A few words from one of my financial managers…
The events of the past few weeks have unfolded in a most unflattering way for the financial markets. Outside of gold and U.S. Treasuries, investments have lost a significant amount of value recently, giving back some of the gains garnered during the rebound of the last few years. While today’s global stock market reaction today came on the heels of a downgrade to the United States credit rating from AAA to AA+ (negative outlook), the continuation of the market slide is more likely related to expectations about global economic growth, the impact of government belt-tightening, and lack of leadership from the world’s largest economy, than it is from a rating agency’s downgrade of the credit worthiness for the world’s reserve currency.
Investments typically have two components: income and appreciation. For the last few years, the risk-free rate of return (typically defined as the three month U.S. Treasury) has been incredibly low, forcing investors to take some level of risk to obtain a reasonable level of income. Currently, U.S. Treasury yields out to 10 years in maturity are producing a negative real rate (after inflation) of return, with no expectation of appreciation, since bonds mature at a predetermined value. A situation like that is well outside the norm and cannot continue indefinitely.
The last few years have been some of the most challenging times I’ve experienced as an investment manager, and I know that it is troubling to many investors that are not immersed in the investment business on a day-to-day basis. Over the years we have made considerable efforts to measure the investment needs of our clientele, and have deployed client assets in a manner consistent with our understanding of those goals and objectives. With objectives ranging from the extremes of low-risk to high-return, each objective requires periodic portfolio adjustments specific to each objective to maintain the appropriate longer-term risk/reward profile.
To that point, while we believe that 2011 will not go the way of 2008, there may be continued market turbulence to contend with in the short run. We focus on a three- to five-year investment horizon, because the portfolios we manage have objectives based on income, growth, or a combination of the two, but not liquidation based on short-term developments. We have, and will continue to make adjustments to improve the long-term position of the portfolios we manage with respect to our client’s specific longer-term investment objectives.
Steve Taddie
Managing Member
Stellar Capital Management
Phoenix, Arizona
August 8, 2011
Published by permission.
In 2008 the credit markets were frozen, major companies weren’t making any money, and banks were on the verge of collapse. While the credit rating is bad, there’s still lending money available, profits of major companies across multiple industries are robust, and banks balance sheets are on stable (not solid, but stable) ground. If anything similar happened in 2011 as happened in 2008, it would have nothing to with fundamentals.
For your sake I hope he’s right. I have time to recover but in my opinion stocks might have been overpriced and this might have been a market correction not a panic. In that case those near retirement might be in trouble if they still need significant growth.
@ Money Beagle: True…the comparison is weak, and a lot of the hysteria about the deficit as well as the economy is overblown.
@ FrauTech: Well, by the end of the day stocks had see-sawed back up above 11,000. But that doesn’t do much for my comfort level: we’ve seen in the past that volatility is not a good sign…
Preparing for today’s events, which were easy enough to predict a couple of weeks ago, my guys had liquidated a bunch of cash so they could buy stocks at low prices. Haven’t heard whether they made any such moves today, but I guess I’ll find out in due course.
The stocks came back up because the PPT poured money in to buy those stocks.
Stocks go down when everyone is selling and they go up when everyone is buying.
That drop after the Fed released the near zero interest, slow growth and we are really in trouble statement.
Anyone that thinks the market recovered by itself is smokin’ some funny stuff.
The Plunge Protection Team went in there and bought all the worthless stocks to prop up the values.
The market is being manipulated by people that have the big money.
In a stable growing economy the tide rises all boats. In this current situation it’s all up in the air.
Bernanke passes gas this afternoon and the dow drops 200+ and then within a hour closes up 429?
‘splain that to me Lucy.
On the other paw gold closed at $1754 and we have some and wish we bought more when it was $300.
Silver on the other hoof is still below $40.
If I was a miner I’d go for gold because there is not that much silver out there to be found.
Our safe houses pounds of silver coins that we bought when silver was a $5 waste of time.
Time, that will tell if the economy tanks.
What will a silver dime buy for barter? A dozen eggs, a hen or a bullet.
@ George: Boy it is the stuff of conspiracy theory, isn’t it? Those of us who are inclined that way do find it all a bit odd.
When gold was at $1600, not so long ago, a friend of mine discovered that a single unmatched earring could get you a couple hundred bucks. So if your wife has any broken sets of earrings laying around (who ever has the heart to throw out the one whose partner is lost?), this would be a good time to trade them for some cash with which to purchase barterables.
Between you’n’me, I’ve been thinking in terms of cigarettes and airline-size liquor sample bottles, which can be had for surprising cheap.
Can cigarettes be stored in a freezer? Question is, if you stockpiled a few cartons to use as barter, how would you keep them fresh? Don’t they go stale?
I’m thinking the stuff to quietly start stocking up on, pretty quick now, are things you can barter (cigarettes, liquor, medications, bibles, etc.); stuff that can keep you going off the grid for a while (lots of propane, candles, carboys of water, canned and dried foods; plenty of kibble for your dog); a full array of tools that don’t run on electricity; and even more ammunition than propane or dog food. Can you believe that stuff that’s going on in England?
Funny, my last post on this.
TARP – Troubled Asset Relief Program.
Bernanke was hauled before congress and asked where the billions went.
He refused to answer.
Tarp went to banks all over the world and they are still sitting on the money.
They are hoarding money.
That money is not floating through our economy.
Would it be different if the government sent a $50,000 check to every taxpaying household?
I think that would have given the economy a shot in the shorts, unlike what they have done.
@ George: Did you realize that banks are now CHARGING people to put money pulled out of investments into their bank accounts?
Yesh. Heard it on NPR this morning. They don’t want to have to figure out where to invest your money (which of course is what they have to do with it) any more than you do. So if you show up at the bank with a $50,000 deposit, they’re going to zing you a nice gouge for the privilege of depositing it!
Agreed: I’ve often thought that for what they dumped into the banks, they could have given every household in the nation a million bucks. They could have required that you use part or all of it to pay of your mortgage, if you had one,, thereby getting most middle-class Americans out from under their upside-down real estate, and then let people keep the rest of it to spend or invest as they pleased. Et voila! Economy cured!
Cigarettes can be frozen. We did that when we quit smoking.
Mellon Bank is the one that is soaking investors for deposits.
Then there is the mattress.
Fiat currency should be changed to coins as soon as possible.
A coin will be worth something, a fiat paper dollar will be toilet paper soon.
England. It will happen here soon.
Public unions.
You know that a Flash mob of black teenagers beat the snot out of white people leaving the Wisconsin State Fair. 1st step.
Pet food? We feed raw for the GSD and the waste of fur and the 3 mini Doxies.
They don’t eat any Old Roy or any any of that Beneful crap.
My thoughts are that Soros is shorting the market, betting against the home team. There are rules for this but is seems that the SEC are not paying any attention to them.