Volatility Subsides

This newsletter will be relatively brief. The first section will be a weekly recap provided by Vanguard. In the middle, is a brief section on the news that I thought was the most important. Finally, a section with some timely philosophical comments that I found related to government policy.

Weekly Recap from Vanguard:

The latest reports showed that the economy was continuing to take steady steps out of recession—although May retail sales seemed to be following a different script. The U.S. stock market had a volatile week: The S&P 500 Index rose 2.5% to about 1,092 (for a year-to-date total return—including price change plus dividends—of about –1.3%). The yield of the 10-year U.S. Treasury note rose 4 basis points to 3.24% (for a year-to-date decrease of 61 basis points).

The Most Important Things This Past Week:

This week the 2 most important things were the comments by Federal Reserve Chairman Ben Bernanke and the subsiding of volatility. My summary of Mr. Bernanke's statements are that the recovery is proceeding, interest rates will remain low for awhile and little chance exists for a double dip recession. The volatility index, VIX, dropped this week below 29, the best level in about 1 month, as the amount of fear subsided. This means that investors will turn attention back to the economy and performance of individual companies.

Both of these are critical as it shows that we remain in the consolidation stage of the Economic Business Cycle and the fear that has been moving the markets has subsided. They indicate that since the economic recovery continues and the amount of fear has subsided, accounts that have been put into a more conservative portfolio should return to the normal portfolio.

Comments on Government Policy:

1. You cannot legislate the poor into prosperity by legislating the wealthy out of prosperity.
2. What one person receives without working for, another person must work for without receiving.
3. The government cannot give to anybody anything that the government does not first take from somebody else.
4. When half of the people get the idea that they do not have to work because the other half is going to take care of them, and when the other half gets the idea that it does no good to work because somebody else is going to get what they work for - that is the beginning of the end of any nation.
5. You cannot multiply wealth by dividing it.
6. The government does not make a profit on anything they do – it is strictly a cost center.