2010Jan17 Week In Review

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On Saturday’s radio program, we interviewed Ken Gronbach, author of The Age Curve. In 2009, his model portfolio generated a +79% return. A free copy of hisJanuary report is available on our web site.

 

Updated commentaries have been posted to our web site:

Lobster Losses Creating Red Ink

Market Themes for 2010

 

January 17, 2010

WEEK IN REVIEW:

 

Risk free interest rates affect pricing of both bonds and stocks. A rising interest rate on government securities damages bond values and reduces the attractiveness of stocks by raising the expected returns for offsetting risk. This week, New York Federal Reserve Bank President William Dudley was rather dovish about any near term rate hike. The Fed still expects a muted economic recovery in 2010. However, neither economic strength nor inflation is expected without an improvement in job creation.

While the Fed will likely try to start withdrawing money that it has pumped into our economy since the fall of 2008, any actual change in Fed rates will probably be in the last half of the year. Overall, the consensus expects corporate profits to be positive supporting advances in stock indices.

 

Though last week’s market closed on a negative note, 76% of stocks on the NYSE remain in positive trends over the past ten weeks. Care must always be exercised in selecting investments, but with so many issues in up trends, bargains are hard to find. Internationally, trends remain positive with better value available for investors which is reflected in data we use.  Our ETF portfolios emphasize foreign market exposure.

 

The key to economic recovery is sustainable job growth. This year’s census will create many temporary jobs helping improve employment data. Ultimately, we have to wait for real change in consumer and business spending. Headwinds remain here as fear remains over tax increases from health insurance reform and the remaining Democrat tax agenda. Tuesday’s Senate election may well be a harbinger of 2010 legislative trends.

 

 

Temporary unemployment has been rising as well as the length of the work week. Both are positive signs for the economy. Businesses are still emphasizing productivity options before adding to payroll expenses.

 

As the Y-Gens leave school, they are finding the job market highly competitive – something their parents never experienced. They are competing with experienced applicants who are willing to work for reduced wages. Further, there are more Y-Gens than Boomers. When they are all in the job market, they will be competing with one another.

 

The X-Gen applied for work with more jobs than applicants. The Y-Gen will find the situation reversed. Many of them will combine their virtually ingrained technology talent with a need to survive financially and become entrepreneurs. This will be a great revolution of innovation and creation for the United States over the next twenty years.

We are the only developed economy that has a positive birth rate above replacement. It ensures our global dominance for many more years.

 

For a discussion of why our country’s future remains positive, listen to our January 16th radio interview with Ken Gronbach, author of The Age Curve.

 

Some fear China’s economic power. While China may have a few more years of growing consumerism, its days of becoming the new global super economy are already doomed. The “one child policy” is now a three decade legacy of aborting 400,000,000 little girls. It is too late for their birth rate to recover and save the country. China is an aging population with too few people to care for the aging and elderly much less sustain the economy.

 

Chinese business policy is family business, and there is no more family. There is no federal social security system to support the elderly. In retirement, there are four grandparents with two parents and one child to support them. Any one who is uncertain about this, only needs to look at the last two decades in Japan where population is already in severe decline and limiting essential social services due to the lack of people.

 

Children are a blessing. Neither family nor country can survive without them.