I Don’t Know What to Say About the Markets

When I don’t know what to say, I look to people that I trust for their insight, and to the data for the story behind the story.  Here are some nuggets that I’ve found enlightening in recent days.

The Data:

  • We’re Saving More – from 1993-2008, US Consumers saved about 2-3% of their personal income.  The average American household had deb service requirements that peaked in July 2007 at 14% of personal disposable income.  Today, these same consumers are saving 5.5% of their income and debt service per household is down to around 11.5% on average.  (PSAVERT data series from Federal Reserve Economic Data)
  • The US Downgrade Hasn’t Hurt Us Yet – Versus the 17 countries with AAA ratings, the United States has among the lowest cost of borrowing, about 2.125% on their 10 year bond (Bloomberg Rates and Bonds lists the following yields on 10 year soverign bonds: Australia (5.75%), Germany (3.25%), and UK (3.75%) as of 8/10/2011 (link)
  • Stock Dividend Yields are Strong, Historically – The current yield on the S&P 500 index is about 2.15% making blue chip dividends historically cheap versus government paper (Wall Street Journal)
  • Retail Spending is Up – The retail consumer is whta we’ve been told is missing from this economic recovery.  Retail Sales are up by about 5% over the last 12 months.  (RRSFS data series from Federal Reserve Economic Data)
If data doesn’t get you feeling better, how about a quote from professor Burton Malkiel, professor emeritus of Economics at Princeton University?

“A strong dose of modesty is clearly in order. We all need to be aware of the limits of our ability to forecast future stock prices. No one can tell you when the stock market will end its decline, but there are some things that we do know. Investors who have sold out their stocks at times when there have been very large declines in the market have invariably been wrong. We have abundant evidence that the average investor tends to put money into the market at or near the top and tends to sell out during periods of extreme decline and volatility. Over long periods of time, the U.S. equity market has provided generous average annual returns. But the average investor has earned substantially less than the market return, in part from bad timing decisions.

My advice for investors is to stay the course. No one has ever become rich by being a long-term bear on the fortunes of the United States, and I doubt that anyone will do so in the future. This is still the most flexible and innovative economy in the world. Indeed, it is in times like this that investors should consider rebalancing their portfolios. If increases in bond prices and declines in equities have produced an asset allocation that is heavier in fixed income than is appropriate, given your time horizon and tolerance for risk, then sell some bonds and buy stocks. Years from now you will be glad you did.” (Wall Street Journal 2011-08-08)

And lastly a quote from Patrick A. Sweeny, one of the Principals at Symmetry Partners

“We think the events that have transpired since 2008 will have a positive long term effect on markets around the world.  Spending wisely, staying within a budget, saving aggressively, focusing on risk – these are all good things regardless of where you live and what political persuasion to which you subscribe.  Discipline in all these areas makes for a successful investment experience.”

Special thanks to Symmetry Partners for the great data earlier this week.  They’re one of the primary investment managers I use here at Upperline and their disciplined approach has been a benefit for me and my clients over the years.