Client Communications

Prominent market analysts had the opinion that the old investor adage of “Sell in May and go away” would not apply this year due to strengthening market conditions as June approached. We all know what was bound to happen.

Some negative news about economic growth slowing, gas prices rising, additional weather related destruction, and the re-emergence of Greece’s debt woes turned investors moods negative overnight. How amazing it is that our society embraces negative news so quickly and replaces any good news and optimism with worry and despair.

While the death of Bin Laden made the news on all levels last week, the spectacular decline in commodity prices also made headlines. Silver was down 25%, gold down 5%, and oil down 15%. All were well above their 200-day moving averages and a buying mania seemed in progress. Oil was reaching its levels last seen in 2008, at $115 per barrel, and we know that ended by sending prices down to the $40 per barrel level. Speculation still runs amok in these sectors often with no substantial reason backing their rise.

The tragic events in Japan on March 11th and the subsequent nuclear reactor problems are presenting difficult challenges. Initial reports indicate that Tokyo and the remaining southern portions of the country did not incur significant damage. However, the northeastern city of Sendai, which accounts for 1.7% of Japan’s GDP, has sustained a substantial amount of damage, the full extent of which remains uncertain.

As January goes, so goes the market for the balance of the year, some pundits claim. As of this writing the S&P 500 Index is up 2.5% for the month, so is a nice up move in the making for 2011? Maybe, but for the year 2010 the S&P finished with a positive return of 15% even though its January started with a decline of about 3%.

Coming off of what will most likely go down as a historic mid-term election; Congress and the President have a bipartisan agreement on taxes. While the agreement does keep the current tax structure in place, the issue will have to be taken up again in two years.

We revisit these past descriptions of the state of the U.S. economy because investors’ outlook today is just as pessimistic…which may be too extreme. The quotes above have a consistent theme with today’s environment where the country is going down the tubes. The demise has been averted in the past, will this be the time?

Even though the U.S. economy continues its tug-of-war as it gains footing out of the most recent recession, an opportunity is presenting itself to many current homeowners. Almost two years ago the Federal Reserve began an effort to help keep home mortgage rates down to aid the struggling housing market. This sparked increased home purchases and a wave of refinancing at the time. Mortgage rates eventually climbed back up, but have recently declined back down to historically low levels. This is providing a second opportunity for current homeowners who did not take advantage of the refinancing last time around.

Normally the summer months provide lethargic trading in the financial markets. Vacations are taken by many traders worldwide and volumes slow considerably. The past few weeks have pretty much followed suit. The result often is wide fluctuations in market prices since a one day or one week concentration on the buy or sell side is met with little resistance.

After a historic and relatively uninterrupted 14-month rally the investment markets have hit a rough patch. There are a few factors that have led to this most recent rough patch with the main factor being uncertainty.

Well, it’s official…this past decade has been dubbed “The Lost Decade.” As measured by the S & P 500’s anemic negative .95% average annual return, the past ten years have performed the worst since at least the early 1800’s.

High quality active managed funds outperformed the indexes by a wide margin over the same period. Asset allocation that included bonds since 2000 performed even better yet.