Archive for the ‘financial markets’ Category

Many conversations about investing this year are centered on what is wrong with stock markets in 2011. The assumption underlying this concern is that markets are only acting correctly when prices move higher, like in 2009/10, and are therefore defective when they move lower.

There are however, periods of time when economic risk is higher; the global debt problems and Japan’s difficult natural disaster come to mind. In some time periods earnings are generally not growing. If markets are discounting higher risk then it stands to reason there should be some additional volatility and in this past quarter at least, uncertainty has resulted in lower stock prices.

Markets work properly when they can move both higher and lower. If common stock prices were simply pegged higher each quarter then they would not well reflect the variant conditions of the economy and society in general.

From 1970 to the end of 2010, total returns to stocks in Canada (S&P/TSX) and the US (S&P 500) have increased at a compounded rate greater than 10%. Inflation has been about 4% so real returns for the period are about 6% and investors have been well paid for accepting the risk of holding stocks. Not all decades are equal. The past 10 years have been less giving. In Canada the average returns since 2001 have been 6.6%. Inflation averaged 2.4% for a net of 4.2% in real inflation adjusted return. So the premium for holding risky assets has been below average.

How should this recent result impact our future expectations? Even in a below average return decade, patient investors did okay. They were rewarded with real returns and grew their money. While a definition of risk can be a future where “you don’t know the outcome,” long term averages should be attributed some predictive power. It seems to me that it makes more sense to consider a bigger sample (more years) than assume the recent experience will continue into the future.

There is plenty of risk in stock markets that is well rewarded and a source of good compensation for investors. There is also lots of risk assumed by the investment community that has no or perhaps negative compensation. Our investment focus is the elimination of risk that has no payoff.

Public stock market indexes have been a source of dramatic returns in excess of inflation for more than a hundred years. Investors can capture the returns to indexes at very low cost. However, there are problems with indexes. The S&P 500 for example is dominated by large growth companies. The calculation of the index has a bias toward large capitalization stocks. These features represent risk without compensation.

Another prominent example of non-compensated risk is assuming that stock markets provide risk free return by selecting only stocks that go up. Focus lists of investment houses are typical examples of this type of approach. The problem with these list approaches is they are not investable. You can’t be the first into the stock choices and the first out so the “return to the list” is not the investor experience. In my view, non-compensated risk like this should be minimized since they ultimately do not support the goals of investors.

Simple index returns can be improved upon. A better exposure to risk provides better compensation. We spend our time working at identifying risk worth taking and where possible, eliminating risk that doesn’t pay.

Patrick

September 9, 2011

I am not a fan of sequels.  It seems to me that little new is added to our understanding of the main characters, and the plot outcome seems predictable from the start. Many observers say sequels are never as good as the original hit, the exception perhaps being Godfather II.

The volatility and pressure in world stock markets is regrettable. Risk has manifested in providing little if any return for the past decade. It seems to me that this current downturn has been triggered by the perception of a lack of effective leadership on the part of governments around the globe.

Of the three main players in the economy – individuals, corporations and governments – the investment markets are concerned primarily with corporations. At this point, North American corporations as a group are much better off – as measured by balance sheet financial strength – than previous median levels. Companies have less debt and more cash than we expect them to have. This is a good thing that should be a source of investor confidence. On the other hand, many of the world governments are bankrupt: Iceland, Greece and Ireland come to mind.

Investment markets are concerned with predicting the future. In the bond markets, payback (yield) for investing in 10 Year Government of Canada Bonds is about two and a half percent. The same is true of 10 year U.S. treasuries.  Investors buying these yields are willing to take a return, after inflation, of less than zero for 10 years. That number looks worse after taxes. It is worth noting that in the case of Canada and the U.S., investors in government debt appear unconcerned about default.

Individuals in North America have more debt than usual and the unemployment rate remains relatively high. The recent recession has been a difficult and persistent one for consumers.

