QOTD

Richard Sulik, head of the reobel Freedom and Solidarity Party in Slovakia:


"How am I supposed to explain to people that they are going to have to pay a higher value-added tax (VAT) so that Greeks can get pensions three times as high as the ones in Slovakia?"

September Weakness

If the first two days are any indicator, this September is shaping up to fall in line with the normal weakness seen for the month.  According to data compiled by the Stock Trader’s Almanac, the month of September is the weakest month of the year with an average return of -0.6% for the S&P 500.  Going back to 1950, it is the only month with more down months (33) than up months (27).  

 

However, 2009 and 2010 were both positive. Does this mean, to quote Mohamed El-Erian of PIMCO, we are seeing a  “new normal” where August is the weaker month as investors try to get in front of this historic trend?  Similar to the January Effect with small caps stocks which now starts in mid-December?  I don’t think so.  Based on the data, 45% of the years have been positive.  If you look at the historical data you see that 2 and even 3 years of back to back positive or negative returns are quite common.  

Only time will tell what 2011 will bring but history has shown that the month of September can be tough on equities.

Price of Crude and Gasoline

File this one under stuff you cannot make up.  The FTC issued a shocking report where they have realized that “crude oil prices continue to be the main driver of what Americans pay at the pump.”  Really, the price of oil is “by far and away” the biggest factor in the price of gasoline at the pump?  Who knew?  Finally, after years of research investigating this phenomenon we are told 'officially' there is a causal relationship between crude and gasoline. 

 

You can read the report here.

Will Boomer Retirement Keep Pressure on Equities?

Interesting piece by the Federal Reserve Bank of San Francisco that looks at the impact of the baby boomer generation on stock returns in the future.  

Historical data indicate a strong relationship between the age distribution of the U.S. population and stock market performance. A key demographic trend is the aging of the baby boom generation. As they reach retirement age, they are likely to shift from buying stocks to selling their equity holdings to finance retirement. Statistical models suggest that this shift could be a factor holding down equity valuations over the next two decades. 

In summary, as baby boomers retire they will be selling stocks to fund their retirement.  Due to the sheer size of the boomer population, this selling will hold down equity prices for the next 20+ years.  You can read the whole article here.   


While a very compelling argument, we have no way of knowing for sure whether it will come to pass.  This highlights the need to have an investing strategy that can adapt to market conditions.  That way, whether we remain in this secular bear market for an extended period of time or we start a new secular bull market in the next few years you are positioned correctly.