Currently, the outlook for retirees looking for income is dim. Money market funds are paying close to 0% interest. Short-term treasury bills are yielding less than 0.3% for a one-year maturity. Tax-free municipal bonds have recovered from the credit crisis but the California, Indiana, Nevada, and New York (CINN) credit default swaps are climbing; California's debt has been downgraded.
Today’s commentary lacks a central theme and instead really is a “Market Observation.” Often at times it is useful to remove one’s opinions from the investment equation and instead listen to what the market is saying, gleaning useful information in the process, rather than having a preconceived notion of how the markets should be acting. Below are of few items that should be of interest on a range of topics. Let’s dive in.
To end 2009 I penned a piece titled, “2010: A Good Year for the Economy and a Mediocre Year for Stocks?” Essentially, looking towards 2010 my assumption was that the stock market had already priced in much of the economic improvement that is to come in 2010 and would not react as favorably to good economic news releases, a “buy the rumor sell the news” story if you will. The question is, if 2010 will not be an extremely impressive year for the stock market, will it represent a pause in the cyclical bull market that began at the March 2009 lows or a top?
There were a slew of economic reports over the past two trading days that have meaningful data points to review; hopefully, shedding light on the direction our economy is heading. The main economic releases to review are the Gross Domestic Product (GDP) report released last Friday, followed by the ISM Manufacturing Index and Personal Income today.
From 2008 to 2009 it was a real gut check for commodity bulls in terms of reevaluating the secular bull market thesis, but from my vantage point the fundamentals behind commodities have not changed. What 2008 to early 2009 is likely to represent in hindsight is a bump along the road not unlike the mid 1970s correction in commodities before the 1980 bubble top or the 1987 market crash before the 2000 stock market peak.
If you provide it, will they come?
In the 1989 film, Field of Dreams, an Iowa farmer hears a voice in his corn field that says, “If you build it, he will come,” in which building a baseball field on his farm leads to a visitation by his father who passed on.
It’s a new year, and for newsletter writers and portfolio managers it means the bar has been reset. It’s time to put on our thinking caps and make grandiose predictions for the year to come. After watching CNBC for three days last week, I found it remarkable how much of a consensus has formed for 2010.
The stock market has historically acted as a discounting mechanism in which stock prices reflect future fundamental data, typically with a six month lead time. This was exactly the case this year as the stock market bottomed in March while the economy looked as though it couldn’t possibly get any worse.
Mid & late-stage cyclicals positioned for the next phase of this cyclical bull market
A key tenant to profitable investing is being in the right areas at the right time. For example, during the highly inflationary 1970s the best performing sectors were basic materials and energy (commodities) while inflation-sensitive sectors such as financials and consumer discretionary performed poorly.