The agreement to extend US Government debt was essential in that all financial interests were served and every investor would have experienced losses if it had not been confirmed. The US Government is too big to fail. Essentially, all countries in the G10 are too big to fail.

Sellers in the stock market will see much slower growth in the future. In terms of national accounts, aggregate demand is a function of buying power. The pessimistic view is that individual consumers and governments are tapped out. Companies who might otherwise be expanding are reluctant to do so if, in the future, there are fewer customers willing to buy their products. The thinking is that with fewer customers there is no growth. This is an important assumption that may prove to be incorrect.

In my view, predictions of future corporate earnings are a poor guide to investment decisions. This poor predictive power holds true for those that use so-called top down (aggregate economy based) analysis or bottom up (individual company) focus. Professional analyst predictions are frequently wrong and show little persistence when they do get it right. I think the balance of investment return for appropriate risk assumed will re-establish. Stocks will outperform bonds in the future, just as they have in the past. Good companies will innovate to find new customers and are already doing so.

We will re-balance our allocations once things settle down and we can confirm how this recent decline has impacted the plans for your portfolio. We re-balance when we have the evidence to do so and avoid the trap of attempting to generate investment returns by predicting short term outcomes.

Thank you for being our client and please pass this along to any friends or colleagues who could use a little reassurance and understanding.

Best Regards,

Patrick

Our primary goal is to create smart and hard working portfolios that focus on the goals our clients tell us are important to them. Generally, if we can do more with less money then we are on the right track. With that in mind and since we want to outperform the public stock markets, we are most interested in any assets that provide greater returns than stock market indexes.

We include private investments in our portfolios because the returns are potentially higher. We think they are higher because investors demand more return to invest in a market where information is not readily available and where liquidity is challenging. We know from the evidence that institutional investors as a group are also increasing the percentage of their overall portfolios allocated to private equity. Extra return comes at a price and the price in private equity markets is access to information and networks of trusted contacts.

Many of the people we talk to have had experience investing in a “friends and family” round of a private company. While this investment is a private transaction, it doesn’t compare to our approach in this market. We expect that as a whole, the returns to private equity are higher so we want broad diversification. We win by accessing a broad exposure to this asset class. In our pooled approach we own 2-3% positions in any one private company on average. We think throwing all your money at one position represents too much risk of total loss of capital. In addition, there is excess reward available by using relatively better information to guide investment activity. Friends and family may be less focused on relative value than they ought to be. Private companies should pay a fair price for capital.

Publicly-listed securities represent a small percentage of all companies. There are 3 or 4 private companies for every public one. According to Tom Kennedy, Managing Director of Kensington Capital, there is profit available when markets are unbalanced:

“There are approximately 100 billion dollars chasing one trillion dollars in potential transactions in the private Canadian marketplace.  Excess demand for capital represents a great opportunity for potential investors.”

In Canada at least, there is much greater demand for capital than potential supply available. We like these odds, as market imbalances tend to favour one side; in this case the suppliers of capital as a group, who should expect to be rewarded with higher returns for risk assumed. It is important to understand that investors still have to do their homework and not all participants in private equity investments will be rewarded equally.

Public markets are often referred to as “efficient” in that most information about public companies is broadly understood. Information is readily available and instantaneously transmitted to a large audience. By comparison, information about private companies is generally not available. As a result, better information is a source of returns in the private markets.

The total return to public stock markets is the sum of all return to the participants in that market. Overconfident financial marketers are paid to encourage us to consider strategies to perform better than the probable outcome. By definition, not everyone can do better than average, and once fees are considered most will underperform the average of the group. We can’t all eat someone else’s lunch. If we want portfolios that perform better than average, then we should include assets like private equity that provide higher returns.

Patrick

The opinions expressed in these articles are the opinions of the author and readers should not assume they reflect the opinions or recommendations of Richardson GMP or its affiliates.

