Markets took an turn to the upside this week with the three major indexes posting gains above 3%. The Dow closed the week above 10,000 with a 3.2% gain, the Nasdaq returned 3.3% and the S&P 500 returned 3.2% as volatility moved lower.
The release of solid productivity numbers on Thursday surprised the market, sending it sharply higher. Unemployment numbers came in worse than expected on Friday, with the rate now standing at 10.2%. The markets kept the gains from Thursday, however, and even closed the day higher amid the disappointing news. High productivity and high unemployment causes us some concerns. If a business can get lean and use technology to cut costs and remain productive, why would they hire any more workers? It is a troubling trend with serious long term ramifications and is something we will keep an eye on.
The high unemployment numbers renewed discussions of a second stimulus from the federal government. Late Saturday night, the House passed its healthcare bill. Congress is in the process of forming a cap-and-trade bill. While there is a long way to go before anything is final, we are seeing an unsustainable trend of government spending. It further strengthens our belief that the dollar will continue to weaken as our debt climbs to new record highs.
Next week looks relatively quiet, the only major news coming on Friday with the release of the U.S. trade balance. Both imports and exports rose during the quarter, however, the gap between exports and imports likely widened.
We believe the market will continue higher through 2010, pushed by a recovery in businesses. The easy money policy of the US Government, as well as the billions in stimulus spending, will be tailwinds for the markets. This is how bubbles are created, though. The cheap money lifts all boats, and soon the undeserving businesses fail and markets tumble. Government steps in, props up the failed business, lowers interest rates, and starts the process again. In the short term we remain bullish (positive). Looking out past 2010, we remain very bearish (negative). Tax rates will be heading back up. Government programs being financed now will need to be repaid. The business environment looks very hostile.
Where are we investing now?
We continue to buy equities on the market pullbacks, especially multi-nationals. The cash on the sidelines will continue to push the market higher. We are putting more money into foreign developed and developing markets. We are still bullish on commodities as the dollar slides further lower. We are also putting some money in TIPs, expecting inflation to pick up in the future.
The release of solid productivity numbers on Thursday surprised the market, sending it sharply higher. Unemployment numbers came in worse than expected on Friday, with the rate now standing at 10.2%. The markets kept the gains from Thursday, however, and even closed the day higher amid the disappointing news. High productivity and high unemployment causes us some concerns. If a business can get lean and use technology to cut costs and remain productive, why would they hire any more workers? It is a troubling trend with serious long term ramifications and is something we will keep an eye on.
The high unemployment numbers renewed discussions of a second stimulus from the federal government. Late Saturday night, the House passed its healthcare bill. Congress is in the process of forming a cap-and-trade bill. While there is a long way to go before anything is final, we are seeing an unsustainable trend of government spending. It further strengthens our belief that the dollar will continue to weaken as our debt climbs to new record highs.
Next week looks relatively quiet, the only major news coming on Friday with the release of the U.S. trade balance. Both imports and exports rose during the quarter, however, the gap between exports and imports likely widened.
We believe the market will continue higher through 2010, pushed by a recovery in businesses. The easy money policy of the US Government, as well as the billions in stimulus spending, will be tailwinds for the markets. This is how bubbles are created, though. The cheap money lifts all boats, and soon the undeserving businesses fail and markets tumble. Government steps in, props up the failed business, lowers interest rates, and starts the process again. In the short term we remain bullish (positive). Looking out past 2010, we remain very bearish (negative). Tax rates will be heading back up. Government programs being financed now will need to be repaid. The business environment looks very hostile.
Where are we investing now?
We continue to buy equities on the market pullbacks, especially multi-nationals. The cash on the sidelines will continue to push the market higher. We are putting more money into foreign developed and developing markets. We are still bullish on commodities as the dollar slides further lower. We are also putting some money in TIPs, expecting inflation to pick up in the future.
