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Shoreline Wealth & Investment Management
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The Stock & Bond Markets On a global basis, the U.S. stock market appears to be doing better than many of the other stock market indexes. China's Shanghai Index, for example, is trading below its 200-day moving average which often indicates that the decline is firmly entrenched. All of the BRIC (Brazil, Russia, India and China) Indexes are trading below their 100-day moving averages. And it's not much better in Europe thanks to Greece (or Portugal or Spain or Ireland for that matter). The news in the U.S. isn't much better with consumer confidence down and unemployment high, not exactly a formula for economic recovery. And so, as always, it's a good time to be diversified among asset classes (stocks, bonds, cash), diversified among industries, diversified globally and sticking with high quality investments only.
U.S. Treasuries got a boost as bond investors around the world, particularly Europe, made a flight to safety and bought our bonds given the uncertainty surrounding the problems in Greece and the implications for the European Union. The yield for 1-year Treasuries is only about .3%, for 5-year notes about 2.3%, for 10-year bonds about 3.6% and around 4.6% for 30-year bonds. Investment-grade municipals yield tax free income and are paying about .5%, 1.5%, 3.1%, and 4.4% for the same time periods. Similarly, investment-grade corporate bonds are yielding 1.2%, 2.8%, 3.6% and 6.2%. Given the uncertainty, both in the U.S. and around the globe, it pays to play it safe and stay on the short-to-intermediate side of the yield curve. For those worried that inflation make negatively impact bond values but still prefer the safety and income offered by bonds, this may be a time to consider "inflation-protected" Treasuries.
CELEBRATING 30 YEARS
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Real Estate Although mortgage demand for homes dropped to the lowest level in 13 years, the prices of residential real estate around the country declined at the slowest pace since 2007 showing "broad stabilization in home prices" according to the National Association of Realtors. The organization further added that "because buyers are taking on long-term fixed rate mortgages, avoiding adjustable-rate products and trying to stay well within their budgets, the price recovery process appears durable." I'm not sure how they reinterpreted a slowing decline in prices as a "price recovery" but I'm sure it was just relief from 3 years of non-stop bad news. Prices in 2010, according to a real estate division of Moody's, are expected to drop 6% which is less than the 2009 average decline of 12%. Sales volume increased in all but two states with 32 states showing double-digit increases. Florida and Nevada still showed average annual declines in excess of 20%. The supposed concern on the near term horizon has to do with commercial real estate. A congressional panel recently indicated that $1.4 trillion (TRILLION!) in commercial real estate loans will require refinancing in the next 4 years with more than half of those "under water" (values less than the loans which makes refinancing difficult at best). The potential write-downs could be as much as $300 billion and affect 2,988 small to mid-sized banks that have more than 3 times their underlying assets tied up in those loans creating the potential for another banking crisis. We know the "too big to fail" logic too well but "too small to fail" might similarly apply to any potential meltdown. It's a buyer's market but buyers need to be sure bad news is priced into any purchase they're contemplating. |
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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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