New ideas are often enthusiastically embraced by the investment community. For example, Brazil, Russia, India and China (BRIC) are a current focus, attracting investment dollars for portfolios chasing growth. The question becomes, what is the right amount for your portfolio? If these countries are growing faster, is a 10 percent allocation enough? Why not put all your money there? What is a reasonable basis for the decision?

The investment world doesn’t simply replicate the physical world. As illustrated in the table below, for year ending 2009, 57 percent of the world’s population account for 84 percent of total GDP and 95 percent of stock capitalization.

Simple strategies based on one factor, such as allocating large percentages of your investment dollars to China or India may randomly work out, but such strategies probably represent more risk than intended.

Risk without return is never a good thing. For example, China recently surpassed Japan in GDP but the Chinese stock market is less than a quarter the size of Japan’s. The size difference is a measure of relative risk, and a determination of required return from a new investor’s point of view. In this example, new investors in the Chinese market require more return for Chinese investments than for investments in Japan.

Capital is generally free to move between stock markets so the dollar value or market capitalization of each market is a summary of all investor views about the prospects for that market. In a sense, the wisdom of the many, each making independent decisions can be summarized by the willingness to invest in one market versus another. In this way, relative market capitalization represents risk adjusted return for country allocation. Bigger markets are less risky than smaller markets. They also probably provide less return. Risk and return are always related.

“Perfect Country Allocation” may be achieved by replicating the market capitalization below for each country: 42 percent US, 9 percent UK and Japan and so on. In diversifying by relative market capitalization, an investor would capture the return to stocks wherever that return is realised. This investment portfolio would increase with expanding markets and decrease with relative decliners. A portfolio would therefore be perfectly diversified as to country selection. If the goal is to capture growth wherever it manifests, then this portfolio would achieve the result. Diversification works best when it eliminates the risk that provides no aggregate return, leaving only risk that provides compensation. This portfolio would capture the return to increases in earnings. It would not capture the positive or negative returns resulting from capital movements between markets.

So why isn’t everyone doing this? I think the answer lies with spending. Investors and their advisors allocate more money to markets where the money will be spent. This is reasonable but somewhat inefficient in that the domestic market doesn’t capture price changes in imports. Great economies like Switzerland, Hong Kong and Finland have relative GDP of 10 times their population weight. Canada and the US have less than 5 times or half the measure. In time, goods from very productive economies get relatively expensive. Investing in these economies or companies compensates you for the price increases. You don’t want to be the greatest investor in an economy that is shrinking in comparison to the rest of the world.

Implication for Investors

International diversification increases complexity (risk) and expense for individual investors. Yet from a North American point of view many markets are growing faster than our domestic markets. A broadly diversified approach which limits the error of investing in the wrong country at the wrong time should allow your portfolio to experience better results. Big bets on individual countries add risks that you simply don’t get paid for in the long run.

Patrick

The opinions expressed in these articles are the opinions of the author and readers should not assume they reflect the opinions or recommendations of Richardson GMP or its affiliates.

Financial marketers know that human wiring encourages us to judge decision-making skill based on the recent outcome. This is true even if that outcome is a random result. So in the investment world, tossing a coin and producing heads three times in a row is seen as skillful. Predicting the wrong result of a toss is viewed as a repeatable and flawed approach, and this is true even though the probabilities for the next toss remain unchanged. My take is that it is much easier to focus on short term results than to try and uncover whether-or-not an approach is increasing the probability of success for a significant period of investment results. Counting and sorting random results has the illusion of a scientific method. It can also encourage manipulation of meaningless periods of data so as to infer skillful management and decision-making. It opens the door to manipulation by inference.

Unfortunately, from a purely statistical basis it takes about 30 years of data to make a confident assessment of skill for investment management.  The evidence of “beating the street” simply cannot be identified in one, three and five year tables.  For practitioners, this presents a big problem as 30 years is an investment lifetime. Also, the skillful manager is generally about to retire once you have confidently identified his or her ability. It would be much more convenient if we could confidently identify future out-performance. Unfortunately, there is always uncertainty. If we knew the outcome, returns on stocks would be equal to returns on bonds.

