U.S. equity markets barely budged during the first quarter, with the S&P 500 higher by 0.1%. Not surprisingly, performance within the index was split evenly with five of the major industry sectors rising and five falling. The Financial and Energy sectors declined the most, falling by mid-single digit percentages while the defensive Healthcare and Utilities sectors advanced by similar amounts. Continuing uncertainty over higher capital requirements and the regulatory regime imposed by the new Consumer Financial Protection Bureau hurt the Financial sector. The Energy sector was modestly weaker as the upheaval in the Middle East settled down and Saudi Arabia unilaterally raised their oil production in order to moderate commodity prices. Again, with all sectors performing within a few percentage points of each other, the strong performers were not standouts. It was the defensive characteristics of the outperformers that led to their strong relative results during a period of market and economic uncertainty. During the quarter, our results were helped by strong performance in the Energy and Consumer Discretionary sectors. Returns in these sectors were driven by strong stock picking. The Financial and Information Technology sectors detracted from results due to adverse stock selection.
Negatives are still numerous, however and cannot be entirely discounted. Continued housing woes, Middle East unrest and its impact on oil and gasoline prices, low but likely rising interest rates, worries about commodity induced inflation and increasing momentum towards reduced federal spending all present obstacles to a robust recovery. The market’s current obsession with the debt ceiling and the still elusive final resolution to the Greek debt crisis also weigh heavily.
Despite investors’ growth concerns, we remain bullish on the continued prospects for a cyclical global recovery. The policy induced slowing in China has reduced growth to a very high single digit rate from low double digits -- still impressive results. We believe that the recent modest slowdown in the U.S. and European Nation is normal during an economic recovery. When the fleeting impact from the Japanese earthquake and tsunami are factored in, the concerns over a double dip are likely overblown. The impact from the government led stimulus will continue throughout the balance of 2011, and the likelihood of a consumer recovery and continuing strong corporate earnings should augur well for the stock market
Economic Commentary
Over the course of the second quarter, equities as measured by the S&P 500 were essentially flat and interest rates across the yield curve declined. This type of performance by the financial markets is not what most would have expected several quarters into a recovery, especially when combined with unprecedented Federal Reserve policy support. It’s possible to consider macro events as the main drag on market performance. The Japanese earthquake and tsunami were certainly an epic tragedy for the loss of life and devastation it caused. They also negatively impacted industrial production all around the globe. The European debt crisis rekindled fear in May with concerns over the refinancing of Greek debt and a bail out for Portugal. By quarter end, market action was dominated by the fast approaching U.S. debt ceiling and budget issues and threats by the rating services to downgrade U.S. government debt.Â
We believe that by focusing on the U.S. consumer, you can glean the primary culprit for lackluster equity market performance. Data shows us the economy is not growing anywhere near historical expansion levels. There has not yet been any meaningful rise in housing activity – usually a major source of economic recovery. In fact, home prices have continued to decline. Job creation has been very sluggish regardless of how you might measure it. Retail spending exhibits only lackluster growth.  Consumer confidence has not risen and a "bunker mentality"; persists. However, the effect of all this bad news is that consumers have increased savings, paid down debt, especially installment and credit card debt, and taken advantage of lower interest rates. The slower course of the expansion is leading to much healthier consumer balance sheets. As pent-up demand increases, autos get older and housing affordability rises, all within a low interest rate environment, we anticipate a surge in consumer led activity that not only will prevent a double dip recession, but lead to a consumer led expansion that accelerates the cycle for business expansion and job creation.
03/18/2010
Revisiting StoneRidge: Congress Could Restore Aiders' and Abettors' Liability - Published by the Finance Professionals' Post
A bill introduced to Congress this past summer, and subsequently handed over to a Senate subcommittee for further consideration and/or revisions, could reverse a hotly debated January 2008 US Supreme Court decision. That decision, Stone-Ridge Investment Partners LLC v. Scientific-Atlanta Inc., upheld a lower appeals court's April 2006 decision that secondary participants in a corporate fraud cannot be held legally liable for their behind-the-scenes participation in the scheme.
StoneRidge sees acquisition leading to increased diversity - Published by the Phialdelphia Business Journal
An African-American investor group has acquired 55 percent ownership interest in StoneRidge Investment Partners LLC in a deal the money management firm feels will open the door to more diverse clients. Philadelphia-based StoneRidge reached the agreement last month with Beltraith Capital, LLC, a syndicate led by Steven L. Sanders, the co-founder and former chairman and CEO of First Genesis Financial Group.
