On Tuesday, the world paused for a few hours to celebrate the inauguration of Barack Obama. Regardless of one's political leanings, it was a momentous event and an unrivaled spectacle.
For weeks, some had been saying "the market will take off during the inauguration". I was one who suspected that the hype surrounding the event might be self-fulfilling, driving the market up (at least temporarily), but even the historic event did not help the market this week. The reality of the economy and its effects on company earnings weighed on stock prices all week long.
The market was closed in observation of Martin Luther King, Jr.'s birthday on Monday, and trading was pretty slow during the hours leading up to the inauguration. We speculated that many had put trading on the back burner in order to watch the events in Washington, at least on TV (or internet feed, as the case may be). But almost as soon as Obama's speech was finished, the market came unglued, with the Dow falling over 4% for the day by the time the market closed.
I can only imagine what's been running through his head as he completes his first week as President. He inherited an economic mess, and one that took many years, several political administrations, and a lot of fiscal mismanagement at all levels from government to individual to get to the state it's in. Can he fix it? No. No one man can fix what's wrong with the system. The only thing he can do is put forth good ideas for Congress to deliberate, and wield the veto pen against bad ideas that Congress sends to his desk.
So how do we fix it? I believe the first step is to recognize the excesses of the recent (and not so recent) past. Spending at all levels of government is out of hand. But the blame cannot be pinned on the government alone, nor can the government alone be responsible for the recovery. In general, Americans spend far more than they earn at a personal level. That is not sustainable, and the results of exhuberant consumerism have come home to roost. We need to learn to live within our means. As we do this, we have to recognize that we all helped get the system into the mess it's in, and we're all going to have to play a part in getting it back out.
Friday, January 23, 2009
Friday, January 16, 2009
Calm, cool, and collected...
That's how Chesley "Sulley" Sullenberger, the pilot that landed US Airways Flight 1549 was described in one report today. Sulley's plane was crippled after it flew into a flock of geese while en route from New York to Charlotte. The cool-headed pilot averted a complete disaster, landing the plane in the Hudson River, avoiding a deadly crash in a populated area, and assisted in the successful evacuation of all 153 passengers and crew safely from the plane. Reports state that he was the last to leave the sinking airliner, after twice searching every row of the cabin to assure that no one was left on board.
The above obviously has nothing to do with the financial markets, but I believe that Sulley's story is appropriate for this week's blog entry. It's a reminder of what can be done when those in charge take their responsibilities to heart without regard for their personal outcome. Unavoidable disasters can be survived, and the actions taken can serve as reminders for "the way it should be".
The financial markets have been in their own version of a crippled flight for the past several months. Our pilot and co-pilot, Hank Paulson and Ben Bernanke, are trying to safely land the plane and get everyone to safety. But it seems that instead of helping us into the lifeboats, Congress has been intent on putting hurdles in the way, pointing fingers at the pilots, and trying to snatch a couple extra packets of peanuts for themselves on their way out of the plane. However, it seems that in the past few weeks they've finally come to the conclusion that they are going down with the plane if they don't start helping out.
I am pleased that the finger-pointing is decreasing, and the attempts to get things fixed are seemingly more constructive, rather than mere political ploys. That said, I am concerned about the eventual outcome. As I stated in the last entry, all this will have to be paid for somehow, and it isn't going to be comfortable when that happens.
The markets spent this week paying attention to earnings. Alcoa is the traditional lead-off man in earnings season, and often sets a psychological tone for the markets as earning season begins. And the tone set was not pretty. As companies have begun announcing their fourth quarter and full year 2008 earnings, the results have been pretty bleak. The estimates for the coming year are being reined in (predictably), and in some cases company management is choosing not to divulge their expectations for the coming year. In the latter cases, my presumption is that they just cannot foresee just how things are going to play out in an economy as weak as this one may become.
That said, we are seeing more value out there now than we have in years. We are slowly re-entering the market, and will be adding to equity positions over the coming weeks and months. We do not expect a rapid recovery in the broad market, but rather somewhat range-bound trading for the foreseeable future.
The above obviously has nothing to do with the financial markets, but I believe that Sulley's story is appropriate for this week's blog entry. It's a reminder of what can be done when those in charge take their responsibilities to heart without regard for their personal outcome. Unavoidable disasters can be survived, and the actions taken can serve as reminders for "the way it should be".
The financial markets have been in their own version of a crippled flight for the past several months. Our pilot and co-pilot, Hank Paulson and Ben Bernanke, are trying to safely land the plane and get everyone to safety. But it seems that instead of helping us into the lifeboats, Congress has been intent on putting hurdles in the way, pointing fingers at the pilots, and trying to snatch a couple extra packets of peanuts for themselves on their way out of the plane. However, it seems that in the past few weeks they've finally come to the conclusion that they are going down with the plane if they don't start helping out.
I am pleased that the finger-pointing is decreasing, and the attempts to get things fixed are seemingly more constructive, rather than mere political ploys. That said, I am concerned about the eventual outcome. As I stated in the last entry, all this will have to be paid for somehow, and it isn't going to be comfortable when that happens.
The markets spent this week paying attention to earnings. Alcoa is the traditional lead-off man in earnings season, and often sets a psychological tone for the markets as earning season begins. And the tone set was not pretty. As companies have begun announcing their fourth quarter and full year 2008 earnings, the results have been pretty bleak. The estimates for the coming year are being reined in (predictably), and in some cases company management is choosing not to divulge their expectations for the coming year. In the latter cases, my presumption is that they just cannot foresee just how things are going to play out in an economy as weak as this one may become.
