THE MARKETS
One week, the glass is half full, the next week, it is half
empty.
Investor's lack of conviction was on full display last week as a
scandal at Hewlett Packard, a change of heart from the Fed, a
revenue miss from tech bellwether Cisco Systems, and an unexpected
rise in weekly jobless claims led to a decline in global stock
markets, according to Bloomberg.
In particular, the Federal Open Market Committee last week
slightly changed its economic outlook by saying, "The pace of
economic recovery is likely to be more modest in the near term than
had been anticipated." To help the economy maintain momentum, the
Fed announced that it will goose the economy a bit by reinvesting
the principal payments it receives on its agency securities in
longer-term Treasury securities and that it will roll over its
maturing holdings of Treasury securities in new Treasury
securities. Effectively, this means the Fed will not shrink its
balance sheet for the time being.
Whether this move is good or bad for the economy is subject to
debate. One camp says it will help keep interest rates low, which
could be good for the economy. Another camp says it will help keep
interest rates low, which could be bad for the economy at
this stage of the economic recovery. That was not a misprint --
smart people are taking opposite views on whether low rates are
good or bad for the economy. Kansas City Fed President Thomas
Hoenig leads the dissenters. In a speech in Lincoln, NE last week,
Hoenig said, "We need to get off of the emergency rate of zero,
move rates up slowly and deliberately" and "We will repeat the
cycle of severe recession and unemployment in a few short years by
keeping rates too low for too long."
This tug-o-war between smart people makes for interesting
reading (at least for us, anyway!)... but generates no clear trend
in the market.
|
Data as of 3/12/10
|
1-Week
|
Y-T-D
|
1-Year
|
3-Year
|
5-Year
|
10-Year
|
|
Standard & Poor's 500
(Domestic Stocks)
|
-3.8%
|
-3.2%
|
7.5%
|
-9.4%
|
-2.6%
|
-3.2%
|
|
DJ Global ex US
(Foreign Stocks)
|
-4.2
|
-5.0
|
4.4
|
-9.6
|
1.2
|
1.0
|
|
10-year Treasury Note
(Yield Only)
|
2.7
|
N/A
|
3.6
|
4.8
|
4.3
|
5.8
|
|
Gold
(per ounce)
|
0.5
|
10.0
|
27.3
|
22.0
|
22.3
|
16.0
|
|
DJ-UBS Commodity Index
|
-1.9
|
-4.6
|
1.4
|
-7.6
|
-4.2
|
2.5
|
|
DJ Equity All REIT TR Index
|
-3.8
|
12.5
|
33.2
|
-4.9
|
1.3
|
10.0
|
| 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 applicable or not available. |
IF YOU HAD TO DESCRIBE THE STATE OF THE ECONOMY
as an animal, which animal would you pick? This may sound like a
silly question, but it is an actual question from a national survey
released last month and sponsored by the Certified Financial
Planner Board of Standards.
Some of the less common survey responses included cow,
kangaroo, lamb, dinosaur, possum, rat, giraffe, hyena, and, not
surprisingly, bull. Looking at this list makes us wonder… what
attribute does a giraffe or a possum have that can be compared to
the economy? Let us know what you think.
The most common responses were bear, snake, turtle, sloth, lion,
pig, dog, and skunk.
Okay, have you picked your animal?
For discussion purposes, let's say that you picked a bear as
your animal. Of course, a "bear" is also commonly used to describe
a weak stock market. Now, here's the point. Often, investors get an
idea in their mind -- e.g. this is a "bear" market -- and have a
hard time changing their perception even in the face of new
evidence that would suggest their perception is inaccurate.
Psychologists call this "anchoring" and it has led many investors
astray, according to Investopedia.
The key to overcoming anchoring is to keep an open mind, be
willing to change, and utilize rigorous thinking.
So, no matter what animal you picked, whether it be bull, bear,
turtle, sloth, or skunk, be alert to new information that may
suggest that it's time to pick a new animal. As your advisor, we
are mindful of the "anchoring" bias and we do our best to base our
decisions on rigorous thinking and not on an outdated opinion.
For your convenience the sources
have been listed below:
http://www.bloomberg.com/news/2010-08-14/u-s-stocks-dro...
http://federalreserve.gov/newsevents/press/monetary/20100810...
http://www.marketwatch.com/story/unusual-uncertainty-clouds-...
http://www.kansascityfed.org/speechbio/hoenigpdf/hoenig-linc...
http://www.cfp.net/downloads/CFPBoard_Public_Opinion_S...
http://www.investopedia.com/university/behavioral_finance/be...
http://www.selfhelpdaily.com/quotes-about-time/
