MarketLine Alert - April 20, 2009
Financials in the Spotlight; Markets Decline

The major U.S. stock market indices are currently off 3.6%-4.3%¹, as shares of financial companies and banks in particular are back on the sell list of investors.  A recent rally in bank shares, largely driven by surprisingly strong earnings reports, combined with renewed uncertainty has investors willing to lock in their gains from recent weeks and heading back to the safe haven of U.S. Treasuries.  As a result, the Treasury market is rallying today.  Uncertainty regarding the sustainability of strong earnings on the part of banks is rising because it is apparent that the problems with holding bad debt are not going away.  In fact, Bank of America surprised the markets by reporting higher earnings but warned that they are setting aside significant funds (over $13 billion) to cover anticipated losses from bad debts.  This was seen as a dismal start to a week that will be laden with earnings reports from hundreds of companies.  Additionally, the report out today on the Conference Board’s Leading Economic Index showed another decline in March with a statement signaling the recession is likely to continue through the summer albeit with less intensity.

Bruce Ebel, CFA, CIC, CFP®, Managing Director, Portfolio Manager for large-cap growth portfolios, comments, “Buy on the rumor, and sell on the news” is an old Wall Street adage, meaning that the stock market is a forward-looking discount mechanism based upon imperfect information.   The information is “imperfect” because it is a current assessment of future, and therefore inherently unknowable, facts. Once the information becomes “perfect”, .i.e. known in fact, the market can re-adjust its future outlook.  The sell off today is consistent with that type of thinking, especially as it relates to the banking sector.”

“We have just begun the flurry of earnings reports for the first quarter, with over 150 companies reporting this week.  We believe the market will fluctuate with the new data streaming out.  Some will be positive and some negative since there is a wide range of results of individual companies as it relates to their ability to maneuver and succeed in these extremely challenging economic times.“

“We continue to believe that overall stock market volatility will remain elevated as well as individual stock prices.  We continue to seek opportunities to improve portfolio performance as bouts of changed sentiment buffet the market.”

MEMBERS™ Capital Advisors, Inc.
¹ Source:  Bloomberg.com
MCA-0409-B5D0

MarketLine Alert - April 2, 2009
Economic Hopes Rise; Markets Respond Favorably

Markets around the world are rallying today with the U.S. equity markets up around 3%¹, markets in Europe rose 4-6%¹ and those in Asia ending the trading day up 4-7%¹, mostly due to indications that the U.S. economy is showing signs of recovery.  To be sure, volatility has been in fashion this week as earlier news pointed to a potential auto industry bankruptcy which sent the markets sharply downward.  However, sentiment turned positive with an unexpected report of slowing declines in manufacturing output and prices in March along with a rise in pending home sales and mortgage applications. Supporting the rally is news from the G20 meeting in London of the world’s finance ministers gaining consensus on actions to bring support to faltering economies with a $500 billion bolster to the International Monetary Fund, the financial organization whose assistance supports the currency reserves and banking systems of struggling economies.  In addition, new regulations on tax havens and hedge funds are also planned.  Topping this off, the Financial Accounting Standards Board (FASB) in the U.S. has adopted new (and long-awaited) guidelines that allow companies to value assets assuming an environment of orderly sale rather than distressed sale.  Banks are the biggest beneficiaries of this change as many have taken formidable losses on assets (particularly those associated with sub-prime mortgages) and should mitigate losses. For now, the markets have seemingly brushed off reports of rising unemployment and continued weakness in the job market.  It’s clear that glimmers of hope are meaningful in this environment. 

Bruce Ebel, CFA, CIC, CFP®, Managing Director, Portfolio Manager for MEMBERS Capital Advisors, comments, “We believe we have been and continue to be in a “bottoming process,” which is marked by high volatility and a “fits and starts” market environment.  The lodge pole of our thinking centers around the belief that the massive and quick policy responses have significantly diminished the likelihood of a systemic collapse. Consequently, P/E ratios are lifting as confidence is slowly being mended.  While economic statistics remain alarmingly weak, investors nonetheless are being forced to consider that possibility that the economy may recover faster than the pessimists worst fears, which had been the controlling sentiment.  In effect, investors are weighing whether “the train is pulling out of the station,” and some are voting with their assets to return to equities.”

