August 13, 2010 Market Update
Click here to see the Empire Performance Update to the end of July.
As you can see the July rebound is apparent in all the returns but the drop of the past few days will remove that increase for all but the Bond and Income and Money Market Funds.
Deflation seems to be the number one issue. This is most clearly reflected in the Bond Market. Even with all the so called "good news" of July which caused the stock market to bounce up, we still see the Bond market moving up as well. Mr. Ben Bernanke also spoke to this in his August 10, 2010 report. He has announced that the Federal reserve will purchase an additional 150 to 200 billion of bonds over the next 12 months. This even though the US has 2.3 trillion dollars of debt already and is also forecasting a 1 trillion dollar deficit. We may want to look at the Japanese experience. They also toyed with low interest rates, but, when the consumer is tapped out, the consumer is done. And then even 0% interest can do nothing for the economy. There has been some talk about a "double dip" recession, but once we get a few more quarters behind our backs, we will realize that the 2009 recession never ended and in fact we will begin to use the D word. to describe what we are into. Yes, I mean depression.
During the last great depression, income was king. So, bond funds or income funds. If you are investing directly in the market, bonds and blue chip dividend paying stocks are the place to be. Safety is the only option. Or as Mr Rosenberg of Gluskin and Sheff says; SIRP. Safety and Income at a Reasonable Price.
The Bond Fund that we are invested in with Empire should perform very well in the second half of the year. The Income Fund could have a little trouble maintaining traction, but that is dependent on the economy.
One area that we may want to revisit is my initial fear back in late 2008 of the mortgage rates. If deflation is the number one issue then interest rates will stay low for some time yet. So, if you are still in a variable rate mortgage, just leave it that way for the time being. And if you have a mortgage maturing in the near future, for the short term, go to a variable rate mortgage. Just be sure that you have an open variable rate mortgage. One that you can lock in at any time.
If you have any questions or concerns please do respond either by email or by calling me.