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Shoreline Wealth & Investment Management
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The Stock & Bond Markets The Dow at 10,000 feels different this time than it did the last. At least to me. When it hit that level a few years ago on the way to 14,000 and beyond, it felt like it would never come down (many felt that way about real estate as well). Every sector participated last time, not just technology stocks like in the dot.com boom & bust. Unemployment was just over 4% which economists called "full" employment. This one feels more like a "reflex" rally off the lows reached in March. Lower earnings, but not as low as predicted, are being responded to as if they were actually good earnings. Unemployment is almost 10%. And the richest 1% of our citizens now control more assets than the bottom 95%. It does seem strange that the market has risen as much as it has (over 50% from the lows) when the economy hasn't kept pace. This may be a time to take some "chips off the table" and count your winnings, assuming you have them. At the very least, for those with diversified portfolios like Shoreline's clients, it is time to re-balance your accounts.
The rally in bonds has become more volatile and less predictable. One minute, it appears that the economy is recovering and bond prices decline. The next, negative economic indicators (jobs, foreclosures, etc.) drive the prices higher. The economy appears to be stabilizing and this means the rally may be ending although not necessarily over. The yield for 1-year Treasuries is only about .3%, for 5-year notes about 2.4%, for 10-year bonds about 3.4% and around 4.2% for 30-year bonds. Investment-grade municipals yield tax free income and are paying about .6%, 2.0%, 3.1%, and 4.1% for the same time periods. Similarly, investment-grade corporate bonds are yielding 1.3%, 2.4%, 3.8% and 6.3%. As the economy begins to recover, this may be a time to consider "inflation-protected" Treasuries.
CELEBRATING 29 YEARS
Since 1980, I have been providing financial advice to investors and I'm proud to say that our service and performance (see "Bottom Line" section on the right) continue to be superior to the market and our peers. Thanks for your support.
Real Estate "Bubble thinking" isn't limited to the stock market according to Robert Shiller, the Yale economist who along with Wellesley economics professor Karl Case is responsible for the often quoted Case-Shiller Index which tracks home prices in 20 metropolitan areas. Price declines have stabilized and even risen in a few areas but that doesn't mean there won't be another decline or that prices will continue up from here. The delay in mortgage foreclosures has ended and those numbers are again rising. The Federal Reserve which purchased more than $1 trillion (TRILLION!) in mortgage-backed securities to prop up that market is planning to end that program next year which may make borrowing more difficult than it already is now. And finally, the $8,000 tax credit to first-time home buyers is coming to an end on December 1st. Americans have short memories (and getting shorter as they age) so it's good to take a step back and remember that no market (gold, stocks, real estate) only rises. If you're a long-term buyer and believe your opportunity on a particular property is a good deal, it's a fine time to purchase (just remember the "long-term" part of the equation). |
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Thanks for reading. Please send questions or comments.
Sincerely,
Chuck
Charles M. Bloom
Shoreline Wealth & Investment Management
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