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Market Commentary
Economic Updates
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Weekly
Commentary
September
27, 2010
The Markets
Is
inflation good or bad for our economy? After last week, we now know the Federal
Reserve's answer to that question and it may have a major effect on the
financial markets going forward.
While
the recession officially ended in June 2009, sluggish growth since then has
concerned the Federal Reserve and that helped prod them to make their inflation
intentions known in a statement released last week.
In
the statement, the Fed said three times that current inflation trends are too
low and that it is "prepared to provide additional accommodation if needed
to...return inflation, over time, to levels consistent with its mandate."
According to Bloomberg, the Fed statement opened the door to more quantitative
easing, which would pump more dollars into the economy and possibly lead to
more inflation down the road.
By
the end of the week, the financial markets were essentially saying, "bring it
on."
Prominent
hedge fund manager David Tepper went on CNBC last Friday morning and commenting
on the Fed news said, "Government intervention in the financial markets
virtually guarantees that most investment choices will go up."
Of
course, nobody can guarantee anything in the financial markets, but putting
Tepper's hyperbole aside, the Fed's statement is noteworthy. Like Alice going
down the rabbit hole in the beloved children's story, the effect of more Fed
action could take us on an adventure into the economic and political unknown.
No
matter what results from this, we will do our best to stay on top of it.
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Data as of
9/24/10
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1-Week
|
Y-T-D
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1-Year
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3-Year
|
5-Year
|
10-Year
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Standard & Poor's 500
(Domestic Stocks)
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2.1%
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3.0%
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10.0%
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-8.9%
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-1.1%
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-2.2%
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DJ Global ex US (Foreign
Stocks)
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2.3
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2.5
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6.1
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-8.9
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2.3
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2.3
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10-year Treasury Note
(Yield Only)
|
2.6
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N/A
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3.4
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4.6
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4.3
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5.8
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Gold (per ounce)
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1.8
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17.5
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28.4
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21.1
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22.9
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16.9
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DJ-UBS Commodity Index
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1.3
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0.7
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13.4
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-7.7
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-4.3
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2.6
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DJ Equity All REIT TR
Index
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-0.1
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20.4
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34.3
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-5.6
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2.7
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10.9
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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.
MAU PIAILUG, MASTER
NAVIGATOR, DIED ON JULY 12, but his skill as a navigator can teach us a few
lessons about what's possible in business and life.
In
1976, Mau sailed a double-hulled canoe 2,500 miles from Hawaii to Tahiti
without a compass, sextant, or charts. His objective was to see if ancient
seafarers could have traveled this way from the south and west to populate
Hawaii. In a moving tribute, The Economist said, "At that time, Mau was
the only man who knew the ancient Polynesian art of sailing by the stars, the
feel of the wind, and the look of the sea."
The Economist further wrote:
By day he was guided by the rising and setting sun,
but also by the ocean herself, the mother of life. He could read how far he was
from shore, and its direction by the feel of the swell against the hull. He
could detect shallower water by color, and see the light of invisible lagoons
reflected in the undersides of clouds. Sweeter-tasting fish meant rivers in the
offing; groups of birds, homing in the evening, showed him where land lay.
Clearly,
this was a man who understood his craft and the deep principles underlying it.
While modern tools could be used to accomplish much of what Mau did by feel and
perception, sometimes modern tools are no match for deep understanding.
Likewise,
investors sometimes get caught up in thinking that complexity and
sophistication are the ticket to stock market riches. But, as Leonardo da Vinci
said, "Simplicity is the ultimate sophistication." You can still be successful
without a Bloomberg terminal, without a high-frequency algorithmic trading
system, and without using esoteric derivative securities.
Mau
passed down his knowledge to a small number of students so his art is not lost
to the world. The art of investing is not lost to the world either, and that is
an area where we strive to be a continuous learner.
Weekly Focus -
Think About It
"If
one does not know to which port one is sailing, no wind is favorable." --Seneca
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