Newsletter

July 2010

Happy 4th of July! Summer is setting in and the financial markets have retreated from the April 6 intermediate high. With the U.S. markets flat for the year, the world markets have continued to weaken. Interest rates remain low, especially the short-term yields remaining below 1% indicative of the lack of jobs and weakness in housing. Debate about economic recovery continues to dominate the political and financial landscape. Record unemployment remains the glitch for any true recovery to occur. As with past recoveries, creating jobs remains critical for increasing economic activity. More importantly, we believe that a market bottom occurred March 2009 and the slow recovery will lead to higher stock prices for the foreseeable future.

April 2010

Read Between the Hedges. The dramatic price rise in stocks around the world has stirred great debate whether economic recovery is occurring or should we brace for a double dip recession as many “Wall Street” experts pontificate on TV shows. The current high percentage of shares sold short tells us that the hedge fund community is betting on the double dip recession. As stock prices rise, the short positions lose money and cause pain for the hedge funds. Hedge funds operate as they wish with no financial regulation from the SEC. They reaped huge profits when the market fell in 2008-2009. Since March 9, 2009, the market continues to melt-up and the nay-sayers have lost money. With sub-one percent short-term interest rates, the climate for several quarters of sustainable economic growth is possible. Earnings will increase in the coming months as recovery points to better economic times for the foreseeable future.

Jan 2010

Interest Rate Ground Zero. Liquidity is being restored at least to the financial markets as yields are near zero for short-term U.S. Treasury bills. Record money supply growth during the past twelve months has pushed yields down as a result of $2 trillion in money market assets bidding the price of risk free securities up while longer term interest rates have actually began to rise. Federal Reserve policy has monetized all kinds of toxic securities held by the nation’s largest banks. Ticking time bombs, these toxic securities have a multitude of bad assets behind them in the form of mortgages, SIV’s and other complicated investment vehicles created over the past that crippled the largest banks. The banking system has been stabilized and the stock market reflects the good news in the form of a significant market appreciation since March 2009.

Oct 2009

What a difference twelve months makes for the investment markets! The Federal Reserve and the U.S. Treasury department have arguably taken the necessary steps to repair the financial institutions during the first half of 2009 and now the patient investor is once again been issued a reprieve. What do we make of the past twelve months? The obvious explanation can be traced to five major financial institutions that failed each representing an estimated $1.0 trillion in assets that were forced liquidated at one time causing the 50% drop in stock prices from peak to trough. Forced liquidations were spawned in mutual funds and hedge funds exacerbating the decline. World stock markets followed in suit and at the end of the day trillions were lost from June through March 9, 2009. 401-K’s became 201-K’s in a matter of nine months. Fear gripped the financial system as the world economy slipped into a recession.

July 2009

The worse a situation becomes the less it takes to turn it around, the bigger the upside.” George Soros, hedge fund operator. Interest rates remain historically low, cash remains on the sidelines, and the Chinese and Indian markets have rallied significantly in 2009. As the fear continues to grip U.S. economic headlines, the world economies appear to be stabilizing. The U.S. stock market has rallied 2300 points from the March 9, 2009 low. The bankruptcies of General Motors and Chrysler certainly have dominated headlines as legacy costs combined with stagnate auto sales forced bankruptcy. Citicorp and General Motors have been removed from the Dow Jones Industrial Average being replaced by Cisco and Travelers. Deleveraging the New York banking sector has been painful and challenging for the new administration. It is completely understandable that U.S. investors are cautious about current market conditions.

RIG

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July 2010

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July 2009