double dip recession Archives • Rutherford Investment

Stocks Suffer Worst Quarter Since 2009

Published October 11, 2011
The Dow Jones industrial average ended the third quarter of 2011 down 12 percent – the largest decline, by percentage, since the first quarter of 2009. That was after Lehman Brothers collapsed, and fear reigned supreme. Secretary of the Treasury Timothy Geithner said that March 2009 was when we looked into our grave.

The first quarter of 2009 is not a good reference point for a quarter, the current one, that started on a good note and saw some improvement in gross domestic product, consumer confidence and manufacturing output.

In August, household incomes fell. This was the first monthly decline in overall personal income since October 2009. Real disposable income is actually down for the year 2011. Personal spending was flat in inflation adjusted terms.

Each time the market tried to rally, it was crushed. September was the fifth straight month of market declines, the longest string since March 2009. However, that month also marked the beginning of a two-year market rally.

Worries persisted about the European debt crisis, which has drug on for over a year. Talk of a double dip recession gained currency, though such a predication was rejected by Warren Buffett. The global economy appears to be slowing, with the notable addition of China to the watch list.

The periodic good news followed by headlines of bad news led to one of the most volatile periods for stocks ever. In the quarter, the Dow moved by more than 200 points a day 18 times, and more than 400 points on four consecutive days. Investors’ nerves and confidence were rattled.

Financial stocks were among the hardest hit, with many banks falling by […]

October 12th, 2011|Categories: Daily Journal of Commerce|Tags: disposable income, double dip recession, lehman brothers, timothy geithner, warren buffett|Comments Off

Verdict On Bernanke’s First Press Conference

Published May 6, 2011
When I published “Who Shot Goldilocks?” in 2004, I recommended that the Federal Reserve announce rate decisions by communicating in plain English at a press conference where the chairman could be asked questions. This was because of Alan Greenspan’s notoriously obfuscatory pattern. Seven years later, on April 27, Chairman Ben Bernanke held such a press conference.

Bernanke first read from a prepared statement and then took questions from reporters. As befits the U.S. Federal Reserve, reporters from around the world were in attendance. Questions were asked by reporters from the U.K., France and Japan. It was an event that Americans can be proud of as our central bank chairman set new standards for openness and transparency … with the entire world watching and participating.

Among the policy matters that the chairman discussed was the end of Quantitative Easing II, which will be completed by June 30. There will be no change in the present policy of reinvesting matured debt and interest into new purchases. But the $600 billion program of bond purchases by the Fed will come to an end.

Bernanke defended QE II in a strong statement. He said that at the time the program was begun, the U.S. was looking at a double dip recession and that it was on the cusp of deflation. It was necessary, he said, and it worked. The program triggered significant changes in the financial markets, and the easing financial conditions led to a stronger economy, just as the first quantitative easing effort had done in March 2009.

The chairman said there would be no change to the target range for the federal funds rate at 0 to […]

May 10th, 2011|Categories: Daily Journal of Commerce|Tags: Bernanke, double dip recession, inflation expectations|Comments Off

2nd Quarter 2010

Rutherford Investment Management, LLC
Newsletter: 2nd Quarter 2010

A volatile quarter

A quarter in which volatility ruled saw the Dow Jones Industrial Averages slide 10%. The crash of 2:45 PM (Flash Crash) detailed earlier in my notes to you, concern over Sovereign debt in Europe, especially Greece, and evidence of a slowing economy led to concerns about a double dip recession. (Please see my Daily Journal of Commerce column recently forwarded to you.) All of these concerns led investors to seek safety and pushed bond yields into record low territory. Mortgage loans plumbed all time lows.
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September 13th, 2010|Categories: Quarterly Client Newsletters|Tags: Daily Journal of Commerce, double dip recession, dow jones industrial, dow jones industrial averages|Comments Off

Is This Recession The New Normal?

Fear lingers as worry of a double dip fades. What can the Federal Reserve do? The past quarter brought numerous gloomy headlines. The specter of a double-dip recession, a depression or inflation loomed.

Each day seemed to bring more negative news and reason for gloom. Not surprisingly, markets reacted, and after a strong July, equity markets dipped in August to an overall minus number for the year. It did not help that investors withdrew about $34 billion from equity mutual funds for the year and placed $32 billion into international and emerging market funds, or that the “flash crash” of May 6 caused many investors to wonder if they were playing with a stacked deck.

Job losses continued to mount last month with the unemployment rate hitting 9.6 percent. The Obama administration took solace in the fact that the private sector in August added 67,000 jobs – about one fourth of the number needed to provide jobs for new entrants into the workforce.
The question the market seems to be wrestling with is: Are we about to experience a “new normal” for growth in the U.S.?

Historically, on average, the U.S. economy has grown about 3 percent per year – also about the rate of inflation. Bonds have historically returned the rate of inflation plus 3 percent, for a total of 6 percent. Equities have historically returned about 9 percent.

As every investor knows, the last 10 years have been anything but normal, and the U.S. economy seems to be growing less than normal. Is this the “new normal”? Should we expect less than 3 percent growth, or even none? Is the structural growth rate of the U.S. […]

September 13th, 2010|Categories: Daily Journal of Commerce|Tags: double dip recession, emerging market funds, federal reserve, fixed income markets, job losses, mutual funds, private sector, rate of inflation, unemployment rate|Comments Off