Quarterly Commentary
“The Ides of March are come…”
“Aye, Caesar, but not gone”. W. Shakespeare
The extreme contrast between the markets and the economy now, versus last March, follows a long tradition. March has a reputation with playwrights and others not only for bringing wild weather but all kinds of other troubles. Last year in March, the markets around the world were traumatized by the precipitous downturn. This March is ushering in mild recovery in many areas. This is not to suggest our troubles are “gone”. There is still plenty of damage to repair, but at least we have a relatively calm space to assess where we are – personally, as a country, and from a global perspective.
The ‘stealth recovery’ in the US stock market continues. We no longer see wild 700 point swings in the Dow - in fact, the Volatility Index, an expectation of volatility and risk over the next 30 days, is down to 16 from its high of over 80 in November 2008. The Dow finished at 6547 on March 9th, 2009 yet at quarter end 2010 it closed at 10857 - a truly remarkable change which occurred in tiny steps, and with very little fanfare or media attention.
The stock market signals expected economic performance over the next several months. Currently, the outlook is positive. Predictions of doom and gloom – double dip recessions, financial Armageddon due to overspending in the USA, rampant inflation – will likely continue. The bond markets – which are indicative of where the economy will be in a year or two, suggest caution is warranted in 2011 or 2012. The eventual reality will probably be rather boring. We expect the US to survive all of the current fears surrounding the Dollar, unemployment, exports, deficits and other threats, although it may not thrive as vigorously as we would like until some of these major issues have matured more or are resolved.
Other countries throughout the world have been far more adversely affected by the market collapse and have years of struggle ahead to return to stability. Their job losses are higher, export potential and information technology assets, much more frail.
In our investment process we are taking advantage of the rebound in the stock markets, while adding asset classes which should afford protection against either inflationary or deflationary scenarios which may arise over the next few years.
As you can see in the table above, the U.S. stock markets were generally higher across the board in the first quarter of 2010. Most of this advance came in March, which more than made up for lackluster returns in January and February. The International markets were mixed, with China posting generally negative returns and the rest of the Far East outperforming Europe on the positive side. Real estate continues to recover nicely, but has a long way to go to reach “recovered” status. Even bonds started the year on a positive note, with only the longest maturities showing a slight decline. Commodities were the anomaly, losing 5% for the quarter although results here were mixed. Crude oil gained 3.4% and gold was up 3.4%, while corn prices were down 19.4%.
Health Care Reform Alert: On a side note, under the new health care reform, over-the-counter drugs will no longer be eligible for reimbursement in Flexible Spending Accounts (FSA) in 2011. FSA withholding will need to be changed for next year.
OFFICE NOTES:
Megan Waesche, our new trainee, will be helping us improve our internal procedures while working towards her CFP designation. Welcome, Megan!
Reminder - We will continue our tradition of closing our office at 1:00 pm on Fridays between Memorial Day and Labor Day to take advantage of the Colorado Summer. Of course, we will be available should you need us, but we would appreciate your calls on Friday mornings if possible.
Sharkey, Howes & Javer, Inc.
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January 2010 - A Pleasant Suprise -
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October 2009 - A Year Later
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July 2009 - Bond Markets and Inflation Fears - Send To Friend
January 2009 - Be Greedy -
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