Economic Overview ~ 2nd Quarter 2010

After rising 7+% in the first four months of the year, May and June saw dramatic selling across the global equity markets.  Equities were off about 10% for the quarter while fixed income gained as investors bid up prices in their move away from stocks.    Though there are many reasons for the equity declines, most central for the quarter was concern that the global recovery would stall as European countries implemented fiscal austerity measures to avoid defaults on the sovereign debt of many Eurozone countries.  This concern brought many market participants to ponder the future of the euro, which went from above 150 in December 2009 to below 120 in June 2010.  An accommodation was reached whereby the Eurozone nations and the IMF would contribute $145 billion to a bailout pool to stabilize Portugal, Italy, Ireland, Greece and Spain, also known as the PIIGS.  This compromise was met with violent protest from those funding the bailout and oddly enough from those receiving the bailouts.    The spectacle of world leaders working together to offer salvation and condemnation came to a head at the June G20 summit in Toronto where European leaders reprimanded the U.S. for fiscal recklessness.  The message might be spot-on, but the messenger is a bit suspect.  Amid the global currency concerns, Gold hit a record high of $1250 an ounce and gained 12% in the quarter.  First quarter U.S. GDP was up 2.7% (revised down from initial estimates of 3.0%) and is the third straight quarter of expansion. Unemployment dropped from 9.7% to 9.5% in the quarter, but this is nothing to celebrate as the primary reason for the decline is that 625,000 frustrated workers exited the labor pool.  There was a tremendous amount of noise in the employment readings throughout the quarter as hundreds of thousands of seasonal census jobs were added and removed from the labor count.   Home sales figures showed strength early in the quarter as the homebuyer tax credit  drew to a close.  They fell off a cliff as new single family home sales dropped 32% in June.  All the while, mortgage rates were hitting record lows. The Dodd-Frank Wall Street Reform and Consumer Protection Act was approved by House and Senate conferences.  As with the Health Care Reform bill, most market participants are eager to have regulatory uncertainty removed and therefore welcome the passage of even less than favorable legislation.

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