Don’t you just love those inane questions and answers reporters and football coaches give as they hurry back to the locker rooms at halftime?
Yes, the other team outscored us in the first half but if we can stop them and score more points in the second half than their total, we just might win the game! It is already halftime 2009, and hopefully what follows will be much more helpful to you than coaches’ observations.
In the stock (or equity) department, only the Nasdaq 100 index has performed well – up 22 percent since last year. The Standard & Poor’s and Dow indices are up 1.78 and down 3.75 percent, respectively. The second quarter upward momentum stopped in early June, and now they appear to be headed sideways or lower, at least until better corporate earnings are reported later this month or in October.
Despite the fact of worldwide recession, the so-called BRICK country stock markets have risen strongly this year. Brazil, Russia, India and China indices are up between 30 and 50 plus percentages. Even Japan is up 12.4 percent. Most other countries have had nice rebounds in stock values also.
Bonds in general are about where they started in value, but the 30-year treasury yields have gained 60 percent since December. When everyone flooded into them for safety in the fall and early winter, the interest rate yield dropped to almost 2.5 percent. At mid year the rate stood at a more normal 4.3 percent. Since investors threw away low-grade (or junk) bonds in the second half of 2008, they have been recovering nicely, about an 8.5 percent increase in values thus far.
Commodities including metals and oil have outperformed most stocks in the first half, but that trend is particularly in doubt. Since June 1, silver, oil and others are down sharply. As I write today, energy prices are plunging on reports of plentiful supply. This makes inflation appear less likely, and therefore gold is dropping in price too.
The much-more-than-$64,000 question today is whether our government’s medicine in the form of trillions of dollars created and borrowed for stimulus will save us or kill us. On one side, optimists say that Federal Reserve Chairman Ben Bernanke and crew stand ready to sop up excess money and credit as soon as any inflation rears its ugly head. On the other side are pessimists saying the Fed doesn’t have too great a track record anyway and this stimulus is so extreme in its size that no one has ever witnessed this much medicine being taken before.
If the patient has stabilized or is getting better, with or without the medicine, we should see corporate profits begin to rise and the stock market resume an upward trend by October or November. If the mega-dose turns out to be a jolt of 220 instead of a therapeutic shock, the pessimists remind us that rampant inflation becomes highly likely.
So what should you do now? The bears appear to be back in control and at such times, cash is king because it does not lose value as quickly as alternatives. Next week we will have the first look at profits from the second quarter, and who knows? Perhaps I will have some inane coach-like observations to tickle your fancy!