In my opinion, the time and effort to identify a hot hand is better spent on good portfolio construction. Good financial advisors have processes that generally guide clients towards strategies designed to minimize errors of judgement. They focus on cost control. They provide guidance around matching fixed income from your portfolio to income you require from the accounts in retirement. Good advice often encourages investors to patiently allow stock market return to be realised by the portfolio in a consistent repeatable approach. There is generally much less of a focus on market timing. They recognise that the recent past offers little in the way of predictive power.

In our practice we focus on repeatable investment success. Our portfolio approach has been refined through more than thirty years of combined, on the job, experience. If we are already working with you great – if not, let’s meet to see if we can be of service.

Patrick

A review of the US monetary System – Suppliers, Dealers and Users

As Children, we should all be taught to aspire to own a commercial bank (dealer). Dealers have a very interesting and sustainable business model. Essentially, they lend money they don’t have, which creates money in the hands of the borrower. This “miracle of capitalism” is created by the fractional reserve system of the Federal Reserve. The interest paid on these loans is earnings for the commercial bank. The leverage to assets is big; the Fed requires a 10 percent reserve so that a commercial bank can loan up to ten times its asset base.

In the US, commercial banks and investment banks were divided by the Glass-Steagall Act of 1933.  After the depression is was thought that risky investment banking activities needed to be separate from the Fed-backed activities of commercial banks. Glass-Steagall also introduced deposit insurance on deposits (FDIC), further protecting the interests of depositors. The act (not FDIC) was repealed in 1999 in an effort to allow US dealers to compete on a level field with Great Britain. Margaret Thatcher’s “big bang” deregulated the UK financial system in 1986. Canada followed in the late 1980s and dissolved the restrictions for commercial and investment bank mergers. Trust companies were also deregulated. Insurance companies maintained some of their independence though Canada’s big 6 retail banks are finding ways to capture market share in the insurance business as well.

Given the extremely low cost of capital and advantaged position banks share with respect to the Fed, it is difficult to compete with dealers as a group.

The promise of Big Bang and deregulation was reduced cost of capital for customers. In addition, reduction of regulatory involvement was seen as a method of increasing competition and innovation by combining access to debt and equity capabilities. Stanley Hartt, deputy Minister of Finance for Canada 1985-88 summarizes the view at that time as “the banks felt they had to grow to survive”.

These conclusions have been greatly challenged by the financial crises of 2008-09.  Leading up to the Fall of 2008, one stop financial supermarkets were able to securitize debt, selling it off to institutional investors to raise additional cash assets. This in turn allowed for more leverage to earnings and more risk assumed. The system was clearly out of equilibrium. In September 2008, perhaps precipitated by the collapse of Lehman Brothers, the system froze. Banks would no longer lend to one another for fear of undisclosed liabilities (non-visibility) reducing the real credit worthiness of the borrowing parties and increasing the likelihood of default.

Big isn’t better, and in some cases as we have recently experienced, it is much worse. Canadian banks have faired better than most. A major contributing factor is that they didn’t get their wish about eliminating foreign ownership restrictions.  Canadian banks are limited to 10% foreign ownership. It seems to me that as a group they should be grateful for the failure in their lobby effort to have that restriction eliminated. It saved their asset base and our banks and protected them from much more of the downside of the credit crises of 2008-09. Instead, in 2009 the Canadian economy and financial system has experienced strong relative growth compared to the international competition.

Commercial banks are too big to fail because of the unique arrangement they have with taxpayers. FDIC (CDIC in Canada) insures assets to 250k (100k). If they default, the government, backed by tax revenues, guarantees the liability. This call on tax dollars creates an incentive to accept more risk, in an effort to maximize shareholder profit, since Banks are credited with the positive return to risk but are insured for losses.

