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Invest
the way an expert plays hockey.
Like Wayne Gretzky
says, "Go where the puck is going, not where it is.”
The Markets
With the first quarter now in our rearview
mirror, it’s a good time to reflect on the key issues
that affected the markets. As you can see in the chart below,
the domestic stock market did not fare well over the past
three months. However, it is still showing positive returns
for the 3-, 5- and 10-year annualized returns.
| Returns through 3/31/08 |
1st Quarter |
1-Year |
3-Year |
5-Year |
10-Year |
| Dow Jones Industrials |
-7.6 |
-0.7 |
5.3 |
8.9 |
3.4 |
| Nasdaq Composite |
-14.1 |
-5.9 |
4.5 |
11.2 |
2.3 |
| Standard & Poor's 500 |
-9.9 |
-6.9 |
3.9 |
9.3 |
1.8 |
Source: Yahoo! Finance, Barrons
Past performance is no guarantee of future results. Indices
are unmanaged and cannot be invested into directly. Three-,
5-, and 10-year returns are annualized. Assumes dividends
are not reinvested.
TURMOIL IN THE CREDIT MARKETS
The
word “subprime” became
firmly entrenched in our lexicon over the past few months
as the domino effect of defaulting homeowners rippled through
the financial system. Packaged pools of mortgages declined
in price and led to billions of dollars of losses for large
multi-national banks, investment banks, and hedge funds.
Even the normally staid municipal bond market was affected
as yields on tax-free municipal bonds rose above the yield
of comparable Treasury securities. Prior to the first quarter,
that hadn’t happened in decades according to an April
1 Wall Street Journal article. The Federal Reserve Board,
in an effort to maintain stability in the economy, lowered
a key interest rate by a full two percentage points this
past quarter. The Fed also broadly expanded the terms and
the types of firms that could borrow from it. All in all,
it was an historic quarter for the credit markets and for
the actions taken by the Fed.
BEAR STEARNS GOES BYE BYE
In a classic “run on the bank,” rumors of liquidity
problems at investment bank Bear Stearns led to an unprecedented
Federal Reserve orchestrated bailout of the firm by J.P.
Morgan Chase. The hastily created deal on Sunday, March
16, helped avoid a potential major disruption in the financial
markets when the markets opened the next day. The Fed pulled
out all the stops on this one and its actions will likely
be debated by academicians, politicians, and investors for
a long time to come.
COMMODITY PRICES CONTINUED TO ROAR
Gold prices pierced the $1,000 per ounce mark. Platinum
prices broke the $2,000 per ounce level. Crude-oil prices
topped $110 per barrel. Natural gas prices rose 35%
for the quarter on the New York Mercantile Exchange
and wheat
futures peaked at more than $9.25 per bushel, all according
to the Wall Street Journal. It was somewhat ironic that
commodity prices were rising while recession talk in
the U.S. was picking up steam. You would think that
a slowing
U.S. economy would put the brakes on commodity prices.
Toward the end of the quarter, commodity prices did
moderate to some extent, but bullish forecasters believe
continued
demand from emerging economies (e.g., China, India,
Brazil) and tight supplies may keep us from seeing a
lot of air
let out of what some folks believe is a commodities bubble.
“SOS” FOR
THE DOLLAR
Dollar weakness continued this past quarter as it slid 7.5%
against the Euro, 10.6% against the Yen, 12.4% against
the Swiss Franc, and 3.2% against a trade-weighted basked
of 26 currencies, according to the Wall Street Journal.
A weak dollar makes imports more expensive and makes traveling
overseas more expensive, too, for Americans. On the bright
side, it makes our exports more competitive and that has
helped certain sectors of our economy. Low U.S. interest
rates coupled with fears of inflation have helped keep
pressure on the dollar. At some point though, that may
change. “The dollar is as undervalued against the
major currencies as it's ever been,” according to
Robert Sinche, head of foreign-exchange research and strategy
at Bank of America Corp, as reported in an April 1 Wall
Street Journal article.
WINNERS AND LOSERS
By broadening our horizon, we find that there are winners
and losers throughout the world’s stock markets.
Here is a partial list ranked by U.S. dollar returns.
Winners
|
| Morocco |
24.4% |
| Peru |
14.5 |
| Slovakia |
10.7 |
| Pakistan |
8.5 |
| Mexico |
8.3 |
|
 |
Losers
|
| Turkey |
-37.2% |
| Cyprus |
-35.0 |
| Iceland |
-33.8 |
| India |
-29.2 |
| China |
-26.8 |
|
| Source: Dow Jones Indexes |
|
|
The Dow Jones
World Index, which excludes U.S. stocks, fell 8.7% in dollar
terms in the first quarter, according to the Wall Street
Journal. That’s not too far off the 7.6% decline in
the Dow Jones Industrial Average. So, when it came to the
stock market, there were few places around the world to profitably
park your money in the first quarter. While the quarter ended
in the red, it started the new quarter on April 1 with a
huge rally that saw the Dow Jones Industrial Average rise
nearly 400 points. We’ll let you know in three months
if that momentum carries through for the rest of the quarter!
Find out what the animals are! (for example, "To
run away or escape" could be a "Flea")
1. hair-control
foam
2. very exposed
3. tellin' falsities
4. a lamenting cry
5. a dull person
6. a precious or loved one
7. first you get a parking ticket, then you get this
8. these make up a chain
Click here for the answers.
Thanks for your trust & confidence,
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