If, by the close of the first quarter, investors hoped their questions would be answered as to the soundness of the recovery, they were very disappointed. While fourth quarter GDP data was revised higher to 5.6%, first quarter estimates varied widely around levels sharply lower than the fourth quarter result. Housing, the harbinger of the recession, shows few signs of a sustained recovery. This is especially the case, with tax credits expiring and mortgage rates rising. Bank lending remains constrained, notably impacting the small business owner. Businesses have begun to rebuild badly depleted inventories. The unemployment rate I now at 9.9% for three consecutive months and with the exception of census workers, new job creation has been lackluster. As recoveries progress, it typically takes about 22 months to regain the jobs lost in a recession. The recessionary period of 2001 saw that duration expand to 46 months and by all indications, it could be even longer this time due to the depth of the current contraction. Commercial real estate continues to be under severe pressure with additional foreclosures and bankruptcies likely. Even the weather conspired against a recovery as record breaking snowfall, rain and early spring flooding curtailed what spending plans consumers might have had.
Despite this litany of dour news, the economy seems to have stabilized. The effect of massive Federal Reserve intervention and the stimulus programs have benefited the economy, as evidenced by the paybacks of TARP funds and the elimination of the Federal Reserve temporary liquidity vehicles. The typical V-shaped economic recovery will likely not occur. Concerns exist over a W-shaped GDP pattern, a double-dip recession. That is, now that the stimulus has succeeded in propelling the economy higher, the normal cyclical engines of a recovery, housing, autos, and the consumer will not rebound sufficiently to offset the elimination of the stimulus programs. We do not believe the economy will not slip back into recession, but it will not be until these more cyclical aspects of the economy gain traction that the next leg of the recover begins in earnest. Equity markets have clearly already discounted some portion of this recovery however.
Financial Markets Summary
During the first quarter, stock investors watched earnings and bond investors watched supply of new debt and everyone focused on the Federal Reserve and reports of economic activity. Investors were dubious whether the strong stock market returns would continue unimpeded through the quarter. Despite the concerns, the S&P advanced a respectable 5.40% in the period. Small cap stocks performed even better returning 8.85% as measured by the Russell 2000 Index. Reported earnings, as expected, were strong versus year ago comparisons. Hopes remain high that this strength will continue. Low inflation rates support the price/earnings market multiple. Interest rates, despite a mid-quarter rally, finished at nearly the same levels as they began the quarter. Volatility in the bond market was high, fueled by financial distress in Greece, Portugal and Spain, as well as the supply of U.S. Treasury issues brought to market.
Stocks and bonds will both react to Federal Reserve policy hints over the second quarter. We have seen the Fed stay the course with its accommodative policy for well over a year. The question now is how much longer will policies remain the same and when and in what manner will the changes take place. Tightening too soon will cause the cyclical areas of the economy to stall, while waiting too long will raise fears of inflation and have a negative impact on the dollar. We expect the balancing act to continue through the quarter with the Fed keeping broader policy static, but making minor changes to the discount rate. The Fed will gradually alter the language in their statements to prepare the markets for a change as we move to year-end. The primary driving force behind second quarter returns for both stocks and bonds will be similar to that of the first quarter – earnings, economic indicators and supply issues.
Portfolio Commentary
Investors were rewarded with a solid start to 2010. Small capitalization stocks resumed the trend that began last year at this time by outperforming the larger capitalization sectors of the market. Such behavior is typical in the earlier stages of an economic recovery, as investors focus on the most leveraged opportunities. Industrials and Consumer Discretionary sectors provided strong advances of more than 13% and 10%, respectively, which is a sign that cyclically sensitive areas were reacting to better economic news. Health Care was also strong, advancing more than 11% and reacting positively to resolution of the uncertainty surrounding the health care reform. Telecommunications and Utilities were the only sectors that lost ground during the quarter.
With the great likelihood that this recovery will take longer to meaningfully add jobs, regain lost consumer confidence, rebuild industrial production and restore retail spending to the levels prior to the recession, we should expect volatile periods in the stock and bond markets as investors react to the latest data point. As it becomes apparent that the economy is gathering real strength, stocks should react positively, and those previously weak areas should contribute to accelerating growth. Earnings estimate increases should push stocks higher at this point. The Federal Reserve will finally feel able to end its accommodative policy phase, short-term rates will rise and long-term rates should also move higher on the good economic news. The final variable, less discussed but critically important, is that inflation should remain subdued. Simply by being a non-factor, inflation will aid the rise in stock prices by supporting valuations and allowing interest rates to rise gradually as a function of growth, rather than as an inflationary push.