For banks it is very unlikely if not impossible to reorganize under bankruptcy protection. Unlike other corporations like airlines, for banks bankruptcy is equal to liquidation.

Clearly there is something wrong with this system. The old idea of building scale to eliminate the competition appears to be in conflict with the best interests of the economy as a whole.

We could try to use a 1930s solution and disentangle commercial banks and investment banks or perhaps more realistically, the consequences of bank failures could be minimized. To my thinking the latter approach is more likely. New regulation can be introduced to reduce potential claims on taxpayers.

A group has been formed to provide recommendations on just that line of thinking. The Squam Lake Working Group on Financial Regulation is a group comprised of 15 leading academics who want to bring the system back into equilibrium. The thinking is that if the incentives of scale are reduced and the costs to society of banks failures are minimized, then a better equilibrium will be established for the financial system and by extension, the economy as a whole. The group had developed several practical solutions to improve the systemic problems. It appears the US administration is listening.

Forgive me; it has been six months since my last confession…oops I mean posting.

Since April all major investment markets have rallied. This is true of both stock and bond markets. Much of the rally is due to the coordinated policies of central bankers, especially the US Federal Reserve. Toxic assets (TARP, TALF) were purchased from commercial banks and insurance companies dramatically reducing risks, visible and hidden, of commercial bank asset bases. The twin policies of de-risking and improving disclosure provided the needed incentive for those investors looking for a reason to buy.  A return to risks assumed has been re-established across the globe. Few would argue with the assessment that these efforts have resulted in the desired policy outcome of bringing order and stability to a global financial system that was unable to function in the last half of 2008.

The mandate of the Federal Reserve Bank is to use monetary policy to promote “maximum employment, stable prices and moderate long term interest rates.” Money supply is the major lever the Federal Reserve has to control the negative effects of inflation. This past year saw a unique policy response by the Fed. The unorthodox monetary policy that ensued presents many challenges today and especially in the future timing of unwinding the current position. The question remains: Will high levels of inflation result from the measures implemented by the Federal Reserve in 2008-09?

Money is created by the Fed in two ways: directly and indirectly. In the direct route, the government can print it or mint it. This is sometimes referred to as central bank money and includes net money assets of the government. This money is backed by market confidence in the ability of the issuer to meet its obligation through future tax revenues.

The indirect method is creating money through a fractional reserves system. The Federal Reserve controls the reserve of capital commercial banks are required to maintain in their operation. Today, Commercial Banks must deposit 10% of their assets in a reserve account with the Fed. From the perspective of the commercial lender, they can lend up to 10 times their asset base. This leverage creates money in the economy. This is commercial bank money also known as check book money.

Money supply has several definitions. For our purposes I will define Money supply as MB or monetary base which includes currency in circulation and demand deposits, minimum reserves and excess reserves held by the central bank.

The Fed enters into open market operations buying and selling t-bills, notes and bonds to principal dealers. The effect of a sale of bills or notes is to reduce the money supply by retiring money back to the fed. Alternatively, the when the Fed buys notes (or other assets) money supply increases. These operations also reduce or increase the leverage available further affecting the overall money supply.

Prior to October of 2008, increases in bank reserves ended up as currency in circulation. However in the fall of 2008 the fed began paying interest on excess reserves providing incentive for commercial banks to leave the money on deposit and out of circulation. This rate is equal to the upper limit of the fed funds rate of 25 basis points. The result is the increase in monetary base has had little impact on currency in circulation but has resulted in a dramatic increase in the Feds excess reserves account. This account increased from about 2 billion in mid 2008 to more than 750 billion in June of 2009.

