Bonds Quietly Continue Bullish Run
By Gus Krafve
May 2nd, 2013
Despite the bearish predictions of many strategists on Wall Street, many segments of the bond market have performed admirably in 2013. At the crux of these predictions of the end of the bond bull market and a rise in interest rates is the so called ............
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Cypriot Banks Under Siege
By Stephen Smith
April 4th, 2013
Cyprus is an island country in the Eastern Mediterranean Sea. It’s the third largest island in the Mediterranean Sea, and a member state of the European Union. It is located east of Greece. The banks, which accumulated Greek holdings after Cyprus entered the euro in 2008, saw some $3 billion wiped off their balance sheets in last year’s haircut of Greek government bonds. As the Greek economy deteriorated so too did the Cypriot banks which loaned $22 billion...........
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Investors Remain Fearless, as they Continue to Push Stocks Higher
By Gus Krafve
March 13th, 2013
Not a lot has changed thus far in 2013, as bullish sentiment continues to proliferate. We get asked on a regular basis why the stock market continues to perform. Certainly, the risks are well documented, with the latest being uncertainty in Italy after the recent election and the sequestraton
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Policy Themes for 2013
By Stephen Smith
February 8th, 2013
With the fiscal cliff behind us, TCO will turn its attention to the big issues for investors in the coming year.
Fiscal Policy. The budget battles are likely to intensify as Congress faces three major issues that need to be addressed by the end of.............
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Fiscal Cliff Aversion Caps An Impressive Year For Market
By Gus Krafve
January 8th, 2013
US stocks posted a fourth consecutive year of positive returns by posting double-digit gains in 2012. These gains were achieved despite sluggish economic growth, a presidential election and political shenanigans regarding the fiscal cliff....
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THE ELECTION OF 2012
By Stephen Smith
December 3rd, 2012
The most expensive campaign in United States presidential history has finally concluded. President Obama won both the Electoral College and the popular vote, the Republicans kept their majority in the House of Representatives and the Democrats remain in control of the Senate. Investor interest in this year's United States presidential election was feverish due to the potential impact on both...............
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Sandy, Romney and Obama
By Gus Krafve
November 5th, 2012
The third quarter ended and fourth quarter began with the stock market being closed for two consecutive days due to another storm of the century. This closure was the first time for the markets due to weather since 1888. The economic impact of Hurrican Sandy is still being totaled, but we saw initial estimates.....................
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The Effect of Quantitative Easing III
By Stephen Smith
October 9th, 2012
The Federal Open Market Committee (FOMC) announced a third round of quantitative easing on September 13, 2012. To say the FOMC launched another round of quantitative easing may be semantically accurate but somewhat misleading from a policy perspective. The important difference from Quantitative Easing III (QEIII) and previous versions of Quantitative Easing I and II...............................
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The Election
By Gus Krafve
September 6th, 2012
The presidential race remains a dead heat as the polls continue to show a very tight race. Consumer confidence in the U.S. held close to a seven-month low last week as Americans' view of the buying climate fell to the lowest level of the year. The Conference Board's consumer confidence measure has accurately signaled........
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WHY MONETARY POLICY MATTERS
By Stephen Smith
August 6th, 2012
With all major central banks in an easing mode because the global economy is struggling to gain traction, does monetary policy still work or have central banks exhausted their set of effective tools? In general, we would say that in any country the impact of monetary policy on financial markets is still comparable.....................
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As Economic Growth Slows, Bonds And Stocks Continue to Perform
By Gus Krafve
July 4th, 2012
The second quarter was marked by continued uncertainty in the Eurozone coupled with slowing global growth. As long as this economic and market backdrop exists, bonds should continue to perform well. The Barclays U.S. Aggregate bond index gained for the sixth consecutive quarter and has risen in 14 of the past 15 quarters. All major sectors of the bond market posted gains, as U.S. Treasury yields continued to decline to record lows. The 10-year U.S. Treasury hit 1.46% in June, before closing out the month at 1.66%. Mortgage rates continued to decline as well which has been a boon for credit worthy borrowers, who are now able to refinance their 30-year mortgage at around 3.50%.....
