06.20.11
Despite continued Greece woes, the markets gained last week (albeit a tepid 0.04% gain for the S&P 500) – breaking a six week losing streak.
Yes, economic activity in the U.S. and around the world is slowing.
The most likely culprits are:
– Higher oil prices
– Supply disruptions from Japan
The good news:
– Oil prices have retreated
– Japan is getting back on its feet
– Equity valuations remain quite reasonable, and sentiment is negative
We believe these are constructive factors which will ultimately provide a foundation for a recovery in the markets.
The FOMC meets Tuesday and Wednesday this week. We suspect that they will downgrade their assessment of the economy; however, the FOMC will point to the transitory nature of the current soft patch.
Summertime has traditionally been a challenging time for the markets, and this summer will likely be no different. We suggest investors enjoy the good weather and the activities of summer.
“The time of maximum pessimism is the best time to buy.”
John Templeton
06.13.11
With the U.S. stock market now down for the sixth week in a row, investors are searching for glimmers of something positive on which to hang their investment hats. We think the current level of investor sentiment provides such a foundation. One of the measures of sentiment frequently referred to is the AAII report (American Association of Individual Investors). When Investors become extremely bearish, it is usually a sign that a rally should occur soon. The latest numbers are:
24% Bullish vs. Long Term Average, 39%
28% Neutral vs. Long Term Average, 31%
48% Bearish vs. Long Term Average, 30%
A second measure frequently referred to is the put-call ratio which reflects the ratio of bearish options to bullish options written. Here again we are reaching bearish extremes often associated with market turns. No guarantees but clearly positive data.
There are plenty of reports this week to measure how the U.S. economy is performing. The CPI, retail sales, housing starts, leading economic indicators industrial production, and a consumer confidence index will have Wall Streeters busy. While growth has clearly slowed, we’re hoping the data will at least show slow growth this month. Stay tuned.
“Be fearful when others are greedy, and be greedy when others are fearful.”
– Warren Buffett
06.06.11
U.S. equities posted another week of losses, bringing the recent selloff’s duration to 5 weeks. Despite the correction, major indexes are up year-to-date as follows: DJIA, up 5.0 percent; the S&P 500, up 3.4 percent; the Nasdaq, up 3.0 percent; and the Russell 2000, up 3.1 percent.
The economy appears to be in a soft patch:
However, the service sector of the economy is showing signs of strength with the most recent ISM non-manufacturing report improving 1.8 points to 54.6 (above 50 means expansion).
(Click chart for more information)
We are aware of the current economic weakness but we continue to believe that sell-offs will be bought, and that the markets will finish the year higher from today’s levels.
“Stock market corrections, although painful at the time, are actually a very healthy part of the whole mechanism, because there are always speculative excesses that develop, particularly during the long bull market.”
– Ron Chernow
Weekly Commentary
June 27, 2011
06.27.11
Markets were mixed last week, with the S&P and DJIA down less than 1%, while the NASDAQ rose1.4%.
Greece continued to dominate international financial news. The Greek prime minister and his new cabinet survived a no confidence vote on Tuesday, and then Thursday an intra-day agreement with the EU and the IMF provided additional market support.
Offsetting these Greek developments was the Fed, which lowered its projections for GDP growth for this year and next. Adding insult to injury, Bernanke admitted that he wasn’t quite sure why the subpar GDP growth was persisting.
Broader eurozone concerns dragged the market down on Friday, with most averages again testing their 200-day moving averages (a technical measurement for analyzing price changes).
Separately, falling energy prices are giving consumers a “tax-cut”.

Also, note that the Fort Calhoun nuclear power plant in Nebraska is handling Missouri River floodwaters with aplomb. Kudos to the operators and the NRC.
“How many millionaires do you know who have become wealthy by investing in savings accounts? I rest my case.”
– Robert G. Allen