Tuesday, October 18, 2011

A Way To Re-Set Your Perspective

1 - The stock market (or at least the Dow and NASDAQ) recovered enough last week to put it back in positive territory for the year. We have some tricky ground to cover between now and year-end, so we shouldn't start counting chickens just yet.

2 - Speaking of the stock market, you may notice that the 10-year total return average of the S&P 500 is only 1.23%. That's what pundits are talking about when they bemoan the "lost decade." Ten years is a long time to go with measly returns. That is why we're always seeking sources of investment returns not tied to stocks. In keeping with that quest, we are adding another asset class: Market Neutral Strategies. Although the name may be unfamiliar to you, it is a strategy I have employed successfully for over a decade. I was under the impression that it had become unavailable, but it turns out we can still access it, so it will be showing up in client portfolios over the next few reporting cycles.

3 - While there are quite a few economists who believe we may be headed for a second recession, the data doesn't completely support that assertion. Read the article below for a few bits of good news.

Double-Dip Recession? Don't Be Too Sure.

Key indicators point to an economy (slowly) on the mend.

This year, assorted economists and journalists have contended that the U.S. is on the edge of a new recession. Yet recent indicators hint that the economy is doing a bit better than some analysts think.

U.S. retail sales were up 1.1% in September. This is the kind of monthly number that you might expect during a typical recession recovery, and it surpassed the +0.7% consensus forecast of economists polled by Bloomberg News. Additionally, the Commerce Department revised August retail spending (formerly flat) to +0.3%. The year-over-year numbers in the September report really impress: we see annual gains of 7.9% for overall retail sales, 10.1% for online retailers, 6.9% for the restaurant and nightlife component, 7.6% for clothing shops and 6.5% for home and garden stores.1,2,3

As Credit Suisse economist Jonathan Basile told CNBC.com, "The fear of recession recedes when you see a retail sales report like this." Basile said he was revising Credit Suisse's 3Q 2011 GDP forecast for the U.S. north from +2.5% to +2.9%.4

GDP did improve in the second quarter. Real GDP was +0.4% in the first quarter of 2011, but the third and final real GDP estimate for the second quarter from the Bureau of Economic Analysis was +1.3%.5

"As of today, the recovery is still underway," Berkshire Hathaway CEO Warren Buffett commented at an October 4 Fortune Magazine conference. "Our railroad carried 200,000 carloads last week," he said, referring to the Burlington Northern Santa Fe company. "That's the highest total in three years. And that's stuff moving around the country, supplying merchants and doing all kinds of things."6

Other signs of growth & stability can be seen. Here in October 2011, many corporations appear to be in better shape: U.S. non-financial firms have $15 trillion of potentially liquid cash or investments on hand compared to $13.7 trillion a year ago. American residential investment spending is up by $9 billion since a low-water mark last spring; existing home sales rose 7.7% in August and the backlog of homes for sale fell to an 8.5-month supply from the previous 9.5-month inventory. The Institute for Supply Management's twin purchasing manager indexes still show ongoing sector expansion; the service sector has grown for 22 months.7,8,9

The continued vitality in consumer spending and other encouraging factors points to a recovery. It may seem unimpressive or frustrating, but it doesn't indicate a recession. 

Have a wondrous week!

~ Andy

My wife Sharon and I recently visited Yosemite, Kings Canyon and Sequoia National Parks in California where we took these photos. Such timeless majesty tends to place the moment's financial news in its proper perspective.  
One of the many breathtaking vistas in Yosemite Valley.

A Giant Sequoia, 30 feet wide, as tall as a 14-story building
and over 3,000 years old.

A sliver of the 360-degree view from Moro Rock.

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