Markets in a Nutshell
February 15, 2010 Issue
Stocks rebounded last week. The Dow gained 0.9% to cut its loss for 2010 to 3.2%, the S&P 500 also gained 0.9% and is down 3.6% for the year while the Nasdaq jumped 2.0% and is down 3.8% year to date. Bonds are up for the year with the Barclays Aggregate Bond index up 1.3%. Gold prices jumped 3.5% last week and are down 0.5% for the year.
Greece's debt crisis garnered quite a bit of headline last week (not as much here in the U.S. as Europe but we should take notice). Greece is like many countries across the globe that have resorted to massive government spending programs to stem the economic downturn that has infected many countries. Germany, as well as other EU (European Union, sort of Europe's version of the United States) announced they will "bail out" Greece. Read on for more..
In a Bloomberg interview, Mohammed El-Erian (he of bond fund giant PIMCO, the largest bond fund manager in the world) notes that Greece's 2009 fiscal deficit was 12.7% of its economic output (GDP) and that that level is more than 3 times the European Union's stated 3% limit. El-Erian does not see Greece's essential "sovereign default" (when a country can no longer pay its debts) as a situation that could immediately cause a worldwide financial crisis but is indicative of what we hear more of in 2010. More, read on..
Greece is like many countries across the globe (including the U.S) that have resorted to massive government spending programs to stem the global economic downturn. But the borrowing and spending (such as the U.S. which will borrow an all time high $1.6 trillion next fiscal year to fund the budget deficit) is not free. It has to be paid back (or defaulted). High deficits will translate into higher interest rates somewhere down the line and less economic growth. If you are invested in bonds through MGO, we are watching very carefully to protect your money from a rising rate environment (which hurts bond values).
Ok, how about something a bit lighter? (but still ultimately having to do with money). Since it is Valentine's Day (Uh, better hurry guys if you forgot!), there was an article in the 2/9 Wall Street Journal with tips on how to make a marriage (or other relationship) last. One tip was to "find the middle ground" where each partner can give until a happy agreement can be found. "Be funny" was another one. Laughing at one's own and the others quirks can help take too much seriousness out of situations (such as that "annoying sound" your spouse/partner makes at the dinner table! Your spouse/partner has no annoying habits you say? Uh huh.)
Another stock bull. In a Bloomberg article, columnist John Dorfman sees the stock market continuing to rally throughout most of 2010 and possibly longer. Dorfman looks to the materials (ie metals, steel, chemicals), energy and industrial (ie manufacturing) sectors to perform well. While we certainly could see further short term gains in the stock indexes, we are still of the opinion that we remain the the longer trending secular bear market (which offers great opportunity for long term investors but caution for those with short time horizons until they need their money).