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The European (Dis)Union
By Stephen Smith
June 7th, 2012
The European Union had an informal meeting on May 23, 2012, but European policy is basically on hold until the result of the June 17th Greek election is known. This is because of two main reasons, aside from the fact that deep divergencies of opinion remain among Euro Zone policymakers. First, an important part of the European strategy is to influence the outcome of the Greek election, while respecting Greek............
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Looking for Growth
By Gus Krafve
May 10th, 2012
First
quarter GDP growth is in and it shows the US economy grew at 2.2%; below the
consensus estimate of 2.6%. The good
news is that the economy is growing. However, it remains concerning that economic growth is sluggish, coming
in below the historical trend of 3.3% growth for the past several
quarters. Drilling down into the
numbers, we see that the consumer is still spending for now despite rising gasoline
prices. Personal consumption was driven
by motor vehicle purchases which accounted for half of the growth in GDP. Conversely, government purchases fell at a
3.0% annual rate, led by a 5.6% drop in federal spending, mostly national
defense. State and local governments cut
spending at a 1.2% annual rate. This
sector has contracted in 14 of the past 17 quarters, as the deep recession and
slow recovery has led to decreased tax revenues and governmental belt
tightening.
...read more!
ELECTION YEAR ECONOMICS
By Stephen Smith
April 24th, 2012
The table
below highlights the fact that most presidential races are pretty volatile. Of
the last nine presidential contests, the winner has consistently led in only
two, 1984 and 1996. In the other seven elections, the loser of the election was
ahead sometime in the summer – and four of them were ahead in late October. It
appears that Romney is the likely GOP nominee, but if the economy continues to
grow, the election this fall is likely to be close.
...read more!
Consumers Spend & Investors Invest
By Gus Krafve
March 12th, 2012
The equity markets continue to climb on better than expected economic data and increasing consumer confidence. Retail sales surged in February, as unseasonably warm weather boosted spring merchandise sales at full price.
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The FOMC Opines
By Stephen Smith
February 1st, 2012
The Federal Open Market Committee (FOMC) announced on January 25, 2012, that it is revising its forecast for output growth, and sees the unemployment rate at the end of 2012 as only marginally lower than the current levels. It is surprising that the FOMC has downgraded its macro outlook when recent data releases have been generally .............
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AND THE WINNER IS….TREASURIES?
By Gus Krafve
January 25th, 2012
An
extremely volatile year has passed and the U.S. stock market, as measured by
the S&P 500, was a picture of relative strength. The S&P 500 eked out a
small gain for 2011 outperforming every major developed and nearly every
developing market. While the showing by the S&P 500 was not as strong on an
absolute basis as hoped, its performance was impressive in the face of
double-digit percentage declines for most other major markets.
...read more!
The Not So 'Super Committee'
By Stephen Smith
December 9th, 2011
The Joint Select Committee on the Deficit Reduction referred to as the Super Committee was created by the Budget Control Act of 2011. Twelve members of Congress were selected to sit on this committee, six from the House of Representatives and six from the Senate. Each delegation was evenly divided between Democrats and Republicans.
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EURONOMICS...IT'S GREEK TO GDP
By Gus Krafve
November 7th, 2011
The latest economic data and corporate earnings reports suggest recession risks are easing. On the back of this news and increased optimism concerning Greece, the equity markets posted some of its best monthly returns in history. The S&P 500 rose 10.93% in the month of October. As we look at the economic numbers, GDP rose 2.5% for the third quarter which was an improvement from the 1.3% reported for the second quarter.
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Operation Twist
By Stephen Smith
October 24th, 2011
On September 21, 2011, the Federal Open Market Committee (FOMC) directed the Open Market Desk at the Federal Reserve Bank of New York to purchase, by the end of June 2012, $400 billion in par value of Treasury Securities with remaining maturities of 6 years to 30 years and to sell, over the same time period, an equal par value of Treasury Securities with remaining maturities of three years or less.
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Recession?
By Gus Krafve
September 19th, 2011
Certainly, the evidence for a recession in the U.S. is piling up. The latest nonfarm payrolls number showed zero growth in August, well below economists' expectations for a gain of 80,000 jobs. Private payrolls added 17,000 jobs, its worst performance since February 2010.
