CI Outlook - Archives

Second Quarter 2007

July 8, 2007

On May 30th we hoped that the 200 point intraday rally in the Dow would be followed by a strong June.  The market had other plans and made little progress, moving sideways in a series of violent up and down moves which went nowhere.  In our opinion this was a direct result of investor perceptions and hopes for Fed action on interest rates.  At the June meeting the Fed did nothing satisfying neither side’s desire for rate moves in either direction.  Looking forward we do not think the Fed can move rates.  That is the core reason why we continue to think a cautious approach to investing overseas combined with an emphasis on large international companies is the correct investment posture for the near future.

As we see it, the US Federal Reserve is caught on the horns of dilemma.  On the one hand their earlier moves to raise rates strengthened the US Dollar while simultaneously slowing the housing bubble and domestic inflation.  Now the Fed would like to lower rates, and avert the impending credit squeeze being caused by the sub-prime mortgage debacle.  However, they cannot do so and protect the currency.  When the US raised its rates several years ago the rest of the world’s central banks were still fighting weak economies at home.  Therefore foreign central bankers held their already low internal interest rates steady.  As a result the relatively high US interest rates attracted large amounts of foreign capital to the US and strengthened the dollar.  Now central banks from the EU to New Zealand are raising interest rates and this is making the US dollar relatively less attractive.  Foreign investors are moving out of our currency as interest rates for other currencies such as the British Pound and the Euro become more attractive.  If our Fed were to cut rates now, the dollar, which is already weak, would fall against those other currencies far more rapidly.  This would be a destabilizing influence in the capital markets that could easily disturb an already tenuous situation in the financial derivatives market.  That market, whose current concern is US sub-prime debt, requires large amounts of liquidity to work through its problems.  Any event, such as a rapidly falling dollar, would tend to dry up that needed liquidity, and potentially worsen the impact of the mortgage mess on world markets.

Thus, as we see it, the Fed is stuck, unable to do much, as other central banks raise rates in response to inflationary pressures within their own growing economies.  As long as that is the case the dollar will continue to slowly weaken.  That “controlled” dollar weakness is the basis for continuing to position your portfolio in large multinational and foreign companies.  In our opinion, these are the companies with the best prospects for earnings growth as we move into the second half of 2007.

 

CJ Brott                                                                                                  Karen Burns

 


July 2014
JUNE 2014
May 2014
April 2014
March 2014
Feburary 2014
January 2014
December 2013
November 2013
October 2013
September 2013
August 2013
July 2013
June 2013
May 2013
aPRIL 2013
March 2013
February 2013
January 2013
October 2012
September 2012
August 2012
July 2012
June 2012
May 2012
April 2012
March 2012
February 2012
January 2012
December 2011
November 2011
October 2011
September 2011
August 2011
July 2011
June 2011
May 2011
April 2011
March 2011
February 2011
January 2011
December 2010
November 2010
October 2010
September 2010
August 2010
July 2010
June 2010
May 2010
April 2010
March 2010
February 2010
January 2010
December 2009
November 2009
October 2009
September 2009
August 2009
July 2009
June 2009
May 2009
April 2009
March 2009
February 2009
January 2009
December 2008
November 2008
October 2008
September 2008
August 2008
July 2008
June 2008
May 2008
April 2008
March 2008
February 2008
Yead End 2007
December 2007
November 2007
Third Quarter 2007
September 2007
Second Quarter 2007
June 2007
May 2007
First Quarter 2007
March 2007
February 2007
Year End 2006
December 2006
November 2006
Third Quarter 2006
September 2006
Second Quarter 2006
First Quarter 2006
Fourth Quarter 2005
Third Quarter 2005
Second Quarter 2005
First Quarter 2005
Newsletter Year End 2004
Client Newsletter 2nd Quarter 2004
First Quarter 2004
Newsletter - Year End 2003
It Ain't Over 'Till It's Over
Newsletter - 2nd Quarter 2003
Newsletter - 1st Quarter 2003
Newsletter - Year End 2002
Newsletter - 3rd Quarter 2002
Newsletter - 2nd Quarter 2002
Newsletter - 1st Quarter 2002
Newsletter - 4th Quarter 2001
Newsletter - 3rd Quarter 2001
Newsletter - 2nd Quarter 2001
Newsletter - 1st Quarter 2001
Newsletter - Year End 2000
Newsletter - 3rd Quarter 2000
Newsletter - 2nd Quarter 2000
Newsletter - 1st Quarter 2000