Written by Admin | Jul 1, 2009 4:00:00 AM
We'll be very busy for the next week or so as we complete our quarter end activities. As a result, it will also be a little quieter on the blog front. Please bare with us.
The good news is that it was a great quarter for the stock market and for the Broadleaf Growth Equity portfolio. Subscribers to our economic newsletters will get a full performance report and commentary shortly. If you'd like to sign up for those, please visit our website at www.broadleafpartners.com and enter your preferred email address in the yellow box in the upper right hand quarter.
Before signing off for the next few days, here are some basic thoughts on recent economic releases and the coming earnings season. As a whole, we remain positive on the markets through year end, believing that the worst is behind us. "Less bad" news got a lot of mileage for the markets when Great Depression scenarios were being priced in this winter. Now that this possibility has diminished, some strong gains have been made, investors feel a little more comfortable, and mutual fund flows for many equity asset classes have finally turned positive.
A key economic statistic we will be watching is the ISM survey. This morning, the numbers came in at 44.8, up from the prior month and basically inline with expectations. This survey is as strong a leading indicator for the economy and the stock market as any we follow. In general, a survey reading above 50 indicates the economy and production levels are expanding. So, while the economy is likely still contracting, it is at a lower rate than it had been. As long as the number stays below 57, we believe it makes sense to stay focused on the cyclical areas of the market that stand to benefit from the recovery tailwinds as opposed to defensive areas that may play catch up once we've fully recovered.
Consumer confidence, on the other hand, ticked down yesterday to 49 from 55 in May and also was below expectations. Higher gas prices and views on jobs being hard to get likely set the reading back a tad, even though it remains substantially above its all time low of 25 last fall. Fortunately, this series hasn't been a very good leading indicator for the economy, so it doesn't concern us as much.
Unemployment will likely continue to increase, but hopefully at a slower rate. We expect, as we've long believed, that it will peak in the 10% range. While this may be bad news for those that are unemployed, the indicator has usually been lagging in nature and is therefore not as much of a concern for the stock market itself. In other words, in the past, stocks have usually performed well during recoveries even as the rate of unemployment increases.
As you enjoy the 4th, take a minute to remember this country's revolutionary roots. Thugs and despots always stand in the way of freedom the world over. Unfortunately, it is almost a universal truth that the only way to gain freedom is to go through those that stand in its way, often at tremendous personal sacrifice.
In spite of all the well intentioned efforts to spread democracy worldwide, it will only flourish if those who are poised to benefit the most from it also bear its costs and have a majority stake in the game. In an odd sense, this may be one of the few areas where traditional conservatism seems to be more liberal in its orientation. Welfare based independence simply doesn't and can't work over the long haul.
This is still the best country in the world, bar none. Sure, others are catching up, but I know of few Americans who are actually emigrating elsewhere. As other countries open up, competition increases and consumers on a worldwide basis benefit from improved standards of living. As China leads the worldwide economic recovery, perhaps we would be wise to recognize the role that broader based capitalism may have played in keeping a second Great Depression at bay.
Enjoy your 4th of July, be thankful for your independence, and remember above all, it wasn't free. Would you still fight for yours today?