This was a week spent mostly on the road, leaving little time to write. For equity investors it was simply more of the same. It looked like a replay of last week, with most markets moving unspectacularly but steadily upward. Bonds, on the other hand, essentially gave back the gains they made last week.
Continued longer term strength in both stocks and bonds offers clear testimony to the belief that the economy and corporate profits have seen their bottoms and that each is headed higher with no strong risk of inflation. Investor behavior apparently anticipates successful germination of the green shoots into beautiful flowers. It could happen, but there remain a great many threats to the full maturation of those blooms.
Investors pouring massive sums into risk-free Treasury bills – at the end of the week yielding a miniscule 0.08% – are sounding a loud note of discord. They are accepting a mere eight basis points, virtually zero, for the privilege of lending their money to the U.S. Government for three months. They are willing to accept no return for the assurance that they will receive 100 cents on the dollar when they want their money back.
Behavior of stock and bond investors demonstrates an increasing appetite for risk assumption. The retreat of the Treasury bill yield back toward zero, however, shows that a growing segment of the investor universe does not share the confidence of the risk bearers. As we pointed out in our August 18 posting, because of the unforeseeable outcomes of many determinative events, the range of possible outcomes is tremendously broad.
With all traditional measures of value at extremely high levels, it is an expensive bet that the green shoots will all survive and continue to grow. Our country remains burdened with unprecedented levels of debt and a fragile financial system. The similarly unprecedented stimulus efforts of government officials and central bankers must prove successful without serious unintended negative consequences for still rising stock prices to make fundamental good sense – a major speculation.
Tom Feeney is the chief investment officer for Marathon Asset Management Co, a registered investment advisor with the Securities and Exchange Commission, and for Mission Management & Trust Co., a full service trust company regulated by the Arizona Department of Financial Institutions. If you would like to explore the management of an investment portfolio of $1 million or more by either of the firms, you are invited to email your interest to Tom@missiontrust.com or call (520) 529-2900 to speak with one of the Portfolio Coordinators.