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Economy and Stocks Are Just Fine

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The chart of the week has to be the upwards revisions to fourth quarter GDP because everyone was forecasting a down number! The economy is fine. It grew at 2.4% last year, the same as the year before. Full year consumer spending is rising at the fastest pace in a decade. Inflation is ticking up and so are wages.

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Next up? The February employment data out this Friday. Expect 175,000 new jobs and a steady 4.9% unemployment rate.

US stocks have rebounded from the awful start to the year and are now only down 3% YTD as of last Friday. After hitting 1.60% mid-February, ten year Treasury bond yields jumped to 1.78% at the close Friday. Still low, but not bad versus Japanese and German 10 year government bonds which are flirting with negative yields.

Foreign stock markets have recovered a bit but are still in a funk, but that is the subject of another blog down the road.

Lots of sizzle but no steak. That’s what these two stories tell us:

The NY Times reports that hedge funds lost 0.9% on average last year, according to the research firm HFR. The S&P 500 index did better, gaining 1.2%.

PIMCO notes: “Morningstar reports that an all-time record 31 “liquid alternative” funds closed their doors in 2015 last year.”

Clients know APCM has been skeptical of these high priced products and have not gone there. It’s the high fees and spotty track record that keeps us away. That, and the fact that “liquid alts sounds like an oxymoron to us. Many alternative investments (hedge funds, private equity, etc) purport to generate higher returns because the underlying investments are illiquid and therefore you must be paid to take that “illiquidity” risk. So how can the packaged “liquid alt” fund or ETF be more liquid than the underlying? It can’t. That’s what investors in Third Avenues leveraged High Yield mutual fund found out the hard way when it collapsed and shut its doors to redemptions last year.

I am heading off for a couple of weeks of vacation in warmer climes. You will be in Nick’s capable hands in the meantime.

Jeff Pantages, CFA®
Chief Investment Officer

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