A Busy Week

I love my job and generally look forward to weekends no more than any work day.  But I will be happy to get a break over the next couple of days.  We have had an unusually volatile week in the stock market   It started in earnest Tuesday last week, with the Dow down 265, over 2%.  Last Thursday we were down 512 points, but Friday was quiet. Monday brought unwelcome fireworks – down 634. Then Tuesday up 429, Wednesday back down 519, and yesterday back up 423. I’m tired already and today hasn’t even started.

 There was plenty of business news to stir the pot.  Washington punted on dealing with our national debt, in Europe the debt demons lurched from one country to another, threatening the Euro (and global economic stability).  In an effort to pour a little oil on roiling markets, the Fed made an unprecedented move, stating that interest rates would be kept “exceptionally low” through mid-2013.  In over 30 years of following Fed policy I have never seen such a term-certain pronouncement.  And the week’s not over.

 Meanwhile individual investors are dealing with the sturm und drang and still have to do the laundry and walk the dog. Long term investors with the correct perspective have mostly sat out the volatility, bargain hunters have made cautious forays to buy quality at low prices, but plenty of people have anxiety over the state of the markets.

I have seen plenty of up-and-down over the years, and remain long-term bullish on America.  I plan a couple of days relaxing in a hammock over the weekend and we’ll see what Monday brings.

GTC

(This article contains the current opinions of the author but not necessarily those of Brighton Securities Corp.  The author’s opinions are subject to change without notice. This blog post is for informational purposes only. Forecasts, estimates, and certain information contained herein should not be considered as investment advice or a recommendation of any particular security, strategy or investment product. References to specific securities and their issuers are for illustrative purposes only and are not intended and should not be interpreted as recommendations to purchase or sell such securities).

A Federal Default?

You can’t escape the daily stories in every news outlet: concern about the Federal Government’s debt ceiling, which, if not increased by Congress, could lead the US to default on its obligations for the first time ever.  The ramifications of a default are said to be catastrophic. So let’s see: only the Congress stands between a placid summer and looming catastrophe? That’s what the media is pitching.

 I don’t buy it.  Last week US stock markets had their best week in two years, up over 5%.  The DJIA is up nearly 9% YTD, with more than half coming in the last 5 trading days.  Does that make any sense, that investors are buying with the end of the world in sight?

 There are a couple of things to keep in mind:

1. Markets are perhaps the original form of crowdsourcing – increasingly viewed as a good way to get accurate information within reasonable parameters.  As such, markets tend to be leading indicators; good predictors of future events.
2. Markets react most strongly to news that is, well, news.  A surprise will move markets.  Widely expected events tend to elicit a yawn.  A Google search of “US Debt Ceiling” gets about 10 million hits.

 In my next post we’ll examine the likely consequences of a default. 

GTC

(This article contains the current opinions of the author but not necessarily those of Brighton Securities Corp.  The author’s opinions are subject to change without notice. This blog post is for informational purposes only. Forecasts, estimates, and certain information contained herein should not be considered as investment advice or a recommendation of any particular security, strategy or investment product. References to specific securities and their issuers are for illustrative purposes only and are not intended and should not be interpreted as recommendations to purchase or sell such securities).

Greece and its Echoes

Hardly a day goes by that financial markets are not buffeted by news of a looming default of Greek sovereign debt. After years of high government spending on public-sector salaries and an expensive social safety net, the bills are beginning to come due. With a large outstanding debt, Greece needs money to pay its bills, but many Greeks appear to prefer ducking out on paying the tax man. 

 If Greece defaults, what might that mean to us? In direct dollar terms, not much. Greece has over $400 billion in outstanding debt, but relative to the size of US debt markets, that’s a modest number.  I don’t see any meaningful direct effect on our economy if Greece defaults on its obligations. But the echo – that’s where we could have some trouble.

 By “echo”, I mean the possible effect on our economy if bond buyers around the world begin to perceive US government debt to be like Greek debt: a risky investment.  Investors demand higher rates from risky investments, and higher rates on government bonds would translate into higher rates for everything else.  Higher rates would mean a slower economy and higher unemployment – nobody wants that.

 There are people who consider the Federal Government a risk already, but they are in the minority. Demand for US Treasury bonds remains strong. Our government should act very carefully to see that it remains so.

GTC

(This article contains the current opinions of the author but not necessarily those of Brighton Securities Corp.  The author’s opinions are subject to change without notice. This blog post is for informational purposes only. Forecasts, estimates, and certain information contained herein should not be considered as investment advice or a recommendation of any particular security, strategy or investment product. References to specific securities and their issuers are for illustrative purposes only and are not intended and should not be interpreted as recommendations to purchase or sell such securities).