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Rutherford Investment Management, LLC
Newsletter: 1st Quarter 2010
Since March 9th of last year, the market has seen a steady, if uneven rise. This rise has largely been fueled by the policies of the Federal Reserve.
The Fed provided massive bailouts of the banking sector, enormous liquidity to the credit markets and interest rates near zero percent. the result has been a return of confidence to the economy and a willingness to take a risk.
With unemployment at a stubbornly high rate, home foreclosures still proliferating and commercial loans (especially for real estate) teetering, is there reason for optimism? Sometimes adversity is reason for optimism, and sometimes in a perverse way.
For starters, the economic news is not all bad. Consumer confidence is firming. Manufacturing is firming. Inventories are low and will have to be restocked. We just came off a decent quarter for earnings in the S&P. The retail sector has added jobs for three months in a row. The market, generally considered a precursor of the economy, has risen robustly. The Dow was up 4.1 percent and the S&P was up 4.9 percent for the first quarter of 2010. The equity markets were up for the fourth straight quarter.
With interest rates low for an extended period of time, money has sought a more comfortable home.
Money goes where it is treated best, and so it has found its way back into the equity markets and the
credit markets. Credit spreads have tightened, and indeed the credit markets have become more liquid.
Just a year ago banks were reluctant to lend to each other. Companies were struggling to roll over
commercial paper even with very short maturities. Companies were beginning to wonder how they would
have enough cash to meet payrolls and payables. Now, credit markets are absorbing bond sales, especially
massive U.S. government bond sales. The high-yield market is absorbing corporate debt at a record pace
and the great lump of corporate debt that needed to be refinanced is being sold. The high-yield markets
are working on repaying debt not due until 2013 and 2014, with 2010 and 2011 and much of 2012 […]
The market has taken a sharp tumble in the past few days. The S&P has closed at its lowest point since April 14, 1997. This brings the average Large Cap Growth manager and Multicap Growth manager down about 50% on the year. (We are beating the markets)
The economic news is grim and the Fed believes the recession, which they now recognize, will last into the first half of next year. Others think the recession will last longer. Historically the market has turned up about six months in advance of the end of the recession.
Markets are also suffering a lack of confidence. We have one president with his bags packed and another yet to assert himself. Obama should act now, or face much tougher problems when he takes office. Treasury Secretary Paulson seems to have a new game plan each day, so it is no wonder that investors are confused.
Is this the end of the world as we know it? Not likely. Government regulation, and involvement in business will grow, but the economy will recover. So far the government has thrown (literally) about 2 Trillion dollars at this problem. We have seen some results-credit markets are starting to work again-but not all of the results. […]
The fear and trepidation surrounding the financial markets came to realization in the month of September. The broad market fell 8.9 percent in the month, with the average U.S. equity mutual fund down 10.5 percent. This brings the market down 25.6 percent from its Oct. 9, 2007 high through Sept. 30, 2008. Credit markets seized up. Bank failures continued. Auto sales plummeted. Unemployment rose.
The Secretary of the Treasury, Hank Paulson, and the Chairman of the Federal Reserve, Ben Bernanke, told President Bush and Congress of the dark peril that faced the U.S. if a massive aid package was not adopted. The epiphany for Paulson came as he watched his trading screens flatline across global credit markets. The London Interbank Offered Rate soared as banks hoarded cash and declined to loan even to one another. Commercial paper activity, the lifeblood of industry, dried up and rates soared. America stood on the brink.
Paulson and Bernanke brought a massive recovery package to Congress that included granting extraordinary powers to the Secretary of the Treasury.
Alan Greenspan, in an interview with Maria Bartiromo on CNBC, volunteered himself to serve on a committee as yet unnamed, presumably as chair, to be given extraordinary powers over the economy. It is not known if anyone accepted his offer. […]
Dow surges 290 points as investors consider what the Fannie and Freddie bailout means for the broader economy.
by Alexandra Twin, CNNMoney.com senior writer
NEW YORK (CNNMoney.com) — Stocks surged Monday, with the Dow gaining 290 points and the broader market also gaining as investors breathed a sigh of relief that the government has swooped in to bail out Fannie Mae and Freddie Mac.
The Dow Jones industrial average (INDU) added 290 points or 2.6%. The broader Standard & Poor’s 500 (SPX) index added 1.8%, paring its morning gains. The Nasdaq composite (COMP) added 0.6%, after climbing in the morning and then falling in the afternoon. […]
The coming blizzard of earnings reports has Wall Street on edge, but it’s not all bad news ahead. Here’s what to expect.
by Ben Steverman
With just a few days left in the second quarter, Wall Street is preparing for yet another disappointing round of corporate earnings reports.
According to Thomson Reuters (TRI), analysts expect the earnings of the S&P 500 to fall 10.2% this quarter, a number that keeps getting worse as pessimism deepens about the financial sector. It would be the fourth straight quarter of falling earnings, the first such losing streak since 2001-02. […]