Fed Chair Bernanke makes a significant ‘revision’ for 2011, and 2012
With the Dow logging its seventh drop in eight weeks and the S&P off 7% from its three-year high at the end of April , many people are wondering if the markets have hit a speed bump or a roadblock. Combine weak stock performance with lukewarm economic readings and it’s easy to understand Fed chairmen Ben Bernanke’s comments last week: “We don’t have a precise read on why this slower pace of growth is persisting…some of these headwinds may be stronger and more persistent than we thought.”
The expressions: “We don’t have a precise read” and “than we thought” are interesting. They clearly demonstrate that even the “experts” do not have all the answers, and that they must change their viewpoint from time to time. Along these lines, the Fed issued new economic projections that call for slower growth, higher unemployment and higher inflation in 2011 and 2012 than in its previous forecast. At a press conference Wednesday afternoon, Bernanke referred to the new forecast as a significant revision. At the same time, the Fed still downplayed the chance of another recession, saying that it "expects the pace of recovery to pick up over coming quarters and the unemployment rate to resume its gradual decline."
Why do we point this out? This illustrates why we do not try to predict the future of the stock market or the economy. Doing so consistently and accurately is simply not possible. Whether we are facing a temporary slowdown or one that will last much longer is still open to interpretation and there are vocal proponents on both sides of the issue.
Since there is no way for us to predict the future, our goal is to help you commit to a sound investment plan based on your personal risk tolerance, goals and time horizon. Doing this requires that we take a long-term approach, not a short-term one. If we lose sight of the long-term and think we can time the market by exiting at the peak and re-entering at the trough, we open ourselves up for big mistakes. To quote legendary investor Warren Buffet: "Someone is sitting in the shade today because someone planted a tree a long time ago."
ECONOMIC CALENDAR: Monday – Personal Income and Outlays Tuesday – S&P Case-Shiller-HPI, Consumer Confidence Wednesday – Pending Homes Sales Index, EIA Petroleum Status Report
Thursday – Jobless Claims, Chicago PMI Friday – Motor Vehicle Sales, Consumer Sentiment, ISM Mfg Index, Construction Spending
Data as of 06/24/2011 1-Week YTD 1-Year 5-Year 10-Year
Standard & Poor's 500 -0.24 0.86 18.1 0.38 0.35
Dow -0.58 3.08 17.6 1.72 1.25
NASDAQ 1.39 0.00 19.6 5.01 3.04
MSCI EAFE -0.76 -0.02 20.1 1.04 2.59
10-year Treasury Note (Yield Only) 2.94 NA 3.12 5.23 5.12
Notes: All index returns exclude reinvested dividends, and the 5-year and 10-year returns are annualized.
Sources: Yahoo! Finance, MSCI Barra. Past performance is no guarantee of future results.
Indices are unmanaged and cannot be invested into directly. NA means not available.
HEADLINES:
Irving Picard, the trustee liquidating Bernard Madoff’s firm, revised a claim against JPMorgan Chase & Co. requesting a minimum payment of $19 billion in damages for its role in the fraud. The new amount represents Picard’s latest estimate of principal lost by all Madoff investors by the time the Ponzi scheme collapsed in December 2008.
On Thursday, President Obama decided to release 30 million barrels of oil from the nation's strategic reserve, which will put 60 million barrels of fuel on the market over the next 30 days. Done in conjunction with other developed nations including Saudi Arabia, the move is not only an attempt to salvage Libya’s lost supply and meet rising demand in Asia and the Middle East, but is also seen as an attempt to lower fuel prices.
New-home sales fell 2.1% in May, the Commerce Department reported Thursday. The numbers showed a seasonally adjusted annual rate of 319,000 homes, far below the 700,000 homes per year that economists say must be sold to sustain a healthy housing market.
An EU-IMF team has approved Greece’s new five-year austerity plan after committing to an additional round of tax rises and spending cuts.
