Archive for August, 2013

September Is the Cruelest Month

Thursday, August 22nd, 2013

Oh, it’s a long, long while from May to December
But the days grow short when you reach September.

                                                                  September Song

T.S. Eliot was wrong about April being the cruelest month.  For investment managers, it’s September.

It’s bad enough that September marks the end of summer, shorter days, cooler weather, the beginning of school and the almost annual Red Sox meltdown.  It’s also the worst month, by far, for stock market performance.

Since 1955, the Dow Jones Industrials Average (DJIA) cumulatively has lost just under 50% during September, according to “Jay on the Markets.”  In contrast, the DJIA has gained 200% in April over the same period.  So, in spite of Mr. Eliot’s claims, April is the kindest month, not the cruelest.

Cumulative gains and losses in the DJIA by month since 1955.

Cumulative gains and losses in the DJIA by month since 1955.

May (-10.6%), June (-20.9%) and August (-11.6%) have also registered net losses over that period, as the chart shows, but September losses (-49.1%) total more than those three market-declining months added together.  In other words, September is a big loser.  Take September out of the calendar and the market would historically be flying high.

(more…)

The Age of Low Expectations

Friday, August 16th, 2013

Observing today’s global economy is like watching Adam Sandler’s best movie.  It’s horrible, but it could be worse.

Consider what passes for improvement today:

Europe is no longer in a recession.  Under the headline, “Eurozone’s longest-ever recession comes to an end,” the Associated Press quoted Eurostat, the European Union’s statistics office, announcing that the 17 EU countries that use the euro saw their economic output increase by 0.3% in the second quarter of 2013.  Over a year, the Eurozone’s growth rate would be 1.1%.

The DJIA is following a familiar pattern.

The DJIA is following a familiar pattern.

That’s the first quarterly growth for the Eurozone since 2011, but it requires some perspective.  China’s growth slowed to just 7% this year and it’s widely regarded as a calamity, signaling that the world’s second largest economy is on the brink of failure.  Europe’s economy is growing at a rate of 1.1 % and the party hats are out because some believe that the Eurocrisis is finally over and we’ll never have to hear the term “sovereign debt” again.

(more…)

The Off-On-Off Economy

Friday, August 9th, 2013

The economy recently has been full of stops and starts, ups and downs, good news and bad news.

Optimists will say that progress is being made, as we’ve moved beyond the all-bad-news days of 2007 and 2008.  Those of us who are less than optimistic would instead ask why it’s taken five years to get to the current dismal economic state.

Recovery always seems to be just around the next corner.  But the world is round and there is no next corner.

Zerohedge recently ran a series of 13 charts showing that any economic exuberance is irrational.  The charts compare the current “recovery” with four previous recoveries.  The trend lines in most cases are almost identical – except that the lines representing the current Keynesian-inspired recovery are well below the lines representing the previous four recoveries.  They show that:

  • Growth in gross domestic product is pitifully low.  If it were a patient, GDP would be signing up for hospice care.
  • The ISM Manufacturing Index has fallen significantly from two years ago.
  • Business inventories have risen significantly, signaling that new orders will likely drop.
  • Productivity is down, consumer spending is lackluster and housing starts, though improving, are nowhere near what they should be if the housing market were really recovering.

But cheer up … vehicle sales are up!  The recovery must be just around the next corner, wherever that is.

(more…)

Why Gold Soared

Thursday, August 1st, 2013

Gold prices are no longer setting records.  Special parties are no longer being held where people can sell their gold jewelry at spectacular prices.  The Midas touch for gold has faded.

Gold was selling for as little as $256 an ounce in 2002 and soared to nearly $2,000 an ounce in 2011.  An investment of $1,000 in 2002 would have been worth about $7,800 in 2011.  In May 2013, though, gold was back down to $1,343 an ounce.

The Federal Reserve Board’s quantitative easing program not only distorted the prices of stocks and bonds, it also sent gold prices soaring for several reasons:

Record-low interest rates.  As an investment, gold earns no interest, so when interest rates rise, gold typically drops in value.  Conversely, when interest rates fall, the price of gold typically increases, although there have been times when gold prices hit record highs while interest rates were rising.

(more…)