June 16, 2011
Market Update
Good Day,
Attached is Empire’s performance to the end of May. Many of
the 1 month and three month columns are now in a negative position. The only
clear exceptions are the Bond and Income Funds. Small Cap is now in
a minus 5.8% for the last 3 months and it would appear that this slide will
continue for a while.
When I look at some of the other economic issues in the
world than I can only conclude that the risk is still very high in the equity
markets worldwide. Ireland, Spain and Greece are all in the news
and Greece in particular is showing not only the fact that the high debt load
is becoming crippling, but the social aspect is also very negative. The
news on TV last evening moved between the riots in Vancouver to the riots in
Greece and there was little difference in the video clips. People in both
clips showed little or no respect for law and order and there were indications
that in both cases there was an attitude of entitlement being displayed. And
that attitude will continue to cause much unrest in the global economy.
Earlier this week I read an article in the Financial Post
which strongly suggested that Canada’s personal debt levels were reaching or
even exceeding dangerous levels. Three years ago we were all speaking
somewhat derisively about the fact that the American consumer was using their
personal residence as their piggy bank. Today Canadians can be accused of the
same thing. Interest rates are low so we easily justify borrowing more
money. But this high level of debt is not conducive to growing an economy
anywhere. Governments have been attempting to borrow their way out of recession
and now Canadian consumers are trying to borrow their way out of trouble in the
face of declining salaries. Higher debt levels in deflationary times is a
recipe for for disaster in my opinion.
I have attached a chart of Vanguards Bond Index Fund. This
is todays chart. Notice that the bond market is still moving up. It is trading
above its 10, 50, 100 and 200 day moving average. When the bond market is
moving up we generally see the stock market moving down. Yes, as I write
this (11:50 AM)the broad index in the US is positive but the rest of the world
traded negative today.
In Alberta, the oil industry is percolating along quite
nicely, but the rest of the economy other than Agriculture, is definitely
struggling. And the Canadian economy in general is doing better than the
American but the pressures are all to the downside.
Are there any positives out there? Sure there
are. Our farmers should do well this year, assuming the weather cooperates,
because over all prices are quite reasonable, relatively speaking. And that
will help us here in Southern Alberta. Agriculture continues to be our
mainstay. Interest rates are still very low and appear to be relatively stable
at this time. However, the dollars that governments have been printing
worldwide will have a negative impact at some time in the future. Of
course, that future date could be further out then I initially feared. If we
look to Japan for example, than this current malaise could be around for a
while. The Japanese still have very low interest rates and their economy is
still just barely alive. And this after 15 years have gone by!
Continue to pay down debt, hold onto your job,
enjoy your time this summer with family and friends, and finally, have a great
day and Happy Father’s Day on Sunday.
PREVIOUS