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PUBLIC DEBT VS. CORPORATE EARNINGS
By Stephen Smith
August 22nd, 2011
We
have been writing about the European and United States debt problems for the
last three months in Market Insights. The saga of our debt ceiling crisis has been narrowly averted at the
eleventh hour, but the spectacle of political infighting may have damaged our
global credit rating. Additionally, the
timing of this artificial crisis caused higher volatility in the financial
markets over the past week.
...read more!
Beware of Greeks Bearing 'Debt'
By Gus Krafve
July 7th, 2011
As the first half of 2011 came to a close, both the Fed and IMF downgraded their projections for U.S. economic growth and talk of a "double dip" resurfaced. However, the stock market rally and stronger-than-expected economic data in the final week of June revived the hopes of some economists that maybe the worst of the downturn has already occurred. This optimistic outlook shared...........................
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LIVING WITHIN OUR MEANS?
By Stephen Smith
June 7th, 2011
Policy makers have known for years that the United States is facing daunting long term structural budget problems driven by changing demographics and rising health care costs. Treasury Secretary Timothy Geithner has made budgetary moves to keep the United States from defaulting on its debt obligations until August 2, 2011, but if the United States doesn’t raise its debt limit, currently at $14.294 trillion, it will default on its obligations.
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The US Debt Downgrade and What It Means
By Gus Krafve
May 11th, 2011
From an optimist’s point of view, April 18, 2011 could be the catalyst to get the US government on track to being a better steward of our nation’s finances. That was the day Standard & Poor’s officially revised its outlook on US long-term debt from stable to negative...
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The Earthquake and the Global Economy
By Stephen Smith
April 6th, 2011
The tragic earthquake and subsequent tsunami has caused a significant disruption in the Japanese economy. In the most affected areas, transportion and production interruptions have caused economic weakness in the near term. The damage to electric power facilities, including two nuclear power plants, has created power shortages.................
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Checking the Market’s Oil Pressure
By Gus Krafve
March 7th, 2011
Unrest in the Middle East and North Africa has continued to spread after the fall of the Tunisian government on January 14th. Thus far, the developed markets around the world have handled the turmoil relatively well, experiencing selloffs of less than 3%......
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The State of the Economic Recovery
By Stephen Smith
February 4th, 2011
The economy is entering 2011 with good momentum. Many economists are lifting their 2011 Gross Domestic Product forecasts. The average forecast is currently running over 3.5% for 2011................
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Municipal Bonds Look Attractive Relative to Other Bonds
By Gus Krafve
January 6th, 2011
The municipal bond market is $2.8 trillion in aggregate and is comprised of over 60,000 different issuers. These issuers vary by location, maturity, interest rate, revenue sources, etc. Even within one state, there can be high performing municipalities and under-performing municipalities. Certain state and local issuers are in more obvious trouble than........
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SCORECARD ON THE TROUBLED ASSET RELIEF PROGRAM
By Stephen Smith
December 2nd, 2010
In the April 2009 Market Insights, I wrote about the Troubled Asset Relief Program (TARP). Here is a brief overview of the program, why it was needed and how it has fared. In October 2008, the Emergency Stabilization Act of 2008 established the TARP program. An economy's natural, self-correcting mechanism during a recession is for interest rates to fall as the Federal Reserve lowers monetary conditions and .........
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Economy Still Expanding As Sentiment Swings More Bullish
By Gus Krafve
November 8th, 2010
In the Market Insights article I wrote two months ago, the markets were on high alert for a double-dip recession. Investor pessimism was at yearly highs, and the S&P 500 was down nearly -5% on the year. Now, those fears of a double-dip recession have waned, and the S&P 500 is up 7.84% year-to-date as of October 31. Over the past two months........
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The Market and Mid-Term Elections
By Stephen Smith
October 6th, 2010
For the first time in many years, one party has more than 100 seats at risk in the House of Representatives. From the research that I've been reading, 112 Democratic House seats are at risk with the vast majority of these races competitive. Only 17 Republican held seats are in play, and most political analysts believe that..............................
