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Obama, Federal Reserve Further Muddy Economic Waters

Originally posted in the Daily Journal of Commerce, Portland OR

Published July 8, 2013
William RutherfordFederal Reserve Chairman Ben Bernanke, usually very clear and precise in his comments, muffed his recent testimony to Congress. Bernanke attempted the impossible and ended with egg on his face. Every thinking person on the planet has known for some time that the Fed would begin raising interest rates at some time. Every thinking person has known that interest rates had been kept abnormally low by quantitative easing, which also buoyed the equity markets. Every thinking person has known that the effort to curtail QE would be very difficult to achieve and could potentially cause great upheaval in the markets.

The Federal Reserve has taken great pains to tell the markets under what circumstances it would reduce QE, and raise rates. The conditions were a reduction in unemployment to 6.5 percent, a growing economy and a lack of serious inflation. Two of these conditions are being met. Therefore, every thinking person has known that rate increases were in the cards and being contemplated. Indeed, Federal Reserve minutes and Fed speakers indicated that there was not board unanimity, and some governors favored ending quantitative easing even now. But when Bernanke, in testimony before Congress, tried to emphasize that the Fed was considering tapering QE, the equity markets staged a tantrum.

Ending QE is admittedly a very difficult task for anyone, even normally articulate Bernanke. However, the markets appeared “shocked and appalled” that the Fed would even consider raising rates. Talk about an entitled generation. How about a whole industry? Wall Street, which has been bailed out over and over during the Great […]

July 10th, 2013|Categories: Daily Journal of Commerce|Tags: , , , , , |Comments Off on Obama, Federal Reserve Further Muddy Economic Waters

Market In A Confirmed Uptrend

Published March 12, 2012
William RutherfordFor the week ending March 2, the Nasdaq and the S&P 500 advanced 0.4 percent and 0.3 percent, respectively, but the Dow retreated a fraction. Both the Nasdaq and the S&P 500 have climbed in eight of the year’s first nine weeks; the Dow has risen six of the first nine.

For the year through March 2, the Dow is up 6.8 percent, the S&P is up 9.3 percent and the Nasdaq is up 14.2 percent. The market continues to be “in a confirmed uptrend,” according to Investor’s Business Daily.

The Dow crossed the 13,000 milestone, the ninth time it has done so since 2007. Along the way the index has sunk below and bounced above 12,000, 11,000, 10,000, 9,000, 8,000 and 7,000 more than 300 times. So it is not hard to see why a number contains no magic.

The Dow remains more than 1,000 points below its record high of 14,164.53, set in October 2007. The S&P remains 15 percent below its record close of 1,565.15, set the same month. U.S. gross domestic product grew 3 percent in the fourth quarter of 2011. The GDP is the broadest measure of all goods and services produced in the economy. This was up slightly from estimated growth of 2.8 percent. Economists surveyed by the Dow Jones Newswire had expected 2.7 percent.

The latest report also included positive revision for household income in the last half of 2011, a potentially positive sign of stronger consumer spending to follow. Americans started spending more freely as the unemployment rate began to edge down. Personal expenditure rose 2.1 percent in the fourth quarter, more than anticipated.

Last […]

March 13th, 2012|Categories: Daily Journal of Commerce|Tags: , , , , |Comments Off on Market In A Confirmed Uptrend

The Teflon Market

Published April 11, 2011

William RutherfordStocks recently enjoyed their best first quarter since 1998, and begin April on an upbeat note. For the first quarter of 2011, the Dow closed up 6.9 percent, the S&P 500 was up 5.95 percent, and the NASDAQ was up 5.15 percent. Those are strong showings in the face of continued uprisings in the Middle East, rising prices for oil and commodities, and the Japanese earthquake and tsunami. The market, dubbed by some as “the Teflon 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 have not yet become excited about the market, which reached its highest levels in three

Traders are unwilling to bet against the market. Short sellers had the lowest level of loans against stocks sold short in five years. The ratio of long bets on the market to short bets is near a six-year high. Hedge funds are less willing to take the short side against a rising tide. Bond funds continued to experience outflows, while some bond funds slipped into negative territory for the year to date. Readers and clients know that I have been encouraging the reduction of exposure to bonds for some time. I see no reason to change that position, particularly as Fed futures are betting on a rate rise by the end of the year.

Surely the massive intervention in the markets by the Federal Reserve not only stemmed the downward trend, but aided in the recovery. Quantitative easing – an effort by the Fed to buy bonds, and keep interest […]

Is This Recession The New Normal?

William RutherfordFear 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. […]

1st Quarter 2010

Rutherford Investment Management, LLC
Newsletter: 1st Quarter 2010

Near Term Market Outlook

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.

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May 11th, 2010|Categories: Quarterly Client Newsletters|Tags: , , , |Comments Off on 1st Quarter 2010

The Wizard Of Was

The three little pigs and the big bad wolf (a fable)

Published in Brainstorm Northwest, November 2008

Once upon a time there was a happy community. In the community there lived a Wizard. Some called him the Maestro, others called him an Oracle. In any event, he was called on from time to time to make Big decisions. These decisions involved the land in which he and the little people lived. The Big decisions usually involved money but sometimes they involved how the money was priced, who got the money, and how those who received the money used it. Because these decisions were so Big, sooner or later they affected everyone in the land — not always for the better.

As it happened, the land fell on hard times because decisions made by the Wizard were wrong. Businesses were failing, and people were losing their jobs, savings and retirement accounts. The prices of companies were falling along with the price of just about everything else, except food and energy. (At an earlier time, the Wizard had said the food and energy didn’t count, so don’t pay attention to them.) […]

November 14th, 2008|Categories: Greenspan, Other Writings|Tags: , , , |Comments Off on The Wizard Of Was

It’s Uncle Sam’s Investment Club

U.S. government has become irreversibly involved in many businesses’ affairs

One day in the not-too distant past, seemingly eons ago, top executives of Lehman Brothers met with Federal Reserve and Treasury officials at the Federal Reserve offices in New York. At issue was what to do about Lehman. A top Lehman executive reportedly told government officials that Lehman had no idea of the amount of risk on their books in credit default swaps, and then said, “Neither do you.” It’s astonishing that a top official of a major investment bank would not know the amount of risk that the firm had on its books, but it simply reveals the state of affairs at the time. The Fed did not have any idea about the size or scope of the market, because Alan Greenspan had refused to regulate it even when advised to do so.

Even now, firms are still learning of the risk they have undertaken. This conversation may have been the basis for the decision by Treasury Secretary Hank Paulson to let Lehman file for bankruptcy. Paulson has said that Lehman did not have adequate collateral for a government loan. Based on subsequent events it probably is a decision that he would like back. […]

Bill Rutherford Quoted By

Beyond the pail: Where to invest in a post-bailout world

by Jonathan Burton, MarketWatch

SAN FRANCISCO (MarketWatch) — Wall Street is bound to get its bailout, in one form or another. The government’s rescue package will be costly to taxpayers, politically controversial — and quite possibly not the last. It will also dramatically change the landscape for U.S. stock investors.

The bailout has a singular task: to grease the locked wheels of the financial system and get credit moving again. What investors need to remember is that even if this plan works, the deep problems plaguing homeowners, consumers and the broader economy won’t magically disappear. The Troubled Asset Relief Plan isn’t called TARP for no reason. It is intended to avert a flood of Depression-era size, but the ground around us will still be soaked. […]

September 26th, 2008|Categories: Bill Quoted|Tags: , , , , , , , , , , |Comments Off on Bill Rutherford Quoted By
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