Many years ago, a 5 to 10 point swing in the Dow Jones Industrial Average over the day was considered to be big movement. Now, it moves that much within seconds. The first quarter of 2013 came in like a lion, bringing with it above average quarterly gains not seen in many years. While the numbers look rosy, it's important to understand what they mean, and if the quarter was as wonderful as it seemed. While the Dow and S&P were up considerable as noted in the box below, those numbers represent a small part of the broad market: the Dow is represented by 30 stocks, and the S&P, being more diverse, represented by 500 stocks. It was a quarter filled with much controversy, both domestic and abroad.
We are not done yet with balancing the budget here in our country, or as our politicians like to call it, "the sequester." Waiting again until the last possible moment as they did on 12/31/2012, they could not come to terms so they decided to give themselves a 6 month extension on their efforts. Donâ€™t you wish every time you couldn't come to terms on a project you could give yourselves another 6 months? They say the only thing wrong with politics is the politicians... oh, let's not go there! For now however, all is quiet on that issue, but the quarter had much more to deal with.
The housing recovery seems to be on track, with the S&P/Case Schiller reports showing property values in its 20 city index rose 8.1% in January of 2013 from the previous January. While this sounds great, it also shows that home prices are now at the same levels of the autumn of 2003, some 9 Â½ years ago and down 30% from their 2006 peak. Home mortgages are at just about an all time low: did you ever imagine you could get a 15 year conventional mortgage below 3%. It seems the banks have learned their lesson, as they are very stringent on their requirements and the days of getting a mortgage just by applying seem to be gone. Perhaps the mortgage debacle a few years ago served a purpose, and results will justify the means... I'll leave that up to your own judgment. With interest rates at all time lows, it has allowed many to refinance their mortgages resulting in reduced monthly family expenses. Along with lower cost mortgages come lower car loans rates, credit card rates (although you must always read the fine print) and an overall lower cost of borrowing. The reverse side is the close to zero rate on money market funds, savings accounts and short to midterm treasuries, traditionally used by those on fixed income. This has unfortunately led to lower income to many past their working years, and creating a cash flow issue. Unfortunately, this is the yin and yang of life. Unemployment is stuck at 7.8%, and some say the Fed should start concentrating on keeping inflation in check as they blindly focus strictly on the unemployment figure. Corporate profits are at record highs, but somehow it doesnâ€™t seem to trickle down to the average American.
Europe is rearing its ugly head again, this time in the small island of Cyprus, where the government, in its inimitable wisdom, decided in order to help balance their fiscal budget they would tax the savings accounts of all Cypriots. This led to a closure of the banks for two weeks to avoid a massive withdrawal run, and when they opened, putting limits on how much one could withdraw at a time. In late February, investors had a close eye on Italian elections. In a blow to austerity and financial reform, parties that promised to scale back many of the financial sacrifices enacted by the current Monti government fared well. The markets had hoped to see a strong showing by Monti's party, which would have been a vote of confidence on the slow read to reform Italy and appeared to be on. The strong showing by both center-right and center-left parties which had criticized these measures leave markets uncertain and worried about a renewal of European sovereign debt concerns. Quick translation? Italy, Ireland, Greece are not anywhere out of the woods yet.
The darlings of the international investment world know as the "BRIC:" (Brazil, Russia India and China) has been replaced by the new and improved "MIST" (Malaysia, Indonesia, South Korea and Turkey) as the new places to be in your portfolio. Speaking of South Korea: North Korea has declared war on the South,, threatening to attack with a vengeance. Not to be an alarmist, this has been going on for 60 years now, and it seems that the leader of the North is following along in his Daddy's maniacal footsteps. So where does this all leave us? Cautious, to say the least. One quarter does not a year make, and certainly the world at large is in great turmoil. Stay tuned (we hope) it only gets better from here.