University of Chicago economist Milton Friedman and others observed a long term relationship between money supply and inflation: (The quantity theory of money)

MV = PY

Where;

M= quantity of money

V = velocity of circulation

P = price level

Y = level of output of the economy

Friedman and other monetarists pointed out that change in money supply control the level of nominal output of the economy. Furthermore, in the long run, changes in money supply determine changes in prices or inflation. For Friedman “inflation is always and everywhere a monetary phenomenon, in that it can be produced only in a more rapid increase in the quantity of money than in output”.[1]

Inflation erodes purchasing power. This is how it affects the average family. For the US market, in the past 15 years the purchasing power of a US dollar has dropped to 67 cents. So a consumer needs fifty percent more dollars to buy the same basket of goods. Consumer Price Index (CPI) is the common measure of inflation along with the Core CPI which excludes the prices of food and energy. In the past 50 years the average annual change in CPI has been 4.2%, 4.1% for Core CPI. There has been a big range of values for CPI; greater than 14% in 1980 and -1.2% in June of 2009 (deflation). The Fed is believed to have a target for inflation of 2%. The Bank of Canada has an explicit target of 1-3% for Core CPI.

In July of 2008, prior to the default by Lehman Brothers in October of that year, US inflation levels were relatively high at 5.4%. US money supply was about 850 billion and had been stable at that level for several quarters. By June of 2009 CPI was -1.2% and money supply had doubled to more than 1.6 trillion dollars. In addition, through large scale purchases of agency debt and mortgage backed securities, the Federal Reserves assets base increased from about 900 billion to more than 2 trillion, though this was done in such a way as to avoid increasing money supply. The Federal Reserve funded the purchase of toxic assets through a special t-bill issued by the US Treasury. The deposit accounts of the Treasury are not part of the monetary base.

The challenge for the Federal Reserve is to shrink their balance sheet and reduce the money supply before inflationary expectations rise above their target. Moving too early will delay the economic recovery. Waiting too long will result in inflation. The incentives line up behind waiting too long.

Paying interest on reserves is a temporary solution. In the long run it adds to the monetary base. As well, commercial banks will find more profitable alternatives for the money. This is a big problem. 750 billion in the hands of commercial banks can result in as much as 7 trillion in additions to the money base.

Some options for the Fed to curb future inflation – exit strategy

1. The fed could use its powers to limit the leverage for commercial banks.

2. They can enter into reverse repurchase agreements (REPO) with commercial banks for the toxic assets on the feds balance sheet. If commercial banks enter into these agreements the monetary base will decrease through a reduction in the excess reserves account.

3. Treasury could issue debt and deposit the proceeds with the Fed.

4. Fed could issue its own debt directly reducing the monetary base, in competition with the Treasury.

5. Fed could let assets mature, or sell them into the markets.

Finally, the fed must be able to conduct monetary policy independent of political pressure. To avoid inflation there must be a shift from propping up credit institutions to one of price stability and oh yes they must get the timing very right.

We should probably get ready for inflation.

Milton Freidman, “The Counter—Revolution in Monetary theory,” Wincott Memorial Lecture, Institute for Economic Affairs, London, 1970.

US stocks represented by S&P500 were up 8.44% for the month of March. The Canadian S&P TSX60 grew by 7.99%. Morgan Stanley’s EAFE was 3.74% higher. While we are still 49% lower than the high in November of 2007, we have rallied 8% off the low point earlier in March.

While most of the worries and economic turmoil persists, there has been some measure of relief to the stock markets. We are at a point of growing divergence between wall street and main street. More evidence is expected of shrinking economies in North America and overseas yet these backward looking measures were not reflected in the recent buoyant return to stocks across the world.

The short term return to investment returns is random but momentum trends do make themselves known. For this positive return environment to continue investors will have to ignore the results from main street. They will have to ignore the fact that consumers are saving more and deferring large purchases. The market will have to rally in the face of lower earnings reports from companies and yes more bankruptcies and higher unemployment figures. There are no assurances, risk is pervasive even from these price levels. If this is the beginning of a turnaround in fortune for the stock markets then it would be consistent with the beginning of other bull markets, shrugging off the bad news and climbing higher in spite of the evidence.

