Part I: A Bear Market Bottom?
May 6, 2009 I don’t know if you’ve been following the financial headlines lately (or if, like many, you stopped reading them a few months back out of respect for your mental health). If you haven’t you may not be aware that since March 9 the S&P 500 has risen 37%. That’s right. The stock market has increased in value by over a third in a month. This is the kind of powerful move you typically see as a bear market is dying and a new bull market is being born. To be fair, you can also see this kind …
Strategic View
Do Markets Need Government? When I studied and taught economics 25 years ago, the basic model of efficient markets was straightforward. Investors and businesses maximize profit, consumers seek value for money, workers search for lucrative jobs. Competitive market forces were central, although market failures were acknowledged: the maldistribution of income and “externalities” such as pollution and crime that are not reflected in market prices. The role of government was to efficiently remediate these failures, to regulate, tax or otherwise “get the prices right.” What happens, however, when self-interested capitalists understand that social inequities and externalities like pollution and nuclear proliferation …
Our Current Market Outlook
The stock market is off to a dismal start in 2008. There has been some panic selling that we believe overstates the true underlying risks to the economy and financial markets. As discussed in our Economic and Social Outlook – January 2008 [PDF], we perceive that recession risks have risen to 50%, and are pursuing a more defensive strategy. While the market was perhaps due for a correction after five straight years of gains, we believe that conditions are likely to stabilize later in the year. Aggressive monetary policy (including a dramatic 0.75% cut in interest rates by the Federal …
What's Going On In The Markets, Vol. III
From 1960 through 2006 the odds of stock returns being positive in the 4th quarter were 78% and the average return was 4.17%. This gives the 4th quarter the best odds and average returns of any quarter in the year.The strongest returns have come in 4th quarters where the economic backdrop is soft and the Fed is cutting interest rates. This, of course, is precisely the position we find ourselves in as we approach the 4th quarter of 2007. A slumping housing sector has weakened the overall economy and yesterday the Fed cut interest rates for the first time in …
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