Market Commentary
U.S. equity markets barely budged during the first quarter, with the S&P 500 higher by 0.1%. Not surprisingly, performance within the index was split evenly with five of the major industry sectors rising and five falling. The Financial and Energy sectors declined the most, falling by mid-single digit percentages while the defensive Healthcare and Utilities sectors advanced by similar amounts. Continuing uncertainty over higher capital requirements and the regulatory regime imposed by the new Consumer Financial Protection Bureau hurt the Financial sector. The Energy sector was modestly weaker as the upheaval in the Middle East settled down and Saudi Arabia unilaterally raised their oil production in order to moderate commodity prices. Again, with all sectors performing within a few percentage points of each other, the strong performers were not standouts. It was the defensive characteristics of the outperformers that led to their strong relative results during a period of market and economic uncertainty. During the quarter, our results were helped by strong performance in the Energy and Consumer Discretionary sectors. Returns in these sectors were driven by strong stock picking. The Financial and Information Technology sectors detracted from results due to adverse stock selection.
Negatives are still numerous, however and cannot be entirely discounted. Continued housing woes, Middle East unrest and its impact on oil and gasoline prices, low but likely rising interest rates, worries about commodity induced inflation and increasing momentum towards reduced federal spending all present obstacles to a robust recovery. The market’s current obsession with the debt ceiling and the still elusive final resolution to the Greek debt crisis also weigh heavily.
Despite investors’ growth concerns, we remain bullish on the continued prospects for a cyclical global recovery. The policy induced slowing in China has reduced growth to a very high single digit rate from low double digits -- still impressive results. We believe that the recent modest slowdown in the U.S. and European Nation is normal during an economic recovery. When the fleeting impact from the Japanese earthquake and tsunami are factored in, the concerns over a double dip are likely overblown. The impact from the government led stimulus will continue throughout the balance of 2011, and the likelihood of a consumer recovery and continuing strong corporate earnings should augur well for the stock market
Economic Commentary
Over the course of the second quarter, equities as measured by the S&P 500 were essentially flat and interest rates across the yield curve declined. This type of performance by the financial markets is not what most would have expected several quarters into a recovery, especially when combined with unprecedented Federal Reserve policy support. It’s possible to consider macro events as the main drag on market performance. The Japanese earthquake and tsunami were certainly an epic tragedy for the loss of life and devastation it caused. They also negatively impacted industrial production all around the globe. The European debt crisis rekindled fear in May with concerns over the refinancing of Greek debt and a bail out for Portugal. By quarter end, market action was dominated by the fast approaching U.S. debt ceiling and budget issues and threats by the rating services to downgrade U.S. government debt.Â
We believe that by focusing on the U.S. consumer, you can glean the primary culprit for lackluster equity market performance. Data shows us the economy is not growing anywhere near historical expansion levels. There has not yet been any meaningful rise in housing activity – usually a major source of economic recovery. In fact, home prices have continued to decline. Job creation has been very sluggish regardless of how you might measure it. Retail spending exhibits only lackluster growth.  Consumer confidence has not risen and a "bunker mentality"; persists. However, the effect of all this bad news is that consumers have increased savings, paid down debt, especially installment and credit card debt, and taken advantage of lower interest rates. The slower course of the expansion is leading to much healthier consumer balance sheets. As pent-up demand increases, autos get older and housing affordability rises, all within a low interest rate environment, we anticipate a surge in consumer led activity that not only will prevent a double dip recession, but lead to a consumer led expansion that accelerates the cycle for business expansion and job creation.Revisiting StoneRidge: Congress Could Restore Aiders' and Abettors' Liability - Published by the Finance Professionals' Post
A bill introduced to Congress this past summer, and subsequently handed over to a Senate subcommittee for further consideration and/or revisions, could reverse a hotly debated January 2008 US Supreme Court decision. That decision, Stone-Ridge Investment Partners LLC v. Scientific-Atlanta Inc., upheld a lower appeals court's April 2006 decision that secondary participants in a corporate fraud cannot be held legally liable for their behind-the-scenes participation in the scheme.
Read more
http://post.nyssa.org/nyssa-news/2010/03/revisiting-stoneridge-congress-could-restore-aiders-and-abettors-liability.htmlStoneRidge sees acquisition leading to increased diversity - Published by the Phialdelphia Business Journal
An African-American investor group has acquired 55 percent ownership interest in StoneRidge Investment Partners LLC in a deal the money management firm feels will open the door to more diverse clients. Philadelphia-based StoneRidge reached the agreement last month with Beltraith Capital, LLC, a syndicate led by Steven L. Sanders, the co-founder and former chairman and CEO of First Genesis Financial Group.
