Markets in a Nutshell
May 17, 2010 Issue
U.S. Stocks were up last week with the Dow gaining 2.3%, the S&P 500 2.2% and the Nasdaq 3.6%. All indexes are in positive territory for the year (Dow up 1.8%, S&P 1.8% and Nasdaq 3.4%). Bonds have moving up with the Barclays Aggregate Bond index up 3.6% for the year. Gold is up 12.1% so far in 2010 (although commodities in general are down 8.1% led by oil which has lost 9.8% for the year). And of course the stress in the European markets (with the PIIGS countries- Portugal, Italy, Ireland, Greece, Spain in severe financial distress) has the foreign stock indexes down 10.3% year to date.
Despite the woes hanging out in Europe, the economic recovery here goes on. The Wall Street Journal (5/15-16) retail sales rose 0.4% in April as people have climbed out from under the “rock of fear” (for now) and continue buying stuff. 290,000 new jobs were created in April (yes, a few govt. jobs, 59,000 and temporary workers, 66,000 are part of those numbers but still positive overall) even though the unemployment rate was up to 9.9% (as more workers came back looking for jobs). Industrial production (manufacturing) rose 0.8% in April. So while we still have quite a few macro (bigger picture, longer term) economic issues to deal with (such as the mounting debt, housing) we are in a slow recovery with positive numbers.
The European bailout program that was announced this past week of a $1 trillion in loans carries with it the same risk as our own govt. bailouts (so far about $6 trillion here in the U.S. and counting). While likely stemming a major meltdown (Great Depression era style) in world economies, bailouts (whether here or abroad) carry consequences. Governments already in big debt positions borrowing more money to bail out companies, industries, and now other governments (the European bailout was bailing out the PIGGS countries as written above) doesn’t solve a debt problem. I am reminded of author Barry Ridholtz quote, “you can’t drink yourself sober” (you can’t borrow your way out of debt). If we stop the bailouts and let the economy heal itself (yes, with some pain involved), we can grow our way out of the debt in much shorter time than “kicking the can down the road” by continuing to borrow and spend.
Economist Gary Shilling laid out his thoughts on what will be the best investments over the next decade. Like others, Shilling believes we will be in for a decade of slow growth and adjustment as we “delever” the economy (pay down debt).Shilling likes Treasury Bonds (a deflationary bet), dividend paying stocks (so do we), consumer staples (ie food and drug companies), the dollar, energy producers and makers of small luxuries (like iPods, etc). We would agree with much of Shilling’s thoughts especially the dividend payers and consumer staples.