Updates & Outlook
So far the stock market’s first quarter has been good, with
the DOW up 3.7%, S&P up 3.7% and NASDAQ up 3.6%. The bond market however has remained flat and
even down a bit. As the Fed pushes short
term rates up this year, probably to 5% or 5.5%, look for the market to become
more volatile. Long term rates are also
beginning to move upward.
According to a recent report from the Leuthold Group (an
investment research group), ‘In the last 18 months, consumer debt servicing
rates have risen up to 90%, as the prime rate has moved from 4% to 7.5% (and
looks to be going higher). In addition,
the amount of consumer debt being serviced has increased over this period,
particularly home equity loans. Total
consumer debt is now estimated at $2.6 trillion. Also, mortgage debt (including home equity
loans) is now over $9 trillion, up more than 40% since 2001. At least 50% of new residential mortgages in
2005 were potential ‘financial death trap’[1]
mortgages and as much as $1 trillion in adjustable rate mortgages will be reset
in the next year or two.’ This will have
a cooling effect on real estate.
While our economy remains strong, high interest rates and
energy prices will eventually have a dampening effect. Look for the pundits and the media to start
talking about the federal deficit (some 300 billion dollars) and the national
debt (9 trillion dollars) later this year.
All the more reason for our strategy, stick with global managers who
have experience, depth of research and a proven track record.
On a different note, if you are concerned about the current
state of our political process you will want to read a recent study, also by
the Leuthold Group, entitled “Prostituting the Political Process”. Here are some excerpts from this report:
House Incumbency: ‘99% of all
incumbents who ran again for their seats won.’
Senate Incumbency: ‘Only one of
the senate incumbents lost.’
Third Parties Offer No Real
Competition: ‘Until third parties can become more effective at raising
money it will be difficult to win seats in the House or the Senate. Then again, it looks like unless you already
have a Senate or House seat, it is very difficult to raise money.’
‘$22.3 million was spent by 34
unopposed candidates to beat nobody.’
If you would like a copy of this report go to www.leutholdgroup.com and click on
“Leuthold in the News.” The study is
currently the second one down and was published on