That said, we are seeing more value out there now than we have in years. We are slowly re-entering the market, and will be adding to equity positions over the coming weeks and months. We do not expect a rapid recovery in the broad market, but rather somewhat range-bound trading for the foreseeable future.
Friday, January 9, 2009
Trading volume is back to normal
Trading in the past two weeks was pretty light, and as I said last week, the action was not something that could be relied upon as an indicator of investor sentiment. This week things got back to normal, at least in terms of trading activity. And the result was a bit less exhuberant than many were hoping for.
The Dow was down almost every day this week, declining 4.8%. Although this is a bad start to the new year, I see some positives in the underlying activity. While the broad market has declined, we are seeing mixed results in individual names. Looking back over the past few months, company specific news didn't matter - even good news would result in a selloff. Investors were viewing good news as opportunity to get out of a stock, resulting in plummeting prices for companies that were doing just fine.
It appears that the situation is changing a bit, and investors are beginning to pay attention once again to what is going on with specific companies. Good news is once again driving stock prices up instead of being viewed as opportunity to sell. I believe this is a positive sign for the markets - investors are beginning to behave more rationally.
The economy continues to weaken, but it is as we expected. The economy still has some challenges in the coming months, as we saw today with the unemployment report coming in at 7.2%. I would not be surprised to see 8% or higher in the next couple of months.
That said, we believe that much of the "shock" is behind us. The general feeling is "we all know it's bad, let's get on with it". And that is a good sign. People aren't looking to lay blame anymore, but rather to find a solution. When the focus is on solution rather than mere survival, things are more likely to begin to normalize and turn back toward the positive.
Given the above, we believe that it is time to start re-building portfolios. We began slowly adding equity exposure over the past month, and will continue to do so over the next several months. We remain cautious, as there are a number of challenges to overcome, but we are more optimistic regarding equities than we have been for the past few months.
The Dow was down almost every day this week, declining 4.8%. Although this is a bad start to the new year, I see some positives in the underlying activity. While the broad market has declined, we are seeing mixed results in individual names. Looking back over the past few months, company specific news didn't matter - even good news would result in a selloff. Investors were viewing good news as opportunity to get out of a stock, resulting in plummeting prices for companies that were doing just fine.
It appears that the situation is changing a bit, and investors are beginning to pay attention once again to what is going on with specific companies. Good news is once again driving stock prices up instead of being viewed as opportunity to sell. I believe this is a positive sign for the markets - investors are beginning to behave more rationally.
The economy continues to weaken, but it is as we expected. The economy still has some challenges in the coming months, as we saw today with the unemployment report coming in at 7.2%. I would not be surprised to see 8% or higher in the next couple of months.
That said, we believe that much of the "shock" is behind us. The general feeling is "we all know it's bad, let's get on with it". And that is a good sign. People aren't looking to lay blame anymore, but rather to find a solution. When the focus is on solution rather than mere survival, things are more likely to begin to normalize and turn back toward the positive.
Given the above, we believe that it is time to start re-building portfolios. We began slowly adding equity exposure over the past month, and will continue to do so over the next several months. We remain cautious, as there are a number of challenges to overcome, but we are more optimistic regarding equities than we have been for the past few months.
Friday, January 2, 2009
And we start the new year with a BANG!
Today was the first trading day of the year. If it's any indication of how the rest of the year will go, then things look bright! The Dow Jones Industrial Average closed up 258 points, or 2.9%. The first trading day put the market over 9,000 again for the first time since November 5th. But I wouldn't count on this great start as an indicator...
The first trading day of 2009 fell on a Friday, after a holiday, during a week of vacation for many people. Trading has been really light for the past two weeks. With Christmas Eve on a Wednesday, Christmas on Thursday, New Year's Eve the following Wednesday and New Year's Day yesterday, the trading activity has not been something that anyone should look to for an indication of sentiment or a precursor of what's to come.
But there has been some good news. Mortgage applications are at their highest level in two years. That doesn't mean that all those applications are being accepted, but it does point to some activity in the housing market. Although I believe housing prices may have a bit further to fall, the uptick in mortgage applications may be a sign of some coming relief.
The coming year is going to be challenging economically for the US as a nation, and for the global economy as a whole. We are likely to see increased unemployment, slowed earnings growth, and further corporate bankruptcies. We will eventually come out of this recession, but when we do, I would not expect rapid economic expansion. There will be a number of ongoing challenges related to the financing of the bailouts, and my guess is we are going to see higher tax rates, not just for the "wealthy", but also reaching back down the income ladder to the middle class.
The first trading day of 2009 fell on a Friday, after a holiday, during a week of vacation for many people. Trading has been really light for the past two weeks. With Christmas Eve on a Wednesday, Christmas on Thursday, New Year's Eve the following Wednesday and New Year's Day yesterday, the trading activity has not been something that anyone should look to for an indication of sentiment or a precursor of what's to come.
But there has been some good news. Mortgage applications are at their highest level in two years. That doesn't mean that all those applications are being accepted, but it does point to some activity in the housing market. Although I believe housing prices may have a bit further to fall, the uptick in mortgage applications may be a sign of some coming relief.
The coming year is going to be challenging economically for the US as a nation, and for the global economy as a whole. We are likely to see increased unemployment, slowed earnings growth, and further corporate bankruptcies. We will eventually come out of this recession, but when we do, I would not expect rapid economic expansion. There will be a number of ongoing challenges related to the financing of the bailouts, and my guess is we are going to see higher tax rates, not just for the "wealthy", but also reaching back down the income ladder to the middle class.
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