2011Apr4 "Swing, You Bum"

Stock Market:

 

 

 

Commodities have continued strengthening from the prior quarter and have surpassed international equities. Our global macro portfolios reflect this change.

 

Productivity referenced below has generated profits and corresponding stock prices. However, rising raw material prices are increasing pressure on profit margins. Most businesses, recognizing consumers’ shift to thrift, have been reluctant to pass through higher costs. Already present in food and fuel, other price hikes are looming for this year which will be a challenge for Mr. Market.

 

Economy:

 

A client recently mentioned these updates were full of negative news creating constant worry. Unfortunately, there are many problems in our economy of a magnitude we have never dealt with before. Government debt and entitlements are the largest and most pervasive in undermining our financial security.

 

However, positive trends are showing up. Reported job creation this week was plus 216,000 for non-farm payroll. By itself, that is not a strong number. The private sector added 240,000 jobs. For the past two months private businesses have added nearly 500,000 employees. Meanwhile, government entities have been shedding jobs as budget realities are belatedly addressed.

 

Consumer confidence has declined for several reasons. Some of which are:

 

1        Department of Labor data shows that total employment over the past decade has declined. At the same time, our population has grown by 30 million.

2        Post-recession job growth has been slower than normal. Employees have become more productive. U.S. production is higher than in 2007 but with 6.8 million fewer employees.

3        Wages, adjusted for inflation, have reverted back to 1995 levels. The Census Bureau will post 2010 data in May, but we do not expect it will reveal much improvement.

4        Increasing costs of food and fuel are crimping household budgets. Discretionary spending must slow as families re-define essentials.

 

Bond Market:

 

Rising commodity prices are already being reflected in reported inflation in the U.S. and the UK. Consumers are more pessimistic than the Fed or academics about inflationary trends over the next three to five years. If bond investors decide that Fed actions are deemed responsible, interest rates will rise, causing much damage to the bond market and accelerating liquidations. Basic supply and demand forces never leave the capital markets. With more sellers than buyers, prices fall.

 

“When the facts change, I change my mind. What do you do, sir?”  - John Maynard Keynes

 

Our plan is “the plan will change.” What is your plan?

 

Relative strength measures the price performance of a stock against a market average, a selected universe of stocks or a single alternative holding. Relative strength improves if it rises faster in an uptrend, or falls less in a downtrend. It is easily applied to individual positions in your portfolio and to sectors and asset classes.

 

If you would like a free relative strength analysis of your portfolio’s asset allocation, sectors and positions, call us at 800-317-9119. The call is free. The report is free.