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Economy Still Expanding But Pessimism Proliferates
By Gus Krafve
September 7th, 2010
The latest quarterly Gross Domestic Product (GDP) numbers showed the US economy grew 1.6% in the second quarter, and many leading economists are looking for third and fourth quarter GDP to show positive growth of around 2.0%. These GDP numbers are important to watch as there has been speculation by some that the economy will...................
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TAX CHANGES AHEAD
By Stephen Smith
August 4th, 2010
There is still considerable uncertainty surrounding the fate of current income tax rates. The state of transfer tax law in 2010 remains unclear. The federal estate and generation skipping transfer taxes are currently suspended, with a modified carryover basis rule applying to ..................
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BULL MARKET FOR BONDS, STOCKS IN CORRECTION
By Gus Krafve
July 7th, 2010
June was another rough month for the stock market with the S&P 500 posting a decline of 5.23%. The economic data is coming in below expectations but continues to point to an expanding economy. Several companies will be reporting second quarter earnings results in the next few weeks. These earnings reports are coming at a ........................
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Excessive Pessimism Is Currently Prevailing Despite The Improving Economic Backdrop
By Gus Krafve
June 4th, 2010
Certainly, the month of May has been the most volatile and worst performing month for the stock market since we embarked on this current 14 month recovery in equity prices, which began in March of 2009. We now have our first official correction since the March 2009 bottom, with the market down just over 10% from its April highs. Rather than continuing to focus on the recovering economic data, investors have.................
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What's Driving the Economic Recovery?
By Stephen Smith
May 7th, 2010
I'd like to start by looking at the performance of three major asset classes and their appropriate benchmarks: the United States equities markets, International equities, and the United States bond market. For the United States equities, I will use the S&P 500 index; for International equities..........
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STABILITY AND PROFITS: TREASURY'S PLAN PAYS OFF
By Stephen Smith
April 6th, 2010
The Troubled Asset Relief Program (TARP) was a program created during the recent crisis to purchase assets and equity from banks in order to strengthen the financial sector. The United States government allocated $700 billion to the program in 2008. On October 14, 2008, Secretary of the Treasury Paulson and President Bush announced.........
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The Fed Hikes The Discount Rate: Another Step Toward Normalization
By Gus Krafve
March 3rd, 2010
Effective February 19, 2010, the Federal Reserve Board raised the discount rate by 0.25% to 0.75%. It was the first increase in the rate since May 10, 2006. The discount rate is the interest rate that a bank is charged to borrow short-term funds directly from the Federal Reserve Bank. This is not to be confused..........
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Bernanke's Enigma
By Stephen Smith
February 4th, 2010
In my previous Market Insights, "The Fed Update," I stated that Ben Bernanke would be confirmed by the Senate but would receive more no votes than Paul Volker's 16 in 1983, but I didn't expect the Senate.........
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A Year In Review, The Glass Is Now Half Full
By Gus Krafve
January 6th, 2010
First and foremost, we want to take this opportunity to thank all of our clients who have navigated this tumultuous year with us. We appreciate your business and thanks to you we have finished 2009 with $454 million in client assets, the highest level...............
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The Fed Update
By Stephen Smith
December 4th, 2009
I talked about the Federal Reserve in the March 2008 "Market Insights" and thought an update would be appropriate. Here is a brief description of the Federal Reserve's mandate..........
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The US Dollar - An Investor's Primer
By Gus Krafve
November 6th, 2009
The U.S. dollar was created and defined by the Coinage Act of 1792. The first dollar coins were issued by the United States Mint which was established in 1792. It specified a "dollar" to be between 371 and 416 grains (27 g) of silver (depending on purity) and an "eagle"............
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Build America Bonds
By Stephen Smith
October 2nd, 2009
Build America Bonds were established as part of the economic stimulus plan known as the American Recovery and Reinvestment Act of 2009 which was signed into law by President Obama on February 17, 2009. Build America Bonds allow state and local governments to issue...........
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Market and Data Continue Positive Trend
By Gus Krafve
September 8th, 2009
In the third week of August, Central bankers gathered at the Federal Reserve Bank of Kansas City's annual economic policy symposium in Jackson Hole and confirmed the view that the global economy is set to emerge from recession. We wrote about the end of the recession.........