Scott Opsal, CFA, Managing Director, Portfolio Manager for MEMBERS Capital Advisors, comments, “Today we are seeing a "plain vanilla" rally as cyclical sectors such as industrials and consumer discretionary are outperforming defensive sectors such as health and staples with one exception; financials are lagging today.  Despite the FASB ruling which should help stabilize the financial system, this group is not keeping up with the cyclicals.  This tells us two things about today's sentiment; first, this rally is being driven by an improved economic outlook rather than specific government policies aimed at fixing the financial crisis, and second, the financial sector led us into the bear market of the last six months, but it won't necessarily be the sector that leads us out.  As a result, this market recovery may be unusual in that it favors the growth style of investing rather than the traditional value focused recoveries we have seen in past recessions.”

MEMBERS^TM Capital Advisors, Inc.
¹ Source:  Bloomberg.com
MCA-0409-F7A3

MarketLine Alert - March 23, 2009
Bank Assistance Bolsters Global Markets

A new government plan was announced today by U.S. Treasury Secretary Timothy Geithner to assist the banks whose balance sheets are burdened by troubled assets and subsequently have been reluctant to make loans to qualified borrowers (both individuals and businesses alike).  This new program, known as the Public-Private Investment Program (PPIP), will combine $75 billion-$100 billion of the government’s existing $700 billion TARP money with money from private investors to purchase these loans and securities from banks and partner in the risk.  Markets around the world are cheering with the U.S. markets up 6.8 – 7.1¹, markets in Asia rose 3.4-4.8%¹ for the day, and Europe’s markets followed suit by climbing 2.4-2.9%¹.  Supporting the rally in the U.S. markets was the report that home sales increased in February by 5.1%¹ indicating that, in some cases, prices have fallen to the point where buyers are returning.

Bruce Ebel, CFA, CIC, CFP®, Managing Director, Portfolio Manager for MEMBERS™ Capital Advisors, Inc., comments, “First, the market has once again has regained its status as a leading economic indicator.  Clearly economic conditions remain extremely weak, with a contracting economy and further expected job losses.  Notwithstanding, the market is perceiving a "bridge to the future" for a better economy.  It is now anticipating a recovery, in contrast to its recent, almost singular focus on downside risks.”
 
“Second, the market is acting with more rationality, and with less unbridled emotion.  It indicates investors are re-gaining confidence in our free enterprise system and our liquid markets.  Confidence is a key component to the valuation of stocks and bonds.”
 
“Third, the market action is consistent with a bottoming process.  Investors are now seeing evidence once again of positive rewards for measured risk taking.  It is no longer a "one way street."  While it is impossible to correctly time the market, or to call an absolute bottom, it is healthy that investors are now entertaining the possibility of "being left behind" in a market rally, as well still, prudently, continuing to be concerned about further loss of principal in this bear market.  The fact that we now we have a better balance between fear and greed in and of itself creates a more stable market, an essential ingredient in the bottoming process.”

Livia Asher, Managing Director and Portfolio Manager for MEMBERS™ Capital Advisors, Inc., adds, “The addition of PPIP  to the Treasury’s and Fed’s previously announced programs underscores the commitment of the administration to work toward the stabilization of the US economy, with particular emphasis on the housing market.  No one program in and of itself will prove to be the “silver bullet” nor will solutions be immediate.  Still, each incrementally adds to the confidence of the market—as witnessed by today’s outsized price gains.  To the extent that home prices are on the path to stabilization, credit markets firm, liquidity is slowly restored and legacy problems purged from bank balance sheets, the market ought to be on the path to recovery, albeit probably not in straight line fashion.”

MEMBERS^TM Capital Advisors, Inc.
¹ Source:  Bloomberg.com
MCA-0309-7702

MarketLine Alert - March 10, 2009
Good news:  markets are up!

For the first time in what seems to be a long while the stock market staged a sustainable rally today.  We won’t go so far as claiming it is a trend, however, it sure is refreshing.  What’s better is that the rise isn’t isolated to the U.S. markets which were up 5.8-7.0%¹; with the exception of Japan (-0.4%)¹, broad markets performed strongly in Europe (+4-6%)¹ and Asia (+2-3%)¹ as well.  Leading the good news was Citigroup’s report of its profitable operations year-to-date.  For a company that made headlines as they sought government support for its continued viability and whose stock price has fallen nearly 80% so far in 2009, that’s newsworthy.  Also encouraging was news from Federal Reserve Chairman, Ben Bernanke, who indicated that there is some likelihood that the recession could end in 2009 provided the government’s actions support a return to more normal operation of financial markets.  His reference to possible regulatory overhaul and review of accounting rules also provided hope that the current malaise will not be repeated in the future and accounting standards that have hit the balance sheets of financial companies particularly hard may be revised.  No promises, but glimmers of hope have been sorely needed in this downturn and today’s news finally delivered just that.

