Lions, Tigers, Bear Markets?

Sometimes it feels like the wheels are coming off.

The pope resigns. The North Koreans detonate a nuke. A $100 billion cut in Federal spending is on track to take effect in a month. And the stock market is flirting with record high levels. What’s wrong with this picture?

What’s going right for the market is the Fed throwing money at the economy through quantitative easing. But stocks climb a wall of worry, and the world is obliging. First the Pope: the pontiff’s resignation was prompted by his health—he’s just not physically strong enough to deal with the 24/7 demands of being a modern leader in the 21st century, so he set a humble precedent: step down voluntarily. Don’t wait for your health to cripple the papacy, possibly for months. This is actually a good thing.

With North Korea, their motivation is simple: get as much attention as possible for as long as possible. It’s hard not to see this as timed to get play at the State of the Union speech. The way to address it is equally clear: quiet diplomacy, with as little prominence as possible. Unless they attack someone or sell their bombs to terrorists, this is old news, and fairly neutral.

But it’s the sequester that has the real potential to hurt the market. $100 billion is only 0.5% of the economy, but if it comes from the wrong places it can ripple through and be magnified. We’ve just raised Social Security taxes by 2%; that will cut spending. Hit people hard enough and often enough in their pocketbooks and they’ll scale back enough to contract the economy. In a global balance sheet recession like this one, that would be bad.

Yesterday’s news was alarming, but it’s the devil we’ve known—Congressional gridlock and government dysfunction—that’s the biggest risk today. Keep your eyes on Washington.

Douglas R. Tengdin, CFA

Chief Investment Officer

By | 2013-02-12T10:15:11+00:00 February 12th, 2013|Global Market Update|0 Comments

About the Author:

Mr. Tengdin is the Chief Investment Officer at Charter Trust Company and author of “The Global Market Update”. The audio version of each post can be heard on radio stations throughout New England every weekday. Mr. Tengdin graduated from Dartmouth College, Magna Cum Laude. He received his Master of Arts from Trinity Divinity School, Magna Cum Laude and received his Chartered Financial Analyst (CFA) designation in 1992. Mr. Tengdin has been managing investment portfolios for over 30 years, working for Bank of Boston, State Street Global Advisors, Citibank – Tunisia, and Banknorth Group. Throughout his career, Mr. Tengdin has emphasized helping clients manage their financial risks in difficult environments where they can profit from investing in diverse assets in diverse settings. –
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