December 2009

Mood Swings

By Brad C. Stewart, Retired Senior Vice President/Chief Investment Officer

I am sure that many of you have awakened in the morning, with the sun shining, and you just felt good.
For whatever reason or course of events, by noon your demeanor had completely changed. Whether it was sadness, stress or anger, you had lost that feeling. That is what I am referring to when I say mood swings.

The markets have been experiencing this phenomenon for quite some time. As a mater of fact, the major markets: bonds, stocks, gold and oil, have been having these mood swings on a daily basis. In past cycles it was not unusual for one of these markets to be having a bad day while others were experiencing just the opposite. That is not the case at present. The DOW is handily over 10000, gold has skyrocketed to over 1100, oil is up and the bond markets are also up in price and down in yield. At first glance it is safe to say that many of us who work with the markets are a little confused by the fact that they are going up in unison. The answer is one of the oldest in the book; this time things really are different.

Let’s take a look at the markets independently. If we factor in the current environment with the government as the buyer of last resort, coupled with what appears to be an unending supply of funds, it really is different this time. Last month we discussed the “cash for clunkers” program as an example. The recent disappointing housing starts number was partially a result of builders waiting to see if the government would extend the first time buyers stimulus program. The program was extended and more goodies were added to the deal. Next month’s housing starts should improve if the weather doesn’t adversely influence the conditions.

What about gold, you ask? At first I was skeptical of all of the hype surrounding the price of gold. Some time ago in an FYI I suggested that with some international governments selling gold as opposed to buying it, gold had lost its luster. Now the opposite is true. Some foreign governments have announced that they are back in the market as buyers. I believe this is the simplistic answer regarding the price of gold. I recently saw an inflation-adjusted number of the previous high that was $2200 per ounce. Although that is not my target, gold is getting a lot shinier.

The unemployment number last month topped ten percent. This should not have come as a big surprise. Just a few months ago President Obama warned that unemployment could rise to be over ten percent. As I mentioned in earlier FYIs, the unemployment number usually continues to rise, even after a recession is officially over. That is once again the case, based on the most recent GDP number. The “Great Recession” is over, however, the unemployment recession is not. This also should not come as a surprise, as this recession was predicted, by many, to end in the third or fourth quarter of 2009. I think we can all agree that is good news and should improve our “mood swing.”

To all of my faithful readers for over 17 years, I would like to share some personal news. I have often mentioned my family in my articles, and in particular my wife Sandy. She suffered a heart attack and on October 27 passed away. She was 63 years old and we have been married for 42 wonderful years. She is and will continue to be greatly missed.

I know that she would have wanted me to end this FYI the same way I have ended past December FYIs. From all of us at Mid-Atlantic Corporate FCU, best wishes for a happy, healthy Holiday Season and a prosperous New Year.