Scott Opsal, CFA, Managing Director, Portfolio Manager for MEMBERS™ Capital Advisors, Inc., comments, “Perhaps never before has a report of two consecutive months of profit from one company created so much stock market wealth.  Citigroup's internal memo has shifted market psychology to the positive, at least for the moment.  Remember that this is an internal memo from a corporate head trying to rally his troops; not exactly a highly credible analysis of the situation.  Remember too that unemployment continues to rise, industrial activity is falling, and first quarter earnings remain likely to surprise on the downside.”
 
“Still, the recent market lows were caused by fears of financial sector collapse taking down companies like Citigroup and General Electric, and it is reassuring to think (or hope) that most of the large financial companies will post profits this year - excluding credit losses, which remain high.  The biggest fear in bear markets is not that tomorrow's news will be bad; we already assume that much.  Rather, the biggest fear is the unknown: How bad can it get?  How many companies might go out of business?  Today's Citigroup news helps to put a floor under those fears and could easily lead to a rally lasting several weeks.”

MEMBERS™Capital Advisors, Inc.
¹ Source:  Bloomberg.com
MCA-0309-2A24

MarketLine Alert - March 2, 2009
Woes Continue in Financials; Markets Turn Down

Markets across the globe are off sharply today as news released from high profile banks and insurers is sending further shock waves through the stock markets.  Stock indices in Asia, Europe and the U.S. have fallen between 3-5%¹, with Europe seeing the largest decline and the Dow Jones Industrial average in the U.S. setting an 11-year low.  American International Group, Inc. (AIG), once the largest insurance company in the world, set a U.S. corporate milestone with the largest quarterly loss on record at $61.7 billion.  The government announced further aid was available in exchange for ownership stakes in some AIG business units.  All of this together puts more uncertainty around the future of their current business model.  In addition, Europe’s largest bank, HSBC, announced a 70% drop in net profits for 2008 with plans to cut over 6,000 jobs and close its consumer lending operations in the U.S.  With HSBC having been perceived as stronger than its global peers, this news rocked the confidence of investors and set into motion a new course of selling.  Meanwhile the most promising economic news in the U.S. was the growth in the manufacturing sector as noted by the Institute of Supply Management’s manufacturing index, making this the second month it has posted a gain.  Increased production and efficiencies gained in supplier deliveries were sited as primary drivers.

Scott Powell, CFA, Managing Director of Common Stock and Managed Account Investments comments, “While we have discussed the likelihood of equity markets being substantially higher by the end of 2009, we have tempered that with the reality that investors might drive markets to new lows during this economic troughing period that we are in the middle of.  Unfortunately this is playing out and weighing heavily on investor sentiment and perseverance.” 

“Additionally, continued fraud is being uncovered with last week’s announcement of nearly $500 million of institutional monies being evaporated by a private investment group in Greenwich, CT.  Now that both the Dow and S&P 500 are at or approaching new lows (The Dow stands at 6800 and the S&P 500 at 704 as of this writing) it is likely that we will see markets under pressure from another round of hedge fund selling and mutual fund redemption.”

Powell continues, “Lastly, the Obama administration’s responses and plans are not being received any better by the capital markets then the former administration’s were.  The U.S. Government’s continued “lifeline” policy and the Treasury’s ongoing support of companies who are perceived as too big to fail, are wearing thin on investors who are seeing limited improvement in the operating conditions and results of these enterprises.” 

“We believe it remains critically important for clients to have appropriate exposure to cash and stable value / guaranteed oriented savings to complement their longer term diversified investment programs.  We also believe that a significant bear market rally in equities could well transpire over the course of 2009 that would provide some relief to investor’s psyche and allow continued opportunities for portfolio adjustments and rebalances at more comfortable levels.”

MEMBERSTM Capital Advisors, Inc.
¹ Source:  Bloomberg.com
MCA-0309-8FF7

For up-to the minute market information the following websites have current ticker information and technical reporting of yesterday and today's events:

    - Bloomberg – www.bloomberg.com
    - Reuters – www.reuters.com/investing
    - WSJ – www.wsj.com
    - NYT – www.nytimes.com/pages/business/index.html   
    - CNN Money - www.money.cnn.com/index.html