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The Volatility Index
By Stephen Smith
August 5th, 2009
The Chicago Board of Options Exchange in 1933 introduced the Volatility Index (VIX), which was originally designed to measure the market's expectation of thirty day volatility of the S&P 100 Index. In 2003, the Chicago Board of Options Exchange along with Goldman Sachs updated the .................
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The Recession's End Appears Near
By Gus Krafve
July 6th, 2009
We are in the longest recession of the post-war era, surpassing the early 1980's recession which lasted 16 months. However, the latest economic and market data is suggesting the current recession appears to be nearing an end. In the post-war era, there have been......................
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BANKING STRESS TEST RESULTS
By Stephen Smith
June 3rd, 2009
The Supervisory Capital Assessment Program (SCAP) embarked on a comprehensive simultaneous assessment of the capital held by the 19 largest U.S. bank holding companies. A banking organization holds capital to guard against.........................
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End of the Bear's Grip?
By Gus Krafve
May 7th, 2009
The current stock market rally has been extraordinary. The S&P 500 is up 28.5% from March 9 to April 30. As we have written in Market Insights and discussed with several of our clients, the more violent the market...............
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The Troubled Asset Relief Program
By Stephen Smith
April 8th, 2009
Putting the financial system in working order remains the ultimate priority facing government policymakers. An economy's natural, self-correcting mechanism during a recession is for interest rates to fall as the Federal Reserve lowers monetary conditions and demand for credit...........
...read more!
Comparing the Current Bear Market to Other Bear Markets of the Past 110 Years
By Gus Krafve
March 5th, 2009
The old adage goes "buy low and sell high." So with the market down over 50% from its high, why isn't there a rush of buyers coming into the stock market? Thus, the nature of a bear market, which is generally defined as a ...........................................
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OF CONFIDENCE AND CAPITALISM
By Stephen Smith
February 5th, 2009
The fear of a nationalization of the banking system continues to scare equity markets. Only days into the Obama presidency, members of the new administration and leaders in Congress are already.............
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AULD LANG SYNE 2008
By Gus Krafve
January 8th, 2009
Borrowing the words of the Scottish poet, Robert Burns, let us hope that the market we experienced last year is 'old long past'. The S&P 500, an index of the largest 500 US based stocks, lost 37% in 2008. To put this in perspective, we looked.............
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The Big Credit Freeze Starts To Thaw
By Gus Krafve
December 4th, 2008
The economic news is still negative, but the data tells us that the credit markets are thawing. Prime mortgage, LIBOR and commercial paper rates have all been steadily declining. This news hasn't made the headlines, but................................
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When Will the Bear Retreat to Its Den?
By Stephen Smith
November 5th, 2008
With the global equity indexes down as much as they are in 2008, investors are caught in the headwinds of a severe and volatile bear market. The prospect for a meaningful recovery in stock prices is contingent upon improved credit markets and better clarity on the size...
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UNPRECEDENTED TIMES
By Gus Krafve
October 3rd, 2008
What we have witnessed in the global financial markets has no real historical precedent in modern times. A spiral of bad debts, credit downgrades and collapsing equities turned into a full-fledged global market meltdown. Credit markets seized up, and many........................
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Auction Rate Securities-Another Example of the Investor Losing
By Gus Krafve
September 5th, 2008
As if the current stock market correction and credit crisis weren't enough, there is another slice of the financial markets that has caused angst among some investors. The market I'm referring to is the Auction Rate Securities (ARS) market. Many of you reading this piece.............
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Fannie & Freddie: Uncle Sam to the Rescue
By Stephen Smith
August 5th, 2008
Fannie Mae was created during the Depression to make sure that sufficient funds were available to mortgage lenders, and then re-chartered by Congress in 1968 as a public traded company. Freddie Mac was created by Congress in 1970 and acts similarly to Fannie Mae. Fannie and Freddie work like this...
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Bears Still in Control
By Gus Krafve
July 7th, 2008
The numbers are in for the first half of 2008, and it will go down as the worst first half since 1970. Virtually all broad equity indices have posted at or near double-digit negative year-to-date returns...
