THE MARKETS
Even though the 4th of July was about two months ago, we may see
some fireworks in the financial markets over the next few
months.
According to the Morgan Stanley Smith Barney Asset Allocation
Committee, the global equity rally underway since March paused this
summer, a phase we regard as healthy. Since Independence Day,
trading volume has been rather low and volatility somewhat subdued.
Traditionally, the movers and shakers on Wall Street retreat to the
Hamptons and other far-flung places around the world during the
summer and, as a result, we often see little action during the warm
months. This summer was no exception as big drops have been rare.
Instead, we've seen a steady, non-volatile rise in the major
averages. We are now into the last week of this summer hiatus and,
as the titans of finance return and Congress gets set to start
legislating again, the sparks may fly.
Like fireworks, these sparks could do one of two things. First,
they could make us "ooh and aah" over how beautiful they are, i.e.,
we get a big market rally. Or, second, we could get too close and
get burned, i.e., the market tanks. Some would also argue that
there's a third possibility - we could just muddle about and stay
in an extended trading range. This might be analogous to a firework
that misfires and fizzles out.
As much as we would like to dust off our crystal ball and peer
into it for prescience, we know that predicting the future is not
an effective investment strategy. However, thinking about possible
scenarios, developing plans and being ready to adjust course as
situations unfold is appropriate.
We don't know which type of sparks might fly in the next few
months, or even if sparks will fly, but, if they do, we will do our
best to help you enjoy and profit from them.
|
Data as of 8/28/09
|
1-Week
|
Y-T-D
|
1-Year
|
3-Year
|
5-Year
|
10-Year
|
|
Standard & Poor's 500 (Domestic Stocks)
|
0.3%
|
13.9%
|
-19.8%
|
-7.5%
|
-1.3%
|
-2.5%
|
|
DJ Global ex US (Foreign Stocks)
|
2.0
|
29.8
|
-14.8
|
-4.7
|
5.3
|
1.5
|
|
10-year Treasury Note (Yield Only)
|
3.5
|
N/A
|
3.8
|
4.8
|
4.2
|
5.9
|
|
Gold (per ounce)
|
0.3
|
9.9
|
14.0
|
15.9
|
18.6
|
14.1
|
|
DJ-UBS Commodity Index
|
0.2
|
9.0
|
-33.0
|
-9.2
|
-2.2
|
3.9
|
|
DJ Equity All REIT TR Index
|
2.7
|
12.1
|
-32.2
|
-12.7
|
0.7
|
9.0
|
Notes: S&P 500, DJ Global ex US,
Gold, DJ-UBS Commodity Index returns exclude reinvested dividends
(gold does not pay a dividend) and the three-, five-, and 10-year
returns are annualized; the DJ Equity All REIT TR Index does
include reinvested dividends and the three-, five-, and 10-year
returns are annualized; and the 10-year Treasury Note is simply the
yield at the close of the day on each of the historical time
periods. Sources: Yahoo! Finance, Barron's, djindexes.com, London
Bullion Market Association. Past performance is no guarantee of
future results. Indices are unmanaged and cannot be invested
into directly. N/A means not available.
THINK BACK TO A TIME when you saw a beautiful
sunrise. Perhaps you were standing on a beach mesmerized by the
quickly changing interplay of light, clouds, and water. While you
were caught up in the moment, you probably didn't realize that the
light you saw peaking over the horizon was already about eight
minutes old. Due to the sun's distance from earth and the speed of
light, it takes about eight minutes for light from the sun to reach
us.
Interestingly, using a high-powered telescope, scientists can
peer into the universe and see light that goes back almost 13
billion years, according to Elizabeth Barton, an assistant
professor of astronomy at the University of California-Irvine as
quoted by CNN. Our naked eyes, of course, are no match for the
scientists' fancy tools.
In the financial markets, we have a similar dynamic taking
place. On one side, we have the main street investor who has only
basic tools at his disposal to make investment decisions. They have
no Bloomberg terminal, no high-frequency algorithmic trading
system, and no salesman calling them with the latest ideas from the
morning "trading huddle" session. On the other side, we have the
Wall Street power-players who have all these fancy tools, a legion
of PhD geniuses on staff, and access to the latest and greatest
information before it becomes widespread knowledge.
Which side do you think will win the investment game?
Your first reaction might be that the Wall Street power-players
with all the tools will win hands down. Upon closer inspection, it
turns out that the main street investor does have a chance.
Sure, the biggies on Wall Street have advantages, but look where
that got them. Lehman Brothers went bust. Bear Stearns and Merrill
Lynch got taken over in distress sales. Citigroup and Bank of
America are in major surgery. And, the list goes on.
Sometimes you can be too fancy and sophisticated for your own
good.
By contrast, the main street investor who remains calm, follows
solid principles, and doesn't get swept up in the latest convoluted
investment scheme, may do just fine over time.
Undoubtedly, the person who stands on the shore and admires the
beautiful sunrise doesn't care that the light is eight minutes old.
Likewise, we don't get caught up in the machinations of Wall
Street. We simply try to do what's best for you in the most
transparent way possible.
Weekly Focus - Think About It
"Simplicity is the ultimate sophistication."
--Leonardo da Vinci
For your convenience the sources have been listed below:
http://online.wsj.com/article/SB125132569933361973.html
http://www.marketwatch.com/story/quiet-week-for-stocks-could-end...
http://www.cnbc.com//id/32602806
http://www.cnn.com/2009/TECH/space/08/18/new.generation.telesco...
http://online.wsj.com/article/SB125107135585052521.html
http://thinkexist.com/quotation/simplicity_is_the_ultimate_sophistication...
