About Noroian Capital
Management

Staff

Investment Philosophy

Risk Management

Portfolio Review

HOME

 

Contact Us:
3685 Mt. Diablo Blvd.
Suite 353
Lafayette, CA 94549
Phone: (925) 299-2000
Fax: (925) 299-2002


email: info@noroian.com

Portfolio Review
January 2010

MARKET AND ECONOMIC OUTLOOK

“An optimist stays up until midnight to see the new year in.
A pessimist stays up to make sure the old year leaves” – Bill Vaughan

Investors happily accepted the so called “Santa Claus Rally” at the year end. The phenomenon known as the “Santa Claus Rally” can be defined as an increase in stock prices during the month of December. Some explanations for the jolly rally include holiday bonus investing, tax planning, and bear investors going on vacation. Another explanation for the rally is the concept known as the “January effect”, where investors purchase stocks in December in anticipation of higher prices in January. Investors will look toward the month of January to foreshadow the performance for the year. The old adage is: “As goes January so goes the year”.

As promised by the Obama Administration, passing health care reform legislation continued to take center stage as the year came to a close. In November, the House of Representatives narrowly approved its version of health care reform legislation. Then on Christmas Eve, the Senate passed its own $871 billion health care reform bill. The next step is for both bills to go to the conference committee. There, members from the Senate and House of Representatives will combine measures (where differences include public option, abortion and taxes) into one single bill; undoubtedly a difficult task. The single bill will then need to be voted on in the House of Representatives and the Senate before making its way to President Obama for signature into law.

The economic conditions continue to show signs of gradual improvement. Both personal income and spending increased during the month of November. The Producer Price Index (PPI) for November both overall and excluding volatile food and energy costs were more positive than expected, resulting in inflation fears. However, the Consumer Price Index (CPI), on the whole came in at expectations. The core level was slightly lower than expected, which calmed inflation worries. In addition, the minutes from the Federal Reserve (FED) meeting in December shared the committee members’ conservative views on inflation with “subdued inflation trends and stable inflation expectations likely to warrant exceptionally low levels of the federal funds rate.”

The unemployment report for the month of November was more positive than expected. The change in non-farm payrolls fell by only 11,000 jobs when a decrease of 125,000 was expected. This was the most encouraging unemployment report since the recession officially began in December 2007. With announcements of several major banks repaying part or all of their TARP (Troubled Asset Relief Program) loans, the White House is considering avenues to use a portion of the $787 billion stimulus plan to create additional jobs. The better than expected job report did stir up concern that the FED would raise rates soon, but, FED Chairman Bernanke indicated the FED will keep interest rates low for an “extended period”.

While the state of the financial sector in the United States seems to be improving, there has been recent news of other countries facing credit rating downgrades. Last month, concerns over the financial condition of Dubai World, a state owned conglomerate of Dubai, resulted in market volatility. It was also announced that Standard and Poors revised Spain’s credit outlook from stable to negative and Fitch Ratings removed the triple A rating from Greece. In addition, Moody’s Investor Services suggested the U.S. and U.K. trim their respective deficits in order to protect themselves against a downgrade to their triple A ratings. Importantly, Moody’s Investor Service did not see an immediate threat of a ratings change.

Interestingly, earlier in the month short term Treasury Bill (T-bill) rates were flat and even negative in November. The lower T-bill rates and higher prices indicated T-bills were in more demand than stocks. As a result, there appears to be a substantial amount of money on the sidelines waiting to be invested. Once investors perceive the economy is improving then they will feel more confident spending and investing.

We are optimistic about the prospects for the upcoming year. Our preliminary equity numbers indicate we outperformed the S&P 500 index in 2009.