As I write this month’s letter, I am watching the market rise above the 12,000 (Dow Jones) mark. This rally is a result of a European debt bailout by the European Union, the international monetary fund, and of all people, China. In fact, the market is on course for the largest monthly point gain in the history of the Dow Jones Industrial Average.
That said, what does all this mean to us as asset managers? That question is perhaps best answered in an assessment of both short and long term perspectives:
On the short term:
The need for a European bailout was the result of major sovereign debt issues across the continent. The default issues started with Greece, but the bigger fear was that a Greek default would spread to countries like Italy, Spain and Portugal. None of these countries individually is a major driver, but the ripple effect could be devastating.
This current market rally, while well received, may also be an oversold bounce before we go lower, so we’re being patient in this area. It’s not that we don’t appreciate the rally; we simply need more evidence it’s sustainable.
We are still not seeing consistent job creation. Of course, this continues to be the primary catalyst for full recovery. As discussed in last month’s letter the primary reason for lack of job creation is lack of confidence in the political direction of our country.
On the long term:
Corporate earnings are good and corporations are flush with high amounts of cash.
Consumers have much stronger balance sheets than in recent times.
While consumers have retrenched and become more fiscally responsible, their spending continues to keep our economy afloat. They have, however, curtailed spending on luxury goods, autos and housing.
Even at the panic lows of 1998, stocks were about twice as expensive as they are now. The markets are at very reasonable long term valuations, which should eventually be a strong catalyst for growth.
On a personal note… We as Americans have the great privilege and freedom of celebrating in a few weeks, The Feast of Thanksgiving Day. On behalf of our entire Delta Team, please accept my very best wishes for a day filled with thankfulness.