FRIDAY JULY 3, 2009
Life Liberty and the Pursuit of Happiness.
“We hold these truths to be self-evident, that all men are created equal, that they are endowed by their Creator with certain unalienable rights, that among these are life, liberty and the pursuit of happiness.”
Declaration of Independence, July 4, 1776
On July 4, 1776, the brilliance of our forefather established this great country in the face of tyranny. For the next 233 years, we have endeavored to screw it up! But the simple concepts of life, liberty and the pursuit of happiness are so simple and powerful that they are immune to the foilbles of man. Wars, depressions, and yes, even credit default swaps! Our great nation has endured. Is this a great country or what?!
HAPPY BIRTHDAY AMERICA!
POSTED AT 8:49 AM
TUESDAY JUNE 30, 2009
No longer a wind in our face.
The Case Shiller Home Price Index was released this morning and it showed “a striking improvement in the rate of decline.” Yale economist, Robert Shiller, stated that “the market is predicting the declines are over.” This report certainly falls into the “green shoots” category. However, this does not mean that housing prices are going to rise. Frankly, neither Professor Shiller nor I have any idea when house prices will rise again. However, from an economic perspective, this is still good news. Housing will cease to be a drag on economic growth. Even if prices remain flat, the economy will benefit. In short, housing will no longer be a wind in the face of the economy.
POSTED AT 2:34 PM
MONDAY JUNE 29, 2009
If no one is worried, I'm worried!
Today, the VIX index traded below the level it traded on Sept. 12, 2008. That was the just before the Lehman Brothers failure and the beginning of the market’s dramatic sell-off. At the peak of the “crisis,” the VIX traded as high as 90! Today, it is at 25. Yes, we are in the middle of the “summer doldrums,” and trading activity is light. Nonetheless, it worries me that no one else seems to be worried. We have enjoyed a nice rally in equities, but is all well in the world?
The economy is not exactly fully healed. Unemployment is high. The housing market, while stabilizing, is still at very low activity levels. State governments, especially the big spending states like NY, NJ, and CA, have ugly fiscal outlooks. On foreign shores, economies are still in trouble. Many “hotspots”, as the diplomats call them, have become hotter. The recent events in North Korea, Iran, and Honduras demonstrate all is not well.
I continue to believe the equity markets will grudgingly go higher, as investors tire of low yielding returns of money market funds and treasury bonds. However, rarely do markets go straight up, as we have in the last three months. As complacency increases, ugly surprises often occur. Investors need to be careful. If no one is worried, I am worried!
POSTED AT 2:36 PM
WEDNESDAY JUNE 24, 2009
Between a rock and a hard place
The Federal Reserve announced that it would be keeping interest rates unchanged, that is, 0%! The Fed also stated that inflation will remain “subdued for some time. Yet, long term interest rates went up on the news.
The Fed seems to be stuck between a rock and a hard place. If it raised interest rates, they would be accused of stifling a fledging economic recovery. If it kept rates unchanged, as they did, they would be accused of stoking inflation. Either way, the Fed is wrong.
The bond market is looking for an exit strategy. While there seems to be widespread agreement that near-term inflationary pressure is remote, it is the long-term potential for inflation that concerns the markets. The Fed’s problem is that it only controls the monetary levers of the economy. The fiscal policy of Washington is not under their control. The bond market continues to look at the enormous spending programs and questions the ability of the Fed and Treasury to control the level of debt. Until there is clarity on the spending levels, the Fed will continue to be stuck in a bad place.
POSTED AT 3:15 PM
TUESDAY JUNE 23, 2009
Tug of War
The market has taken a quick turn in the last few days. The Dow Jones average dropped 200 points yesterday on the World Bank’s announcement that world-wide economic growth would be less than expected.
Investors need to prepare themselves for a period of higher volatility. The big question is when economic growth will return. There seems to be two major positions forming. One is the “green shoots” position, that believes the economy is showing signs of stabilization and will turn positive in short order, maybe as soon as the 3rd quarter. The other position believes the damage to the world’s economy has been major and any return to economic growth will be modest at best and a long time coming. This position calls for a long drawn out period of sub par economic growth.
I fall in the “green shoots” camp. However, the battle between these two positions will be fought every day, with the market swinging on the latest economic statistic. The result will be greater volatility. Investors should be prepared for it. If the market corrects in a material way (not an unreasonable expectation given the 25% move up), investors who just reentered the equity markets will have their convictions tested. Given the severity of the market’s twelve month decline, patience may be in short supply!
POSTED AT 10:55 AM
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KEN ENTENMANN, CFA
SENIOR VICE PRESIDENT AND
THE DIRECTOR OF INVESTMENT MANAGEMENT SERVICES
Ken is a Senior Vice President and the Director of Investment Management Services at Alliance Bank, N.A. He has 23 years of investment experience and oversees the management of assets totaling $1 billion. He holds a B.S. in Applied Economics and Business Management from Cornell University and an M.B.A. from the William E. Simon Graduate School of Business Administration at the University of Rochester. He has also earned his Chartered Financial Analyst designation. He is a member of the Executive Committee of the Trust Division of the New York Banker's Association. He is also a director of the Central New York Community Foundation.
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