A Week in the Rearview - week ending 2/15/2008
In the headlines
A look at some of the market movers over the past week:
-
With Microsoft (Nasdaq: MSFT) hot on its trail, Yahoo! (Nasdaq: YHOO) started turning any direction it could, including AOL and News Corp
-
Venezuela’s bombastic leader Hugo Chavez threatened to cut off oil supplies to the U.S.
-
Insurer AIG (NYSE: AIG) ran into a whole mess of trouble
-
The Dow Jones Industrial Average did some shuffling
-
Berkshire Hathaway’s (NYSE: BRK-A) Warren Buffett offered to insure $800 million in municipal bonds
-
Profits continue to be hard to come by for GM (NYSE: GM)
-
With estimations on how long the mortgage and housing crisis will last, the US Treasury put a deal in place that will freeze foreclosures for 30 days
-
Surprisingly, January posted a retail sales gain
-
Remember the economic stimulus plan? Well now it’s law
-
Swiss bank UBS (NYSE: UBS) took a massive write-down on US subprime exposure
-
New York’s new attorney general is going after some health insurers
-
Though not overly pessimistic, the market did not like what Fed Chairman Ben Bernanke had to say about the economy. Former Chairman Alan Greenspan isn’t quite as optimistic
Commentary
Market volatility calmed down somewhat this week, though you shouldn’t take that to mean that worry has subsided. Right now the financial markets and the broader economy are in a waiting game that has little solution but more time.
There are many slow moving variables that are currently in play. Interest rates, which are under the control of the Federal Reserve and were lowered drastically in January, typically work with a lag, so the recent cuts are going to take some time to work their way through the system. The recently enacted economic stimulus plan will similarly take time to take effect — checks aren’t expected to be sent out until mid spring and it will take some time after that for them to work through the economy. And, of course, the mortgage mess that caused all the fuss is continuing to unfold. Because of the timeframe over which adjustable mortgages reset, it will take yet more time to see how bad it gets.
The variables mentioned above could be considered first order variables, meaning they are happening at the top level. We still also have yet to see how variables further down in the chain — such as consumer and business spending — will move as the situation continues to unfold.
In the meantime, psychology and expectations have hold of the market. With little concrete evidence of how bad the situation will get (or how benign it will be), investors are left to make their best estimates and adjust those as more data comes to light.
Looking ahead
The outlook really hasn’t changed substantially since last week’s update. The near term picture (six months to one year) is very cloudy. However, equities still look like a great choice for investors with a sufficiently long investment horizon.
As noted last week, retirement savers should be encouraged to continue investing, if not invest more, while stock prices are down. The cyclical nature of the market has a way of fooling a great many investors. At market peaks there seems to be little reason anybody can think of that will make stocks decline, while at the bottom there seems to be little reason to ever invest in stocks again. To get the most out of your savings, it’s important that you keep on a steady investing path and don’t fall into the crowd psychology of either swing.
