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Market Commentary
Economic Updates
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Weekly
Commentary
August
2, 2010
The Markets
Consumers are becoming more frugal and
that may turn out to be a good thing.
One cause of The Great Recession was
the cumulative effect of consumers spending more money than they could afford.
Eventually, they got tapped out, business slowed down, and massive layoffs
ensued. Of course, simple math says you cannot indefinitely spend what you do
not have and, by 2008, the math caught up with many Americans.
Last week, the Commerce Department said
the personal savings rate (saving as a percentage of disposable personal
income) rose to 6.2% in the second quarter. That's up from 5.5% in the first
quarter. In the heyday of conspicuous consumption back in 2007, the savings
rate was a paltry 2.1%, according to CNNMoney.com.
Higher savings is a double-edged sword.
On the positive side, it means consumers are acting more responsibly and, by
beefing up savings, they are setting the stage for future sustainable economic
growth. The downside to this thriftiness is slower economic growth in the short
term.
It's a fine balance between saving
enough to get our personal balance sheet back in order, but not too much that
the economy takes years to regain its footing. Remember, consumer spending
still accounts for about 70% of economic activity, according to The Wall Street Journal. The trick is we
still have to shop -- but just not till
we drop!
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Data as of 7/30/10
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1-Week
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Y-T-D
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1-Year
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3-Year
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5-Year
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10-Year
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Standard & Poor's 500 (Domestic Stocks)
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-0.1%
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-1.2%
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11.6%
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-9.2%
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-2.3%
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-2.6%
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DJ Global ex US (Foreign Stocks)
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1.3
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-3.6
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9.8
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-9.9
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2.1
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1.3
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10-year Treasury Note (Yield Only)
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2.9
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N/A
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3.6
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4.8
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4.3
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6.0
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Gold (per ounce)
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-1.8
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5.9
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25.4
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20.9
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22.1
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15.5
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DJ-UBS Commodity Index
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3.3
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-3.5
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8.1
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-7.8
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-3.6
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3.1
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DJ Equity All REIT TR Index
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1.8
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15.5
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52.4
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-3.4
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0.8
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10.3
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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.
DOUBLE
DIP IS NOT JUST FOR ICE CREAM CONES. Over the past few months, concern has
grown that the U.S. economy could experience a double-dip recession. Drooping
bond yields, which may suggest slower economic growth, coupled with some soft
economic data and weak consumer sentiment, have raised a red flag. However, from
an international perspective, the International Monetary Fund has raised its
2010 world economic growth projection five times since April 2009 and it now
stands at a forecasted rate of 4.6% -- which is rather healthy and certainly
not double-dip territory.
Although the likelihood of a double-dip
recession still seems small, a July 27 Financial
Times article outlined four risks that could possibly derail the recovery:
1. A decline in business and consumer
confidence.
2. An end to temporary boost to post-recession
economies, e.g., economic growth emanating from inventory re-stocking.
3. A new crisis or "black swan" event that
throws the world for a loop.
4. Overly austere government budgets that
tighten too much too soon and snuff out the recovery before it gets a chance to
become self-sustaining.
These risks are reasonable and bear
watching. However, let's face it. No matter how well the world is humming, we
(advisors) can always find something to worry about. But, that's our job. It's
not that we're pessimists. It just comes with the territory. We worry about
things -- large and small -- in an effort to be proactive and to try and help
you stay ahead of the curve.
Weekly Focus - Think About It
Here's a list of the happiest countries
in the world, according to a recently released Gallup Poll based on data
collected between 2005 and 2009. Survey participants were asked to rate their
overall satisfaction with their lives and how they had felt the previous day
(to gauge their happiness in daily activities).
Rating Country
1 Denmark
2 Finland
3 Norway
4 Sweden
5 Netherlands
14 United States
17 United Kingdom
44 France
81 Japan
125 China
Does this list surprise you?
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