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Good Morning! Food for Thought.
Conspicuous consumption is as welcome in 2009 America as a houseguest straight from a Mexican vacation. Frugality is in - Americans are returning bottles for the deposit instead of sipping Grey Goose on the rocks. After decades of spending next week’s allowance, we are actually saving more than they are spending. Although we applaud this newfound American penny-pincher but think he is s short lived.
Both stock and bond markets are sensing an improving economy and acting accordingly. Yields on the 10 year treasury have risen dramatically over the past two months. From a low of sub 2%, the 10 year has ballooned to a yield of 3.17%. The treasury market is a haven for the “safe” investor so rising yields indicate bond investors are fleeing these safe investments for more riskier areas. The stock market after an abysmal start to 2009 is basically flat for the year. From its bottom in mid March, the S&P 500 has advanced more than 20%. This is another indicator that investors are projecting better times.
We are advising investors to strike a balance between risk and safety. The smaller investor is underinvested in the riskier areas of the market. Clinging to money market cash and CDs, many investors are accepting low returns for safety. We believe that the gulf has never been wider between what investors are most comfortable doing and what they should be doing.
The stock market has come a long way in a short time so investors should be careful “taking the plunge” but many opportunities abound for investors with long term horizons. Great companies are on sale. We believe that the American economy is getting ready to grow again and with it will come the market.
Say goodbye to the “frugal” American. Honestly, it was no fun while it lasted.
Dennis Fagan
Chris Fagan