Stocks end the quarter with March madness subsiding
By Laura Alspaugh, CFA | April 9, 2008
Stocks ended the month with little fanfare and a modest loss. As the Ides of March drew near, volatility rose to above average levels before settling down at month end. March was also characterized by the Fed’s notable and history making rescue of Bear Stearns. Bear Stearns’ collapse created new fears that the sub-prime lending debacle might not be over. The major players who bought and sold these complex and opaque instruments continued to announce writeoffs and take losses. Only now, post rescue, are we hearing how bad it could have been if Bear Stearns had been allowed to fail.
Hand wringing and bad news make for great headlines. Meanwhile the smart money is looking for buying opportunities as evidenced by a sharp run up in the beatern down financial stocks. Financial stocks rose 7.5% on April 1st. This was not an April Fools joke.
With Bernanke using the “r” word now, recession seems to be a foregone conclusion. Many say it’s a not matter of how long but rather how severe the recession will be.
Despite all the bad news, Fed Chairman reminded us that we will work through this economic downturn. Bernanke told the Senate Banking Committee, ”But among the strengths of our economy is its ability to adapt and to respond to diverse challenges.” We hope he’s right.
For a little more reading on the first quarter of 2008, click here: Market Summary
Topics: Markets, The Economy | 1 Comment »
Candidates’ views on taxes: class warfare
By Laura Alspaugh, CFA | February 5, 2008
Do you know what the Presidential contenders are saying about taxes?
We have summarized some of the information on their positions. While this is by no means comprehensive, it is a side by side comparison of the candidates’ basic views. The Candidates and Taxes
Regardless of who gets elected, the inherited economy for the next President will challenge even the brightest mortals as they use fiscal and monetary tools to unwind the consequences of the subprime mess and at the same time, prevent the economy from inflating. The looming national debt creates more issues that will not easily be corrected.
The capital markets are reacting with a great deal of volatility to the recession that may have arrived today or will wake us up tomorrow. According to Bill Gross, manager of the largest fixed income mutual fund in the world, the policies that are being put into place to prevent a recession will be of little consequence. In his latest written commentary for February, he writes, “To provide a stable recovery path, government spending needs to fill the gap – not consumption. Public works programs, badly needed infrastructure repairs, as well as spending on research and development projects should form the heart of our path to recovery.” For more reading from the guru of interest rates and economic outlook, go to Read the full article here.
Topics: Markets, Retirement, The Economy | No Comments »
No January effect: U.S. equities sell-off
By Laura Alspaugh, CFA | February 1, 2008
The January effect is when stocks begin the year with a rally. Sadly, there was no January effect for 2008. The U.S. equity markets started the year with a 10% sell-off through mid month. Things were looking bleak for investors as the economic reports were gloomy: GDP’s paltry 0.6% growth rate, weak retail results, and soft employment data.
With recession looking more and more likely, the Fed took an aggressive posture with a 75 basis point rate cut on January 22nd and again another 50 basis points on January 30th.
The Fed’s action sparked a rebound from those mid-month lows, but the S&P 500 still ended January with losses across the board. Financial stocks posted gains as these were immediately boosted by the Fed’s actions. In particular, banks and REITs gained for the month.
Technology stocks were hurt and one of the main drivers was Apple which fell over 31%. But Apple’s decline is a mere fraction of this past year’s increase, which resulted in its market cap exceeding that of both Citigroup and IBM.
The other news is that Congress put party lines aside to approve the President’s $150 billion fiscal stimulus package aimed at putting money back in the hands of the consumer. The Senate now needs to approve the package. This also helped boost the markets higher at month end.
So far, 2008 has been bumpy ride for investors. Fasten your belts.
Topics: Markets, The Economy | No Comments »
What are the experts saying?
By Laura Alspaugh, CFA | January 23, 2008
We do a lot of reading and listening about the markets and about the economy. There is clearly no shortage of opinions. We thought it might be fun to pull some together. Take a peek at who thinks what about the state of the U.S. economy.
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Thoughts on the Fed’s rate cut - amount not seen since 1984
By Laura Alspaugh, CFA | January 22, 2008
The Fed has cut interest rates in a dramatic fashion to head off a recession. Over the weekend, foreign markets dropped dramatically in a reaction to Bush’s proposed plan to boost the sagging economy. This set the stage for a major selloff today in the US markets. And in steps the Fed, prior to the market opening this morning, and cuts rates by 75 basis points.
Does it feel like the ’hair of the dog that bit you’? We got into this mess with easy credit and low rates with the home and credit card as the cash machines to support the consumption. There is a notion that more and more spending will avoid a recession. That is probably true, however, sustainable growth needs more than just a shot in the arm to the consumer. The U.S. cannot have a growing economy with a large debt hangover in our homes and in our government. There is the short term and there is the long term. Unfortunately, we seem to manage only to the short term.
Let’s hope this juggling act of boosting the economy while keeping inflation under control does not produce longer term undesirable consequences.
Flashback to WIN
The 1970’s was a period when higher energy prices led to inflation but also recession was in the waters too. At that time, the Fed’s focus was to prevent a recession and meanwhile, inflationary pressures continued. While inflation continued to be a problem, unemployment was rising to levels above 10%. Inflation was so bad, President Ford crafted a whole grassroots campaign with WIN buttons: ”Whip Inflation Now”. There is a button for sale on eBay for $3.99 (not including shipping costs). Assuming the lucky seller bought it in 1974 for a dime and he sells it today, he will have really whipped inflation with an estimated 11.5% annualized rate of return over the past 34 years!
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