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“In times of change, learners inherit the Earth, while the learned find themselves beautifully equipped to deal with a world that no longer exists.”
-- Eric Hoffer
THE MARKETS
As we enter the home stretch for 2009, let’s review what transpired in the financial markets over the past three months.
| Data as of 09/30/09 |
3rd Quarter |
Y-T-D |
1-Year |
3-Year |
5-Year |
10-Year |
| Standard & Poor's 500 (Domestic Stocks) |
15.0% |
17.0% |
-9.4% |
-7.5% |
-1.1% |
-1.9% |
| DJ Global ex US (Foreign Stocks) |
19.2 |
35.3 |
4.3 |
-4.7 |
5.7 |
1.9 |
| 10-year Treasury Note (Yield Only) |
3.3 |
N/A |
3.8 |
4.8 |
4.1 |
5.9 |
| Gold (per ounce) |
6.6 |
14.5 |
12.6 |
15.9 |
19.1 |
12.8 |
| DJ/AIG Commodity Index |
4.2 |
8.9 |
-23.9 |
-9.2 |
-3.6 |
3.3 |
| DJ Equity All REIT TR Index |
33.2 |
17.4 |
-28.1 |
12.7 |
1.6 |
9.8 |
Source: S&P 500, DJ Global ex US, Gold, DJ/AIG Commodity Index returns exclude reinvested dividends (gold does not pay a dividend) and the three-, five-, and 10-year returns are annualized; the DJ Equity All REIT TR Index does include reinvested dividends and the three-, five-, and 10-year returns are annualized; and the 10-year Treasury Note is simply the yield at the close of the day on each of the historical time periods.
Sources: Yahoo! Finance, Barron’s, djindexes.com, London Bullion Market Association. Past performance is no guarantee of future results. Indices are unmanaged and cannot be invested into directly. N/A means not available.
Rising a stunning 15.0%, the S&P 500 scored its largest quarterly gain since 1998, according to The Wall Street Journal. International markets did well, too, as the Dow Jones Global Index, excluding the U.S. Total Stock Market Index, rose 19.2% in the third quarter. The gains reflected continued improvement in some aspects of the worldwide economy, as well as anticipation that the improvements will continue.
Year-to-date, worldwide stock market returns have been remarkable. Since the March 9 low, global stock markets have added about $20 trillion in market value, according to an October 4 Bloomberg article. Now that’s what we call some “Good Reflation!” Here are some of the winning markets over the past three months.
Country Returns Based on the Dow Jones Global Indexes
Ranked by U.S. Dollar Performance:
|
Country |
Percentage |
Lithuania |
71.0 |
Estonia |
50.3 |
Hungary |
39.1 |
Peru |
35.6 |
Cyprus |
35.6 |
Source: Dow Jones Indexes
|
Country |
Percentage |
Brazil |
29.0 |
Russia |
26.3 |
India |
18.3 |
U.K. |
17.7 |
China |
10.0 |
Source: Dow Jones Indexes
Disappointed with low short-term rates and meager returns from perceived safe investments such as money market accounts, many investors fled the short-end of the yield curve and moved out to the longer – and riskier – end. So far, that has paid off as bond prices generally rose in the third quarter, according to The Wall Street Journal.
If inflation becomes a problem or the dollar goes into a freefall, you could see interest rates reverse course and start to rise. Of course, that could lead to a potential setback for the economy so the government is trying to walk a fine line between flooding the economy with liquidity – to help it grow – but not flooding it too much that it would lead to rampant inflation.
With the significant decline in most interest rates over the past few months, investors appear comfortable with how the government has walked this fine line. However, there is a definite concern that down the road, perhaps one to three years from now, we could be in for inflation that rivals the worst of the late 1970s/early 1980s period.
Big budget deficits, concerns about inflation, and a desire for riskier assets helped push down the value of the dollar last quarter. According to The Wall Street Journal, the dollar dropped 4.1% against the euro, 6.8% against the Japanese yen, and 9.5% against Australia’s currency.
In an August 18 op-ed piece in the New York Times, Warren Buffett opined that a continued rise in the debt-to-G.D.P. ratio could cause the U.S. dollar to “melt.” When Buffett gets involved, you know it’s time to take notice. Fortunately, if the dollar does liquefy beyond recognition (i.e., “melt”), other investments may rise in value and we would do our best to position for that accordingly.
To say it’s been a wild ride in the financial markets this year is an understatement. We started the year with a massive decline and then after March 9, the markets exploded to the upside on faint signs of economic stabilization. While parts of the economy are working better, unemployment is staying painfully high. Some economists expect unemployment to hit or exceed 10.0% before it starts falling and that presents some strong headwinds for the markets in coming months.
BRAINTEASER: VISITING THE PYRAMIDS
A childless young man took a trip to visit the Great Pyramids of Egypt in the year 1865. He was deeply moved by the trip and vowed that one day when he was a father he would return with his son so the son could see the wonders of the Great Pyramids. The father fulfilled his vow, and in the year 1845, he and his son visited the Great Pyramids. How is this possible?
Click here for the answer.
Thanks for your trust & confidence,
ken@fordwealth.com | 201-798-7992
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