3rd Quarter 2010 Commentary

Posted on Thursday, October 21st, 2010

by James W. Heard, CFP®, President, Windham Brannon Financial Group, Inc.

Investments and Markets

The economic and political news was as troubling in the third quarter as it was in the second, but the market results were almost the exact opposite, befuddling the prognosticators once again.  Since the market results were such a mirror image of the second quarter, we thought we would put them side by side along with the year-to-date and 12-month market returns.

2Q 2010 3Q 2010 Year-to Date Last 12 Months
90-Day US Treasury (T-Bills) 0.04% 0.04% 0.10% 0.12%
BarCap Interm US Govt/Cr (Bonds) 2.97% 2.76% 7.44% 7.77%
S&P 500 (US Large Cap) -11.43% 11.29% 3.89% 10.16%
Russell 2000 (US Small Cap) -9.92% 11.29% 9.12% 13.35%
MSCI EAFE (International) -13.97% 16.48% 1.07% 3.27%
US REITS (Real Estate) -4.13% 13.22% 19.19% 30.14%

While our equity funds are doing well, our bond funds are trailing benchmarks.  The main reason is that we keep our maturities short and the credit quality high and the benchmark we use has an average maturity twice as long with a slightly lower credit quality.  Right now, we’re willing to make the short term sacrifice on yield, believing that interest rates will move up eventually, and longer term bonds will suffer.

Economics/Politics

Despite the last quarter and year-to-date results, the economic and political overlay is a huge drag on the markets.  The uncertainty around deficits, taxes, and regulation is a big problem.  This uncertainty makes it almost impossible for businesses and investors to make any viable long-term plans.  Without some certainty, capital will remain on the sidelines and the economy will probably grow modestly or not at all.

The decision for Americans is what to do about deficits.  We are at a political and economic fork in the road, and while some Americans like the concept of the government programs, many are not willing to pay for them.  It’s easy to blame the politicians, but we elect them.  In the end, it’s the people’s responsibility to elect those who are willing to make realistic decisions about taxes and social programs.  Sometime it takes a crisis to steel the will of the electorate.  I’m confident we’re close to that point.

Although the economy is sputtering along, it’s no certainty the market will.  Markets already price the current news, and if the outlook gets better, markets could soar.  As an example, the S&P 500 made a market low in 1974, and while the economy struggled up to 1982, the S&P had an annualized return of over 14% during that period.

What’s New

We are very close to rolling out our new website.  While the information is much the same, we feel that it’s a bit more representative of the kind of firm we are.  We’ll let you know when the new version is released, and you can let us know what you think.

We’re excited about introducing a blog on the new website.  The blog will give you timely comments in the areas of investments, planning, and markets. You can subscribe to the blog and be automatically notified when we make new posts.  We’ll let you know how to do this when we go live.

Best regards,

Windham Brannon Financial Group, Inc.


© 2010 Windham Brannon Financial Group, Inc. All rights reserved. Any use of information contained in this article, including reproduction, modification, distribution or republication, without the prior written consent of Windham Brannon Financial Group, is strictly prohibited.

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