Weekly Market Commentary May 30, 2011
- The debate rages again as to whether the U.S. economy is headed for a second, “double-dip,” recession, or is merely in the midst of a softer patch. Late May/early June manufacturing numbers, employment figures and auto sales all reported below estimates and housing continues to bump along the bottom. Some of the vehicle manufacturing shortfall could be due to continued disruptions in supply chains stretching to Japan and the tsunami after-effects. Every new data item will receive heightened scrutiny and the short-term concern is the market begins trading in lockstep with headlines.
- A year into the Greek debt crisis, the Eurozone still struggles with bailout and default proposals. A quick glance at Greece’s balance sheet would appear to lead to an inevitable restructuring; in and of itself, this would be quite calming to markets, as resolutions are always welcome. However, we’d be pressed to see how Greece could restructure without Ireland and Portugal following in short order. The hangover from Spain’s real estate bubble also lingers on the horizon, with an nth degree more complexity than the other European problem children.
- As we went to press (we actually hit “Send”), ECB President Trichet called for a central finance ministry for the Eurozone; this is the first compelling piece of optimism to come out of Europe in some time. Solving for differing fiscal policies within a common currency system is crucial to the eventual reformation of Europe.
- As a market barometer, the S&P 500 is down roughly 3% over the last month; given the Eurozone challenges, Japan unhinging and China slamming the brakes on growth you can argue the market has held up resoundingly well. Corporate profit margins remain near peak, and company news remains largely positive. Pessimists might say companies have maxed out on efficiencies and lean operations and it will be interesting to see how the market deals with future quarters that are positive but not “as” positive as previous quarters…traders tend to love the rate of change more than the change.
- Over the last 5 days the S&P 500 is down only (-).32%; the wide gyrations making daily headlines tend to obscure an overall lack of movement.
- On the day Lehman Brothers filed for bankruptcy, 9/15/08, the 10-year Treasury note, the ultimate sign of risk, traded at 3.38%. Yesterday the 10-year note sunk to 2.94%; is the market saying we are now less comfortable with the world, more comfortable with low returns, or something else entirely?
- Book of the Week: Where Are the Customers’ Yachts: or A Good Hard Look at Wall Street, by Fred Schwed. An ancient book with a title based on an ancient story of a visitor to New York who admires bankers’ yachts. Naively, he asks where the customers’ yachts are. Hilarity ensues.
**All information found in Bloomberg.
Jason Morad
Chief Investment Officer
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