Pinnacle's Quarterly Commentary
2nd Quarter 2010
The summer of 2010 may become known as the “Great Awakening”. The credit crisis that hit the financial system in 2008 has progressed to sovereign debt in 2010. The “bond vigilantes” we spoke about in a previous letter have raided the government bond markets of the weak members of the European Monetary Union. Sovereign debt credit risk is now on everyone’s radar. The deficit problems of Greece spread default fears to other big spending government bond markets in Europe including Portugal, Spain, Ireland, and Italy. Austerity programs are the new fashion rage in Europe. Ironically, the pressure to reduce government spending will be good for the markets in the long run because more resources will be available for the private sector to use more efficiently. But first we must endure the anguish that a frayed government social program safety net will have on consumer confidence. (
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Our outlook for the markets remains positive. The economy should continue to recover and profits will boost corporate bottom lines and stock prices. The banking system is dealing with weakness in the commercial real estate sector, but residential real estate has passed the worst. The big money center banks, except for Citibank, have repaid their government capital infusions from TARP. Small and regional banks are earlier in the recovery process than the big money center banks, but the steep yield curve and improving economy will enhance their profitability. It is likely that the recession ended in the third quarter of 2009. Now we are monitoring what could derail the economic expansion. (Read More)
4th Quarter 2009
For the year, the Dow Jones Industrial Average rose 22.68% but the gain from the March 6 lows was an impressive 61.20%. (For those who are superstitious, please note that the March 6 low on the S&P 500 Index was 666.) Many investors are nervous that the market has risen too fast and is becoming overvalued. Our opinion is that the market is expecting a vigorous economic recovery and a strong rebound in corporate profits. We do not expect gains similar to the ascent from the March lows, but we could see an additional 10-20% rise in the broad market indices this year. (Read More)
3rd Quarter 2009
Greetings from a much happier place. We have come a long ways in the last year. I just re-read our quarterly report from the third quarter of 2008 and it reminded me of how precarious the financial system’s survival was at the time. At the end of last September, the Dow Jones Industrials was still trading above 10,800, but at the time of writing the reports, Congress was voting on whether or not to approve the $700 billion TARP package. October of last year saw the mind-numbing drop in the stock market that exceeded 2,000 points on the Dow. Volatility in stock prices shocked us all. The flight to quality wiped out many leveraged investors. (Read More)