Read more
http://philadelphia.bizjournals.com/philadelphia/stories/2009/06/22/story3.htmlLarge Cap - 1st Quarter, 2010
Economic & Market Commentary
If, by the close of the first quarter, investors hoped their questions would be answered as to the soundness of the recovery, they were very disappointed. While fourth quarter GDP data was revised higher to 5.6%, first quarter estimates varied widely around levels sharply lower than the fourth quarter result. Housing, the harbinger of the recession, shows few signs of a sustained recovery. This is especially the case, with tax credits expiring and mortgage rates rising. Bank lending remains constrained, notably impacting the small business owner. Businesses have begun to rebuild badly depleted inventories. The unemployment rate I now at 9.9% for three consecutive months and with the exception of census workers, new job creation has been lackluster. As recoveries progress, it typically takes about 22 months to regain the jobs lost in a recession. The recessionary period of 2001 saw that duration expand to 46 months and by all indications, it could be even longer this time due to the depth of the current contraction. Commercial real estate continues to be under severe pressure with additional foreclosures and bankruptcies likely. Even the weather conspired against a recovery as record breaking snowfall, rain and early spring flooding curtailed what spending plans consumers might have had.
Despite this litany of dour news, the economy seems to have stabilized. The effect of massive Federal Reserve intervention and the stimulus programs have benefited the economy, as evidenced by the paybacks of TARP funds and the elimination of the Federal Reserve temporary liquidity vehicles. The typical V-shaped economic recovery will likely not occur. Concerns exist over a W-shaped GDP pattern, a double-dip recession. That is, now that the stimulus has succeeded in propelling the economy higher, the normal cyclical engines of a recovery, housing, autos, and the consumer will not rebound sufficiently to offset the elimination of the stimulus programs. We do not believe the economy will not slip back into recession, but it will not be until these more cyclical aspects of the economy gain traction that the next leg of the recover begins in earnest. Equity markets have clearly already discounted some portion of this recovery however.
Financial Markets Summary
During the first quarter, stock investors watched earnings and bond investors watched supply of new debt and everyone focused on the Federal Reserve and reports of economic activity. Investors were dubious whether the strong stock market returns would continue unimpeded through the quarter. Despite the concerns, the S&P advanced a respectable 5.40% in the period. Small cap stocks performed even better returning 8.85% as measured by the Russell 2000 Index. Reported earnings, as expected, were strong versus year ago comparisons. Hopes remain high that this strength will continue. Low inflation rates support the price/earnings market multiple. Interest rates, despite a mid-quarter rally, finished at nearly the same levels as they began the quarter. Volatility in the bond market was high, fueled by financial distress in Greece, Portugal and Spain, as well as the supply of U.S. Treasury issues brought to market.
Stocks and bonds will both react to Federal Reserve policy hints over the second quarter. We have seen the Fed stay the course with its accommodative policy for well over a year. The question now is how much longer will policies remain the same and when and in what manner will the changes take place. Tightening too soon will cause the cyclical areas of the economy to stall, while waiting too long will raise fears of inflation and have a negative impact on the dollar. We expect the balancing act to continue through the quarter with the Fed keeping broader policy static, but making minor changes to the discount rate. The Fed will gradually alter the language in their statements to prepare the markets for a change as we move to year-end. The primary driving force behind second quarter returns for both stocks and bonds will be similar to that of the first quarter – earnings, economic indicators and supply issues.
Portfolio Commentary
Investors were rewarded with a solid start to 2010. Small capitalization stocks resumed the trend that began last year at this time by outperforming the larger capitalization sectors of the market. Such behavior is typical in the earlier stages of an economic recovery, as investors focus on the most leveraged opportunities. Industrials and Consumer Discretionary sectors provided strong advances of more than 13% and 10%, respectively, which is a sign that cyclically sensitive areas were reacting to better economic news. Health Care was also strong, advancing more than 11% and reacting positively to resolution of the uncertainty surrounding the health care reform. Telecommunications and Utilities were the only sectors that lost ground during the quarter.
With the great likelihood that this recovery will take longer to meaningfully add jobs, regain lost consumer confidence, rebuild industrial production and restore retail spending to the levels prior to the recession, we should expect volatile periods in the stock and bond markets as investors react to the latest data point. As it becomes apparent that the economy is gathering real strength, stocks should react positively, and those previously weak areas should contribute to accelerating growth. Earnings estimate increases should push stocks higher at this point. The Federal Reserve will finally feel able to end its accommodative policy phase, short-term rates will rise and long-term rates should also move higher on the good economic news. The final variable, less discussed but critically important, is that inflation should remain subdued. Simply by being a non-factor, inflation will aid the rise in stock prices by supporting valuations and allowing interest rates to rise gradually as a function of growth, rather than as an inflationary push.