Snowstorm in Spring

WOW what a snowstorm we had in the stock market this week, with indexes dropping about 5% in a short time. During the week when spring was in the air, a severe snowstorm blew in right after former Senator Edward Kennedy Senate seat was won by a Republican. Perhaps he did turn over in his grave. This snowstorm caught the stock market forecaster, Cramer, by surprise as he predicted sunny skies if Mr. Brown won. It appears that predicting the stock market is even more difficult than the weather.

This snowstorm was so large that people wondered if spring had really arrived. It was so bad people might even question whether winter had come back. A snowstorm during spring typically does not last.

Is it spring? Yes it is if you look at the recent reports of corporate earnings as most companies are beating expectations. Also, the index of leading economic indicators rose 1.1% during December its ninth straight month of gains since March 2009. The data suggests that spring is alive and well, in fact it should be a pretty normal one.

So what happened? The traders came in droves as a wave of fear swept in like an Alberta Clipper. It seemed like a speech from President Obama resulted in a snowstorm. It is true that weather and people are not always rational.

The good news is that commodity prices dropped so that the price of gas will be going down in the short term and that long term interest rates also fell. This helps everyone at the gas pump and people who are buying mortgages.

The good news is that spring snowstorms do not last long so relax and wait for warmer weather.

SNOW FACTS

Based on National Climatic Data Center records, New York state is home to the snowiest cities in the United States: Syracuse averages 115 inches of snow per year, and Rochester averages 93 inches per year. However, several less populated areas around the country receive much more snow. For instance, Mount Washington, New Hampshire, has an average annual snowfall of 260 inches, and Valdez, Alaska, averages 326 inches annually.

Buffalo, New York, is a close runner-up in terms of U.S. large cities with the most snow. A 39-inch snowfall in 24 hours in early December 1995 cost the city nearly $5 million for snow removal.

Almost 187 inches of snow fell in seven days on Thompson Pass, Alaska, in February, 1953, according to the National Snowfall and Snow Depth Extremes Table provided by the National Climatic Data Center.

Each year an average of 105 snow-producing storms affect the continental United States. A typical storm will have a snow-producing lifetime of two to five days and will bring snow to portions of several states.

The greatest snowfall officially reported at the Phoenix, Arizona, National Weather Service Office was one inch. That occurred twice. The first time was January 20, 1933. It happened again four years later on the same date.

The commonly used ten-to-one ratio of snowfall to water content is a myth for much of the United States. This ratio varies from as low as 100-to-one to as high as about three-to-one depending on the meteorological conditions associated with the snowfall.

Investing and the Weather Spring

I hope you are enjoying the warmer winter weather. Having temperature above freezing sure does lift spirits. This newsletter is the first one in a series comparing spring time weather and spring time in the economic business cycle. A normal economic business cycle lasts between 5-8 years.

Spring is defined as a 3 month period on the calendar while actual springtime weather has a lot of variability. Spring time weather is when temperatures warm, plants return to life, animals reappear, etc. It is common to have frost and snow even once spring time weather has started. In fact, some major snowfalls do occur during spring and while it is an inconvenience it is still spring time.

Spring in the economic business cycle starts when the Federal Reserve states that the economy has stabilized and is starting to grow again. Interest rates are relatively low as the Federal Reserve is trying to get the economy at a 3% growth rate, their stated policy. Employment will start to improve as companies start to grow again. Interest rates will stay low for as long as it takes to get economic growth that creates jobs. It is a period of economic transition.

The economic spring does not have a defined time period and is more on the magnitude of a year instead of 3 months and it tends to last longer than winter. Stock markets rise around the globe in a jagged fashion just like the weather. In fact it is possible to have the stock market drop that gets people's attention just like a snow during spring.

The economic spring ends when the Federal Reserve states that the economy has returned to "normal" whatever they thing that the term means. Interest rates rise during spring as things improve.

Watching short term and long term interest rates is key in business cycle investing. Last week, I stated that because of jobs data long term interest rates would come down during the week and that the current bond funds should be maintained as we are early in the spring season. Indeed long term rates did come down during the week making this a good decision for now.

SPRING FACTS:

In the eastern United States, Spring weather travels northward at a rate of about 13 miles (20 km) per day.

The lifetime of a typical small cumulus cloud is 10 to 15 minutes.

A small, fluffy cumulus cloud may hold 100 to 1000 tons of liquid water.

More than just gentle showers: Under an average annual rainfall of 700 mm, the total impact energy of raindrops hitting the ground can be as much as 4000 tons of TNT.

God Bless you and your families. God Bless the people of Haiti and those who are working diligently in this situation.