Quarterly Market View
with George Shipp
Fall 2012
The world’s central bankers collectively have pledged: “Whatever it takes.” They mean it! Just when it appeared Europe would (finally!) break apart into creditor “haves” (like Germany and Finland) and over-indebted “have nots” (like Greece and Spain), Mario Draghi instead redefined the European Central Bank’s mission to include management of every sovereign interest rate on the continent. “Believe me, it will be enough,” he said, without precisely letting us know what “it” is or who will pay for “it.”Not to be outdone, today (September 13) Ben Bernanke announced that the Federal Reserve will be buying $40 billion of mortgage-backed securities per month, in addition to the ongoing $45 billion/month of longer-term Treasury bonds. Quite an announcement with mortgage rates already at generational lows, coming as it did from the man tasked with “price stability” and on the same day we learned that August Producer Prices sizzled 1.7% (22% annualized) higher!
Stock and bond markets have responded with unabashed glee to the plans, not to mention similar “quantitative easing” moves by the Banks of England, Japan, Switzerland and others. Some of us dinosaurs who cut our investment teeth in the Paul Volcker inflation-fighting era, which featured un-telegraphed interest rate increases (remember the “Saturday Night Special” bump to 12%?!) have been taken aback by these obvious RE-FLATION efforts (emphasis intended). If money printing were the easy answer to the world’s growth problem, why didn’t anyone think of it before?
The blunt force of the 0% policy recently has overwhelmed Triassic concepts like economic momentum (at present, decelerating worldwide), corporate profits (flattening at a healthy level), employment trends (last month the U.S. created only 96,000 jobs, rightfully a “grave concern” to Mr. Bernanke when compared with 173,000 new “SNAP” program beneficiaries), and other small matters such as $16 trillion of accumulated federal debt and the unresolved “fiscal cliff.” We are delighted that our clients have participated in the S&P 500’s 18% year-to-date gain, but this is no time to become complacent.
It’s okay and normal to feel uncertain about the future. Today’s unprecedented environment creates investment challenges and opportunities. Your trusted BB&T, Scott & Stringfellow, or Sterling Private Client advisor can help adjust your current portfolio as needed tactically, within the context of your long-term plan and very individual risk tolerance. Thank you for the privilege of helping you to achieve your financial goals.
George F. Shipp, CFA, is Chief Investment Officer for Scott & Stringfellow, LLC
This article originally appeared in the Fall 2012 
issue of Wealth magazine.
