Stocks & Markets React as US Government Shutdown - Third Quarter Market Commentary

TORONTO - Oct. 15, 2013 - PRLog -- LAND OF CONFUSION (Song by Genesis)

“If you’re not confused, you’re not paying attention.” - Anonymous

“What is right is not always popular and what is popular is not always right.” – Albert Einstein

Here we go again!

As we enter the last quarter of 2013, US politicians are once again playing a game of brinkmanship; unfortunately one that could have dire consequences for the world’s economy.  Politicians continue to entrench opposing positions rather than engage in positive action.  It is highly unlikely that the entire US government will shut down as essential services will remain active, but nevertheless, investors dislike uncertainty and markets have been under pressure as the Third Quarter closed.

Investor behaviour during the quarter appeared less than consistent with past experience.  Despite this contradictory behaviour, results generally finished in positive territory.

As noted last quarter, it appeared to be a bit of a conundrum as the Federal Reserve discussed reducing the degree of market intervention undertaken thus far, presumably due to indications of a stronger performing economy, yet investors reacted negatively as fears that the lesser levels of intervention would be insufficient to maintain current yields. In other words, there is a discontinuity between the reality of improving economic conditions and the perception of the investment market participants as to the durability of that growth.

Statistics continue to indicate that inflationary expectations are low.  Typically, this would be a good environment for bonds yet the pressure on yields has been to the upside pushing bond prices down.  The appetite for equities has been improving suggesting a willingness to engage in riskier assets.  The American economy has been showing signs of improvement while the Euro-zone has been somewhat more stable yet emerging markets have been weaker as growth there has slowed.  As a result, this appetite for risk has not translated to the emerging economies but has in fact been shunning them.  Expectations for global economic growth has dampened as a result since the emerging economies have a much larger impact now than a few years back.  Yet, as previously noted, the trend has generally been into equities despite lower expectations in global growth.

Could inflationary expectations transform into deflationary fears as the emerging markets slow and their currencies lose value relative to the developed countries? Continue reading>> http://www.sprunginvestment.com/?p=1498

Michael Sprung CFA founded Sprung Investment Management to meet the personalized needs of private clients, not-for-profit organizations, endowments, foundations and small institutions. As President, he is responsible for the firm's overall direction and investment portfolio decisions. Michael brings more than 30 years experience in the Canadian investment industry and has managed equity and balanced portfolios as large as several billion dollars. Michael can be seen as a commentator on BNN-TV and is a frequent contributor to the Canadian Financial Press. Learn more>> http://www.sprunginvestment.com/about-us/