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July 2011 Performance Review

The big news remains the government debt drama, which as of this writing appears to be over, if by over you mean pushing the bulk of the problem ahead a few months. At least government bond holders will get their money. Of course, this was never really in question. As proof look at one of the highest performing fund category last month: long term government bonds, up 4.4%. So basically when there is panic in the air, people flood to treasuries - even when the panic is OVER treasuries.

America’s Strategic Default

There is no risk of a debt default currently priced into the market. Ten-year government bonds yield just under 3% today. No one wants to lend their money at 3% to a questionable borrower. That doesn’t mean a panic can’t start, perhaps from a debt downgrade or a run away from government debt, baseless or not. What people would do with the trillions of dollars they have in government debt is anybody’s guess. It can’t all go into the thin gold market. CDs are backed by the government.

June 2011 Performance Review

June was worse than May in the stock market, but a big rebound during the last few days of the month trimmed the losses to just 1.67%. Before the recent rebound investors started pulling money out of stock funds. The pattern this year has been almost inversely perfect: investors started to put money into US stock funds right before the slide started. 

Another Real Estate-Led Downturn?

The market’s recent weakness is causing a lot of anxiety. Since the last S&P 500 peak on April 29th, the actual decline has been a relatively mild 7.2% (as of June 15th). Yet the consistency of the slide is generating a lot of "worst decline since X" and "market down six weeks in a row" stories, stories that make investors nervous. Now we’re seeing people pull money from stock mutual funds a few months after big inflows.

May 2011 Performance Review

April’s upward move in stocks fizzled in May with a 1.15% drop in US stocks. Foreign stocks slipped 2.83% after rising sharply in April. In recent days the market took another dive with a sharp pullback on June 1st. The main fear seems to be a newly slowing economy, but we’re sticking to our take that newly sliding home prices are the real trouble spot. Stocks can’t go in a different direction from home prices forever.

Oodles of ETFs

Generally, stock funds launch following long runs up in stocks, when the appetite for stock investing is high. In particular, these launches tend to occur in the hottest of the already hot market. That's why so many Japanese, Asian, and emerging market funds launched in the early 1990s (to kick off the U.S. and other fully emerged stock  market decade with emerging markets lagging), small cap funds a few years after that (right before larger cap led the market), larger cap growth and tech funds in the late 1990s (before the 2000 crash), "dividend" and yield-focused funds around the mid 2000s (before high dividend banks collapsed), emerging market funds yet again in recent years, and commodity funds.

April 2011 Performance Review

The market shook off the troubles of March and headed to higher ground, up just shy of 3% in April. Considering the economy is showing some signs of running out of gas (perhaps because gas prices keep going up) and home prices are heading back down, investor optimism is surprisingly high. Too bad. Investors tend to do better long run getting in during periods of pessimism. Bonds were good after a period of rising interest rates early this year that was pushing mortgages into dangerous territory given the continued weakness in housing. 

Bubble Second Waves

When bubbles mature, investors begin considering even more speculative areas with supposedly more upside, believing "all the money has been made" in the things that have already taken off. This second wave takes what was learned in the bubble, and applies it to an investment with questionable upside, often jolting the price even faster and higher than the original bubble.

March 2011 Performance Review

With an almost perfectly flat S&P 500 in March, you’d almost think the month was a dull one on Wall Street. Hardly. By the middle of the month the S&P 500 was down about 8% from the close in February, largely due to a massive natural and manmade disaster in Japan (a market that itself was down almost 20% from the levels in February). Though Japan only partially rebounded, the S&P 500 ended the month back where it started.