Investments are rarely the most important thing in anyone's life, yet the 24/7/365 coverage of markets can make them seem so. Recent headlines suggest that people are becoming more optimistic about the economy, a significant contrast to the mood which permeated society last year around this time.
In mid-September of 2008, the venerable brokerage firm Merrill Lynch was forced to merge with Bank of America and investment bank Lehman Brothers was allowed to fail. The next day, the multi billion dollar Reserve Primary (money market) Fund, which owned nearly $800 million in Lehman bonds, endured a "run" on its assets. That forced bond sales which briefly took share values under $1.00, something that had never happened to a "retail" money market fund before. In response, the government began a series of almost unprecedented interventions in the day-to-day activities of the markets. Among other steps, it guaranteed the value of all money market funds to halt the run on the bond market. Although most of us prefer that the government keep its distance from our personal affairs, there were very few complaints about its actions, due to the general level of fear which affected the populace.
Today, people seem to be more confident in some sort of reasonable future. Stock and bond markets have rebounded significantly. President Obama spoke of "green shoots" and, two weeks ago, Federal Reserve Chair Bernanke suggested that the recession was "very likely over". The Fed met last week and kept rates near zero, hoping to keep costs low for borrowers.
I think the term "mixed message" sums up the current year's situation fairly well. Our economy is certainly on the upswing. There is an improving market for stocks and real estate transaction are once again being completed. However, things are not back to normal yet. The stock market has risen on very little volume, suggesting that a significant selling trend would be difficult for the limited number of active buyers to absorb. Similarly, even though some areas of the country are enjoying a rebound in housing sales, portions of Florida, Nevada and California may face real estate illiquidity for years to come.
As I've said before, stock markets are leading indicators of an anticipated strengthening of the economy. The phrase "jobless recovery" often appears in the headlines during the early stages of an economic recovery. Unfortunately, such recoveries don't offer much help for home purchases, increased 401(k) investing or retail sales.
Dinah Washington's 1959 release What a Difference a Day Makes earned her a Grammy and provided me with a framework to approach this subject. The second verse of that song begins: "My yesterday was blue, dear, Today I'm a part of you, dear". If you will accept the substitution of year for day, you may agree that the song captures the change in mood from last year to this. While Dinah declares her love as "being a part of" someone else, all of us are part of our economy locally, nationally and globally. None of us will enjoy a sustained economic recovery until all of us have an opportunity to participate.
In managing money on behalf of our clients, Warren Ward Associates concentrates on the strategic allocation of their assets. Our aim is to use this diversification to do better during market pullbacks while generally matching the markets during upswings. We did not sell investments during the correction, so remain fully invested on our clients' behalf. We do expect to begin hedging some of their gains as the S&P moves above 1100 or so. Over-optimism isn't likely to be good for the long-term economic heath of our clients, regardless of how big a difference a year may have made.
In mid-September of 2008, the venerable brokerage firm Merrill Lynch was forced to merge with Bank of America and investment bank Lehman Brothers was allowed to fail. The next day, the multi billion dollar Reserve Primary (money market) Fund, which owned nearly $800 million in Lehman bonds, endured a "run" on its assets. That forced bond sales which briefly took share values under $1.00, something that had never happened to a "retail" money market fund before. In response, the government began a series of almost unprecedented interventions in the day-to-day activities of the markets. Among other steps, it guaranteed the value of all money market funds to halt the run on the bond market. Although most of us prefer that the government keep its distance from our personal affairs, there were very few complaints about its actions, due to the general level of fear which affected the populace.
Today, people seem to be more confident in some sort of reasonable future. Stock and bond markets have rebounded significantly. President Obama spoke of "green shoots" and, two weeks ago, Federal Reserve Chair Bernanke suggested that the recession was "very likely over". The Fed met last week and kept rates near zero, hoping to keep costs low for borrowers.
I think the term "mixed message" sums up the current year's situation fairly well. Our economy is certainly on the upswing. There is an improving market for stocks and real estate transaction are once again being completed. However, things are not back to normal yet. The stock market has risen on very little volume, suggesting that a significant selling trend would be difficult for the limited number of active buyers to absorb. Similarly, even though some areas of the country are enjoying a rebound in housing sales, portions of Florida, Nevada and California may face real estate illiquidity for years to come.
As I've said before, stock markets are leading indicators of an anticipated strengthening of the economy. The phrase "jobless recovery" often appears in the headlines during the early stages of an economic recovery. Unfortunately, such recoveries don't offer much help for home purchases, increased 401(k) investing or retail sales.
Dinah Washington's 1959 release What a Difference a Day Makes earned her a Grammy and provided me with a framework to approach this subject. The second verse of that song begins: "My yesterday was blue, dear, Today I'm a part of you, dear". If you will accept the substitution of year for day, you may agree that the song captures the change in mood from last year to this. While Dinah declares her love as "being a part of" someone else, all of us are part of our economy locally, nationally and globally. None of us will enjoy a sustained economic recovery until all of us have an opportunity to participate.
In managing money on behalf of our clients, Warren Ward Associates concentrates on the strategic allocation of their assets. Our aim is to use this diversification to do better during market pullbacks while generally matching the markets during upswings. We did not sell investments during the correction, so remain fully invested on our clients' behalf. We do expect to begin hedging some of their gains as the S&P moves above 1100 or so. Over-optimism isn't likely to be good for the long-term economic heath of our clients, regardless of how big a difference a year may have made.
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