the last 20 years, computers have created the opportunity to do things instantaneously. Millions of shares are traded now that couldn’t have been 35 years ago. Whether they are right or wrong, you can make decisions that quick.

Is more instantaneousness good or bad for the market?
The market is not efficient. It tries to become efficient and goes too far. The faster the data comes in, the more efficient it becomes. Things are closer to the correct value. It used to take three weeks for a company to go from one price to another; now it takes three minutes. You never knew about, say, a factory blowing up in India immediately, now you do. And the price drops. Knowing the real value of something is impossible because you don’t know what’s going to happen in the next 90 days, or the next 90 seconds.

The price of oil continues to drop, down now to $47 a barrel. What does that mean for Wall Street and for Main Street?
Oil is a commodity we thought we were going to run out of. Now, there is this abundance. There is more light crude here in our area than heavy crude; that’s why unleaded is cheaper than diesel fuel.

These gas prices are good for Main Street. It’s extremely good for people and they then take that saved money and spend it, making it good for stores who collect that money. Economically, we are on a good pattern.

Globally, whether people like the United States or not, they know the U.S. is a safe place to have their money. There is a massive amount of money that wants to be here – more than our government is willing to issue.

Where are people investing their money in 2015?
Dividend stocks are the most attractive because the government has chosen to not tax dividend stocks in lower tax brackets. In high brackets, the tax is less than half.