We are learning more about the US Feds efforts to improve securitized mortgage markets. Specifically, the legacy loans program and the legacy securities program are designed to entice private investment involvement in turning around the credit crises. There is a good review of the Toxic-asset proposal in today’s Wall Street Journal.

The incentives have to be generous enough so as to attract private investors but not so generous that a risk free return is funded by tax dollars to the benefit of private interests. So what is a reasonable return for assuming this risk? How will these prices be established?  The public purse will be best served by a wide and broad market with many participants. Some will get better deals than others but on average many participants will serve to get the prices right and move the market to an equilibrium position, balancing risk assumed and return yielded. If we end up with a closed shop -where access is limited to a few players, then the likelihood of a subsidy from taxpayers to a small number of market dominant players is enhanced.  PIMCO spokesman Bill Gross has already voiced his firm’s intention to support the program.

Joint ventures between government and private investors are complex and rightly the subject of increased scrutiny by all interested parties. If you are a tax payer then you are a stakeholder. There is a big cost to focusing on limiting return through regulation.  There have been a series of announcements from AIG that executives will return some bonuses. These relatively small victories act as a dis-incentive to those that are considering participation. There is a view that so called excessive future gains may be clawed back by government after the fact. Increased perceived risk (regulation) will require an offsetting increased future return.

In my view, well executed programs will result from a large number of independent private interests bidding for these assets. More participants results in better asset pricing. Better asset pricing will reduce the likelihood of subsidies to private interests from taxpayers.  It is in all of our interest that the program become accessible to all parties willing and able to assume the risk. We need many participants and we should encourage bidders. We have had enough focus on punishing executives and managers of financial firms. It will not help to discourage their participation. We need to get past the need to find and punish the  parties responsible for this mess and instead focus on the task at hand. Increased effort to identify and pursue manager bonuses is an unnecessary additional cost to the bailout.

Well as the above math indicates, the markets have improved so now they are  fully half of what they once were.

There are so many opinions/recipes/predictions for fixing the financial system:

Do Mark to Market assets on company balance sheets to improve visibility and certainty about earnings; or

Don’t mark to market assets as these add to volatility in earnings and in the end are estimates only

Buy equities, the recession is ending in 2009; or

Do nothing, the recession is deeper than expected and mid 2010 is the earliest relief point

Since the public purse is bailing out AIG (Citigroup, Bank America…) the new owners should protect us by reneging on employee bonuses. The principle is one of fairness to those who are preventing these companies from disappearing entirely; or

Pay the bonuses, keeping the companies whole will pay off in the future as a more valuable asset is sold. These bonuses represent insignificant dollar values

New expanded monetary policy is helpful in the short term and disastrous later; or

The US economy is expected to drive world recovery, the reasonable  cost of this effort is more US dollars in circulation

I expect many of you find all of these conflicting views compelling even as they are source of argument. I  usually find both sides of the noise plausible and somewhat meaningless as a result. The loudest opinion is unlikely to be the most helpful, or best considered. In times as these, we need to have some reasonable basis for  making investment decisions.

There seems to be a quest to define the moment of inertia, when the economy begins to grow instead of shrink.  If we could guess the day what would we do exactly? Search for a new job… buy an investment property? Maybe we could pick that exact moment to buy stocks in our retirement accounts.

Unfortunately,  we would probably be late to the party for stock markets.   If we look at the most severe recessions in the past 40 years for Japan, UK, US and Germany at the official end of each recession the local stock market had rebounded from a low of 31% in US markets in March of 1975 to a high of 137% in the UK in December of 1975. Of course the end of recessions are defined by looking back 6 months. Not helpful if you are trying to time a stock entry point or major purchase.

Good judgement starts with clearly understanding your unique situation. Investment activities should be added to after accounting for and funding cash requirements and perhaps reducing debt. In this way you will not be forced to turn what should be a positive into a negative investment experience.