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Crude Is The Right Word For Oil Prices
By Stephen Smith
June 5th, 2008
Since the beginning of the year, crude oil prices have gone from $87 a barrel to $130 a barrel, a 49% increase! Gasoline pump prices have shot up to a record high of $3.91 per gallon nationally and are above $4.00 a gallon in many regions. As oil prices continue their upward march, concerns...........
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Big Picture: Follow the Money
By Gus Krafve
May 6th, 2008
Investors have been selling equities in exceptionally large amounts. For the third and fourth quarters of 2007, investors sold a net $390 billion. On the flip side, corporations bought back a similar amount of stock. The exit from the US market is on par with two previous periods, second quarter 1984 and second quarter 1988...
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The Fed
By Stephen Smith
March 31st, 2008
The Federal Reserve was created when President Woodrow Wilson signed the Federal Reserve Act on December 23, 1913, creating a seven member board of governors, including the Fed chairman, and twelve regional banks. This structure collectively is known as the...........................
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INVESTOR PESSIMISM NEAR EXTREME LEVELS
By Gus Krafve
February 29th, 2008
The individual investor has not been this bearish since the stock market bottomed in 2002-2003. The data, according to a recent survey by the American Association of Individual Investors, which has 150,000 members...............
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Historical Look at the S&P 500 During Recessions
By Stephen Smith
February 5th, 2008
With all the talk of a possible recession, it is useful to see how the S&P 500 actually performed during recessionary periods. Here's a table that shows just that...
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Letter to Clients
By Stephen Smith
January 23rd, 2008
Dear Clients:
There is an adage in the bond market which applies to equities as well, “Quality remains long after the price is forgotten.”
For a lot of investors, even those with quality holdings and a long-term time horizon, the natural human reaction to a precipitous drop in the stock market like we are currently experiencing is to reduce or sell equities, with the hope of stemming future losses.
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The Prudent Investor
By Gus Krafve
January 18th, 2008
If someone just read the headlines, they probably would have thought 2007 was a bad year for stocks. Given the turmoil in sub-prime and the credit markets, it was a bad year for certain sectors like Financials and Consumer Discretionary...
...read more!
Market Timing
By Stephen Smith
November 26th, 2007
Nothing ignites the fear of losing one's hard-earned investments like a violent, short-term stock market correction. For many investors, even those with a long-time horizon, the natural human reaction to a sudden drop in the stock market is to...
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The Fed Phenomenon
By Stephen Smith
November 6th, 2007
In my last Market Insights, I tried to explain what was happening in the credit markets. I briefly talked about how the Federal Reserve and central banks globally have pumped massive amounts of liquidity into the system. These banks allow primary dealers, i.e., large banks and broker dealers to pledge....................................................
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Credit Crisis
By Stephen Smith
August 16th, 2007
I will try to explain what is happening in our financial markets, but it is very difficult to quantify because we still don’t have all the accurate information.
The root of the crisis is years of easy money. The Federal Reserve and Central Banks around the world have kept interest rates low through the................................
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The Weakened Real Estate Market
By Trust Company Staff
July 2nd, 2007
The first half of 2007 has left us with a lot of nice things to discuss. The S&P 500 returned 7% through the first half, while the Nasdaq was slightly higher at 7.6%. An eight week period from April 1 to May 31 made up the majority of the gains...
...read more!
The Dow Jones Industrial Average
By Stephen Smith
July 8th, 2007
The press likes to gauge the stock market with the Dow Industrial Average, and I wanted to give some historical perspective to this benchmark. The Dow is one of the oldest indexes which was created by Dow Jones & Company’s co-founder Charles Dow. It was first published on May 26, 1896.....
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The Dog Days of Summer
By Trust Company Staff
June 23rd, 2007
After a yawn-filled first quarter, stocks took a page right out of the late 1990s and soared to record highs on many indices. At one stretch, one had to go back to 1927 to find a percentage comparison of positive trading days in a one-month period...
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First Quarter 2007 Review
By Stephen Smith
May 2nd, 2007
The overall performance of the broad market in the first quarter has been close to historical norms for bonds and below historical norms for equities.
The first quarter forecasted below trend economic growth...
...read more!
