With only a few weeks left of summer (hard to believe) and many taking vacations, we will be taking a short hiatus from the BAM weekly updates during the month of August. Please be sure to read today's updates.
BAM weekly updates will resume in September. Please be sure to contact us if you have any questions and enjoy the rest of your summer!
Friday, August 6, 2010
Cutting Through The Noise
How does one cut through the economic, political, and market noise to arrive at intelligent decisions about how to allocate capital? We believe it comes down to price, research, discipline, and patience. One must take the time to assess underlying value and remain highly disciplined about how much should be paid for a particular investment. We must look for value and opportunities within a framework of big picture macro economic trends.
To begin, an investor must follow economic statistics such as non-farm payroll and employment figures, consumer confidence, the dollar, Federal Reserve policy, as well as consumer confidence. The statistics, and statistical trends (moving up or moving down over time), can give one a good framework from a macro economic perspective.
While in theory this makes sense, investing more aggressively when macro trends are positive and investing more conservatively when trends are negative, the current difficulty with this endeavor is that we have never before experienced our current economic situation. Statistics have been moving from positive to negative to neutral to really negative to fairly positive and back again. There are a lot a fits and starts in the data, but no clear trend. Even the Federal Reserve is having a difficult time interpreting the data as they continue to maintain a 0% target interest rate policy. Some economists even believe the rate could stay low for a few years.
With so much conflicting macroeconomic data, bulls and bears are both out in full force with their respective arguments. Both camps have good data points, reasonable arguments, and even some historical precedents that serve to support their thesis. The battle between the bulls and bears has added to volatility in the markets over the past year.
Given the uncertainty of the macro economic trends along with price volatility, investing in today's capital markets can by a trying proposition.
In trying times, investing is about patience, discipline, being price conscious, protecting capital, and more patience. We have to remember that opportunities are usually always present in the capital markets, if you look hard enough. We continue to seek out those opportunities while protecting capital, remaining disciplined, and staying patient.
Eventually the dust will settle, the clouds will blow through, and brighter days will appear - it's just going to take time.
To begin, an investor must follow economic statistics such as non-farm payroll and employment figures, consumer confidence, the dollar, Federal Reserve policy, as well as consumer confidence. The statistics, and statistical trends (moving up or moving down over time), can give one a good framework from a macro economic perspective.
While in theory this makes sense, investing more aggressively when macro trends are positive and investing more conservatively when trends are negative, the current difficulty with this endeavor is that we have never before experienced our current economic situation. Statistics have been moving from positive to negative to neutral to really negative to fairly positive and back again. There are a lot a fits and starts in the data, but no clear trend. Even the Federal Reserve is having a difficult time interpreting the data as they continue to maintain a 0% target interest rate policy. Some economists even believe the rate could stay low for a few years.
With so much conflicting macroeconomic data, bulls and bears are both out in full force with their respective arguments. Both camps have good data points, reasonable arguments, and even some historical precedents that serve to support their thesis. The battle between the bulls and bears has added to volatility in the markets over the past year.
Given the uncertainty of the macro economic trends along with price volatility, investing in today's capital markets can by a trying proposition.
In trying times, investing is about patience, discipline, being price conscious, protecting capital, and more patience. We have to remember that opportunities are usually always present in the capital markets, if you look hard enough. We continue to seek out those opportunities while protecting capital, remaining disciplined, and staying patient.
Eventually the dust will settle, the clouds will blow through, and brighter days will appear - it's just going to take time.
Employment Report Disappoints
The Bureau of Labor Statistics (BLS) reported that nonfarm payrolls declined by 131,000 in July. The unemployment rate was unchanged at 9.5 percent.
The contracting payrolls figure is due to the fact that 143,000 temporary 2010 Census workers were let go by the federal government. Excluding government jobs, private payrolls rose by 71,000. The increase in private payrolls was weaker than the 100,000 increase that had been expected by Wall Street economists surveyed.
The report suggests that businesses remain cautious in the wake of the financial markets' recent turmoil. Adding to the sense of weakness in employment, private payrolls in May and June were revised lower by a cumulative 34,000. Private job growth has averaged 51,000 over the past three months. This is down from an average growth of 154,000 in February-April. Job growth has taken a step back after fairly strong gains since this time frame, putting in question the strength of the economy's recovery from its worst downturn in the post-war era.
The contracting payrolls figure is due to the fact that 143,000 temporary 2010 Census workers were let go by the federal government. Excluding government jobs, private payrolls rose by 71,000. The increase in private payrolls was weaker than the 100,000 increase that had been expected by Wall Street economists surveyed.
The report suggests that businesses remain cautious in the wake of the financial markets' recent turmoil. Adding to the sense of weakness in employment, private payrolls in May and June were revised lower by a cumulative 34,000. Private job growth has averaged 51,000 over the past three months. This is down from an average growth of 154,000 in February-April. Job growth has taken a step back after fairly strong gains since this time frame, putting in question the strength of the economy's recovery from its worst downturn in the post-war era.
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