July 2009
The following are the two most frequent inquiries that we have addressed since the beginning of the year: 1) when will the economy begin its turn-around, and 2) when will short-term rates start to improve.
The state of our economy, as well as the global economy, can be described as “not necessarily improving, but not worsening either”. There is a growing belief that we may be finally at or near the bottom of the current economic growth cycle and that it is only a matter of time until we begin entering the growth segment of a new economic growth cycle. One would like to believe that the various worldwide government economic stimulus actions and direct monetary injections would eventually bear some form of fruit in the form of a revitalized economic expansion. A sampling of the positive economic figures we have recently observed include a lack of inflationary pressures on the producer and consumer pricing side, growing durable goods orders, and an increase in corporate capital orders/investments. However, the continual worsening in home prices, rise in long-term mortgage rates, and consistent rise in unemployment data do not necessarily point to a healing scenario.
Ultimately, we are in more of an economic holding pattern that feels extremely sensitive to both positive and negative influences. Time will be the final judge of success related to the various efforts made to direct our economy into positive territory. The intensity and duration of our economy’s current recessionary period can still be directly related to the “blockage” of credit and liquidity between various financial entities and the reluctance of these institutions to lend to other businesses and individuals. This issue continues to be directly related to the fact that banks and financial intermediaries do not trust each other’s viability and, therefore, are not interested in assuming any additional risks during such an uncertain economic period. The Federal Open Market Committee (FOMC), the Treasury Department, and the Obama administration continue to face an unprecedented period in our nation’s economic history that will require a great deal of foresight, resilience, strength, and courage to address and implement the steps needed to direct our economy down the path of recovery. Each day has the potential for a news-worthy event that could warrant some action and we continue to account for each one as it emerges. Safety and preservation of capital has always been our primary goal, therefore, we will continue to be cautious with any of our purchases to maintain liquidity and preserve capital in the fund.
The opinions expressed in this commentary are subject to change. Current and future portfolio holdings are subject to risk.