Have we hit bottom yet?

By
Rob Morgan
– August 15, 2011Posted in: Bonds, Market Update, Stocks

ECONOMIC COMMENTARY

The Federal Reserve on Tuesday kept rates unchanged but issued an unprecedented pledge to keep rates low for an additional two years.  The statement was not without controversy, however, as three Fed governors dissented from the pronouncement.  The move lifted the Dow 429 points that day – one of several moves of triple digits by the Dow during the week.

The calendar this week includes Empire manufacturing on Monday, as well as housing starts, building permits, export prices, import prices, industrial production, and capacity utilization on Tuesday.  Wednesday’s reports include PPI and crude inventories, and we’ll close the week on Thursday with weekly initial jobless claims, CPI, existing home sales, the Philly Fed, and leading indicators.

ECONOMIC CROSSCURRENTS

Have we hit bottom yet?  Of course no one knows for sure but the S&P 500 hit a low of 1101 on Tuesday which was retested on Wednesday at 1118.  This is a ‘double-bottom’ of support and is very positive from a technical standpoint.  If that level of support holds, the S&P would have declined 19% from its high – technically a correction, not a bear market.

What should investors be doing now?  Long term investors with a target asset allocation, whether they be conservative with a small exposure to equities or aggressive with a large exposure to equities, will be below their target exposure to equities after this selloff.  Now is the time to begin to add to equity positions with a dollar-cost-averaging approach.

Is 2011 a replay of 2008?  The big difference between the years is that in 2008, so much of the subprime market value could not be quantified.  We simply didn’t know how to value trillions of dollars worth of subprime mortgage bonds.  In 2011 the problems for the US and Europe are steep but at least quantifiable.  The number for the US is $14 trillion – the size of the national debt.  The number for European sovereign debt, though ugly, can be quantified as well.

INVESTMENT THESIS

Marketweight stocks versus bonds

· Within stocks:

-  overweight large cap versus small cap;

-  overweight growth versus value;

-  underweight international;

-  overweight energy, materials, and healthcare;

-  underweight telecom, utilities, and consumer staples.

· Within bonds:

                        -  maintain durations of portfolios slightly shorter than durations of benchmarks.

TUNE IN!

            Wednesday August 17th Rob will be on Bloomberg radio at 3 PM ET, and

Fox Business News at 4 PM ET.

            Thursday August 18th he will be on CNBC at 11 AM ET and

Fox Business News at 1 PM ET.

            As always, times are subject to change but are reconfirmed beforehand at

                                    www.twitter.com/RobMorganonTV

Please Note: Times are subject to change but are reconfirmed beforehand at twitter.com@RobMorganonTV.  Rob can be reached at: (610)-977-2010, or via email at RLM@FulcrumSecurities.com

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About Rob Morgan

Rob L. Morgan - Chief Investment Strategist: Before joining Fulcrum in 2010, Rob was President of Dearden, Maguire, Weaver, and Barrett LLC., an asset management firm located in West Conshohocken, Pennsylvania. Prior to that he was Investment Strategist at Janney Montgomery Scott, a Philadelphia based brokerage firm where he went after serving as Chief Investment Officer for Fulton Financial Advisors, a $5 billion asset management firm located in Lancaster, Pennsylvania. Rob graduated cum laude from Vanderbilt University with a Bachelor of Science degree. He continued on at Vanderbilt where he was awarded a Masters in Business Administration. Upon graduating from college Rob served as a submarine officer in the U.S. Navy. --------------------------------------------------------------------------------------------------------------------------------------------- You should not treat any opinion expressed by the Contributor’s as a specific inducement to make a particular investment or follow a particular strategy, but only as an expression of their opinion. All opinions expressed by Contributor’s are solely the Contributor’s opinions and do not reflect the opinions of AnalystsOnline.com or affiliates, and may have been previously disseminated by the Contributor’s on television, radio, internet or another medium. Contributor’s opinions are based upon information they considers reliable, but neither AnalystsOnline.com nor its affiliates and/or subsidiaries warrant its completeness or accuracy, and it should not be relied upon as such. Contributor’s, AnalystsOnline.com, its affiliates and/or subsidiaries are not under any obligation to update or correct any information provided. Contributor’s statements and opinions are subject to change without notice. Past performance is not indicative of future results. Neither Contributor’s nor AnalystsOnline.com guarantees any specific outcome or profit. You should be aware of the real risk of loss in following any strategy or investment discussed. Strategies or investments discussed may fluctuate in price or value. Investors may get back less than invested. Investments or strategies mentioned may not be suitable for you. This material does not take into account your particular investment objectives, financial situation or needs and is not intended as recommendations appropriate for you. You must make an independent decision regarding investments or strategies mentioned. Before acting on information, you should consider whether it is suitable for your particular circumstances and strongly consider seeking advice from your own financial or investment adviser. The content of this website is published in the United States of America and persons who access it agree to do so in accordance with applicable U.S. law.