Markets in a Nutshell
March 29, 2010 Issue
Stocks moved up last week. The Dow gained 1.0% and is up 4.0% for the year. The S&P 500 gained 0.6% and is up 4.6% in 2010 while the Nasdaq rose 0.9% to push up gains for the year to 5.6%. Bonds (Barclays Aggregate Bond Index) are up 1.7% for the year. The U.S. dollar continues to gain strength and is up 4.8% since Jan 1. Gold has a slight gain so far in 2010 at 0.8%.
Oh my. The health care bill passed last week has elicited a storm of activity in both the "pro" and "con" camps. While social policy can be debated all day long (and is), the challenging aspect of any massive govt. program right now is the additional dollars it will cost. Read on..
According to www.usgovernmentspending.com our gross public debt will be $16.9 trillion in fiscal 2010 vs. a gdp of $14.6 trillion, a debt to gdp ratio (how much debt the fed, state and local governments have racked up relative to the overall size of the economy) of over 100%.This would include a federal government debt of $13.8 trillion, state debt of $1.1 trillion and local debt of $2.0 trillion. In a study by Carmen Reinhart of the University of Maryland and Kenneth Rogoff of Harvard, countries that had persistent federal debt over 90% experienced future growth about 2 percentage points less growth than countries with debt levels below 30%. Bottom line is that we will need to get control of the deficit/debt situation in this country soon or risk years of slower than normal growth.
Barron's (3/22) says "Drop the Double Dip." There have been quite a few economists (fewer as the economy looks like it is getting better and better) who believe the economy may experience a "double dip" where the current recovery fizzles and we find ourselves back in economic recession. Barron's writer Gene Epstein writes that investors shouldn't be worried about a double dip. Corporate profits will continue to rebound as will consumer spending for 2010 and well into 2011. Epstein does say that perhaps the recovery will be more like a "four cylinder" recovery rather than the "eight cylinder" coming out of recession the past 40 years. We would agree. Like the folks at bond fund giant Pimco, we would expect a slower than normal recovery but recovery nonetheless.
Starbucks announced that they will pay shareholders a dividend starting in April, the first the company has ever paid since going public in 1992. Expect to hear more companies paying dividends or increasing dividends as the years pass by. Dividends have not been in vogue for many years but will likely be a larger part or stock returns in the future.