The Green Shoots of April: Some Reasons for Market Optimism

April was another solid month of recovery for the capital and commodity markets, building on March's rise. There's still a long way to go to repair the damage of September through February. Indeed, it'll probably take years for all the asset classes to return to old highs. But for the moment, there's reason to be optimistic, if only tenuously.

The big winner last month: REITs, which surged nearly 33%. Even so, this slice of the capital markets has been so heavily battered over the past year or so that even an extraordinary run does little to reverse the damage.

The lone loser in our horse race was inflation-indexed Treasuries, which slipped 1.9% in April, although for the year so far the asset class is up 3.6%. Otherwise, everything posted a gain. Our passive global market portfolio index climbed a robust 6.6% last month, an improvement on March's roughly 5% advance. Year-to-date, GMPI is off by a fractional -0.5% vs. -1.4% for U.S. stocks, based on the Russell 3000.

It's tempting to think that the danger's passed. Not quite. As we explain in this soon-to-be-published May issue of The Beta Investment Report, strategic-minded investors should remain wary. Yes, expected returns look enticing. But there are still many economic and financial challenges ahead and no one should underestimate the potential for short-term volatility.

In short, these are productive days for designing and managing asset allocation, but you'll have to work hard to generate and keep every basis point of risk premium from here on out. That starts with maintaining steely discipline. Last we checked, there are still no free lunches available.

Comments

[Prudent Man...:]

The negatives, which are continuing to increase, outweigh the positives regardless of what the markets do (see 2000 & 2008 after the recessions started). Discounting is a Wall Street myth used to peddle garbage to the great unwashed, lazy institutional investors. April is a great example of the lemming approach of the naive fearing they will miss a move. The smart money has to sell to someone and there are less smart investors than dumb ones.

If, as an institutional investor, I miss a market move all I have is cash in a short-term deflationary environment without the many risks inherent in securities investments.

The risk of being long outweigh the potential gain considering we are in a era where the BHO Industrial Policy is picking winners and loser and, potentially, all will be losers.

What has anyone in the BHO Administration every successfully managed?

May 01 11:15 AM

[oldman:]

the bond market doesn't like it now, past few days. So how do you stay invested in fixed income and earn a decent yield. Even short duration bonds are getting hit.

May 01 11:50 AM

[LKofScotland:]

i get free lunch and free dinner. i meet with your leaders regularly and so do they. you speak as if people are suppose to pay for lunches and dinners. only poor people pay for such things. what possible knowledge as people such as you have can be of possible value? "no free lunch." NONSENSE! your job is to pay and while your leaders' job is even to do nothing if they wish (and if what i see from them relative to me they wish to do nothing A LOT and they do it VERY WELL.) be gone with this jibberish. my bankers come to ME just as yours come to YOUR leaders. i will grant you that my stress tests are more personal and closer to the methods of your, what do you call it?--your "CIA." Still--the result is precisely the same--money for everyone. and then? the business of living and life. now enough of this talk.

May 01 05:17 PM

[cynewulf:]

In Canada if you work for the government, you do pretty well compared to the working stiffs in the private sector. Or you could just say that you suffer from" bizarre thoughts" in Ontario and the provincial government will be happy to give you the equivalent of TWELVE HUNDRED CANADIAN DOLLARS A MONTH FOR THE REST OF YOUR LIFE, even if you just made it all up. I know,as a landlord,it is true. So yes, Victoria, there is a Santa Claus with lots of free lunches.

May 01 10:03 PM

[wharfrat1940:]

You might also want to check out CITI's recent equity report:
www.citigroupgeo.com/p...

Green Shoots, Skepticism, and Positive Feedback Loops (5-1-09)

RAT

May 02 08:44 AM

[stats:]

WTF did that all mean? Do you speak English as a second language?


On May 01 05:17 PM LKofScotland wrote:

> i get free lunch and free dinner. i meet with your leaders regularly
> and so do they. you speak as if people are suppose to pay for lunches
> and dinners. only poor people pay for such things. what possible
> knowledge as people such as you have can be of possible value? "no
> free lunch." NONSENSE! your job is to pay and while your leaders'
> job is even to do nothing if they wish (and if what i see from them
> relative to me they wish to do nothing A LOT and they do it VERY
> WELL.) be gone with this jibberish. my bankers come to ME just as
> yours come to YOUR leaders. i will grant you that my stress tests
> are more personal and closer to the methods of your, what do you
> call it?--your "CIA." Still--the result is precisely the same--money
> for everyone. and then? the business of living and life. now enough
> of this talk.

May 02 11:43 AM

[stats:]

Okay, new rule around here. No damn abbreviations until you have notified your reader what the hell the abbreviation means.
"The risk of being long outweigh the potential gain considering we
are in a era where the BHO Industrial Policy is picking winners and
loser and, potentially, all will be losers."

"BHO industrial Policy"? What the hell is BHO? Business Heuristic Objectives? Ah, but in the next sentence it becomes clear that it is Barrack Hussein Obama. But that is the next sentence. Reader is still wondering up until then what the hell BHO means. Did writer mention the meaning earlier in the post? So instead of continuing with the post, the hapless reader looks back over the beginning of the post. And of course nothing is there.

It is getting to the point here that more than half the post are completely unreadable.

NO MORE DAMN ABBREVIATIONS UNLESS IT IS CLEAR WHAT THE ABBREVIATION MEANS!



On May 01 11:15 AM Prudent Man CFA wrote:

> The negatives, which are continuing to increase, outweigh the positives
> regardless of what the markets do (see 2000 & 2008 after the
> recessions started). Discounting is a Wall Street myth used to peddle
> garbage to the great unwashed, lazy institutional investors. April
> is a great example of the lemming approach of the naive fearing they
> will miss a move. The smart money has to sell to someone and there
> are less smart investors than dumb ones.
>
> If, as an institutional investor, I miss a market move all I have
> is cash in a short-term deflationary environment without the many
> risks inherent in securities investments.
>
> The risk of being long outweigh the potential gain considering we
> are in a era where the BHO Industrial Policy is picking winners and
> loser and, potentially, all will be losers.
>
> What has anyone in the BHO Administration every successfully managed?

May 02 11:53 AM

[henarl:]

I'm afraid the green shoots are due for a late frost.

May 02 05:05 PM

[Old Trader:]

I'm thinking many of these "green shoots" fall into the "mirage" category. The earnings posted by the financials are mostly the result of accounting gimmickry and "one time" gains on various investments, and many of the "less bad" earnings posted by non-financials result from cost cutting....something else that is not "sustainable". What I AM certain of, is that TPTB (The Powers That Be, for stat's benefit, *s*) will move heaven and earth in an attempt to keep the plates spinning and all of the balls in the air.

May 02 06:00 PM

[stats:]

Sigh. Thank you.


On May 02 06:00 PM old trader wrote:

> I'm thinking many of these "green shoots" fall into the "mirage"
> category. The earnings posted by the financials are mostly the result
> of accounting gimmickry and "one time" gains on various investments,
> and many of the "less bad" earnings posted by non-financials result
> from cost cutting....something else that is not "sustainable". What
> I AM certain of, is that TPTB (The Powers That Be, for stat's benefit,
> *s*) will move heaven and earth in an attempt to keep the plates
> spinning and all of the balls in the air.

May 02 09:52 PM

[nietschele:]

What is "another solid month for the recovery"???

Wasn't April the FIRST month in a tentative recovery or did I miss something?

May 02 10:57 PM