4th Quarter 2011
Calendar Year 2011
This past year severely tested investors’ patience. The year started well, with economic optimism emerging. The first quarter of the year the S&P index finished up 5% in spite of enormous headwinds. However, even more unpredictable events appeared which dashed optimism. A severe earthquake and resultant Tsunami rocked Japan, disrupting supply chains and economics throughout the world, showing once again how exogenous events seemingly faraway can impact our markets.
What In The World Is Going On?
In the last quarter we saw the market move 200 points or more 18 times. We saw it move over 400 points four days in a row. What is causing such gyrations? Surely the U.S, economy is not that volatile. While the economy is struggling, it is not careening as wildly as the equity markets.
The reason for the volatility can be summarized in one word: Europe. For over a year Europe has been dealing with a mounting sovereign debt crisis. The focus has been on Greece, but Italy, Spain and Portugal are also under scrutiny and France may not be far behind. The problem is that these countries, particularly Greece, will have difficulty paying their bills as they come due. Since many banks in Europe hold bonds issued by these countries, the fate of the banks is in doubt as well. This is what is being referred to as the contagion effect.
There are several obvious solutions to the problem, but none are very satisfactory. For instance Greece could default on their debt. But, because of the contagion effect, no one is quite sure where that would lead, and furthermore, it would set a precedent for bad behavior in the European […]
2nd Quarter 2011
ALL EYES ON CONGRESS AND THE PRESIDENT
Client Newsletter
Quarter Ending June 30, 2011
Investors have seen their eyes cross, as congress dithers over an increase in the debt ceiling. Both sizes dig in and positions harden. The Tea party is particularly intransigent, and Republicans are having a hard time delivering a untied position let alone votes. Liberal Democrats are unhappy with President Obama as he tries to adopt a centrist position in anticipation of the upcoming Presidential elections. Sclerosis of the political process makes a deal more and more in doubt.
1st Quarter 2011
The Teflon market
Client Newsletter
Quarter Ending March 31,2011
Market has strong quarter in spite of serious international problems. Stocks enjoyed the best first quarter of the year since 1998, and begin April on an upbeat note. For the first quarter of2011 the Dow closed up 6.90/0, the S&P 500 up 5.95%, and the NASDAQ up 5.1 5%, a very strong showing in the face of continued uprisings in the Middle East, rising oil and commodity prices, and the Japanese earthquake and Tsunami. Dubbed by some, “the Teflon market”, the market just kept rising in the face of bad news. Volume was steady if not spectacular, a sign that the market had not entered a frothy stage. Indeed retail investors are yet to get excited by the market which has now reached its highest levels in three years.
Market Drop
The Dow and S&P dropped sharply today but pared their losses by about 50% by the end of the session. This was the worst market drop in a month. The cause of the drop was a downgrade of U.S. debt by Standard and Poor’s rating agency to negative from neutral. S&P expressed concern over the management of the mammoth U.S. budget deficit and the ultimate ability of the US to repay its debts, or even continue to service the debt. Such statements were strong medicine for the markets but the market took it well to recover some at the end of the day. Still the statement by S&P was a shot across the bow of the U.S. congress. It appears that Congress just does not understand the severity of the problems the U.S. faces with its debt. S&P gave them a glimpse of what could come.
At the same time the equity markets suffered, Treasury bonds remained stable and the U.S. dollar rallied. Bonds and the dollar were strong because traders had been shorting dollars, betting on a further decline but sentiment shifted in favor of the dollars, so all of those who had been on one side of the boat […]
3rd Quarter 2010
September brings positive quarter
Client Newsletter
Quarter Ending September 30, 2010
For the recent quarter ending September 30, 2010, the market had a decidedly positive move. U.S. general stocks were up 11.1%, exactly matching their trailing twelve month gain. International stocks were stronger with a 16% gain vs. 11.1% for the trailing twelve months. Taxable bonds gained 4% vs. 10.4% for the trailing twelve months, and municipal bonds gained 33% vs. 5.5% for the trailing twelve months.