Market Commentary
By: Jack Regan
Board Member of The Vine Group Inc.

March 1, 2010

A VIEW FROM THE CROW’S NEST

It’s always darkest before the dawn

 Since the turn of the year, the equity and financial markets have seen ups, downs and sideways movements—the variety of political and economic events, foreign and domestic, as well as general popular unrest in the U.S. have created a variety of scenarios not imagined at the close of last year.

These situations spawned confusion, concern and even chaos in worldwide markets. A prime example of this is the turbulence in the European Union financial markets caused by the outsize debt balances of Portugal, Italy, Ireland, Greece and Spain (PIIGS) which threaten the stability of the euro. Greece was the most recent culprit to cause international fixed income markets to shudder, followed by the erosion of equity markets—all this in the first two weeks of February. This bete-noir in the EU caused the euro to fall and the US dollar to rise, further roiling most international markets. This lemming like action is typical in times when many investors have the same mind set. As Sam Stovall, chief investment strategist at Standard & Poor’s, noted “There’s an old saying that goes ‘if everyone is forecasting the same thing, then you know it won’t come true.’ ”

To the 2/18/2010 headline in the NYT referring to Lindsey Vonn’s gold medal in the 2010 Winter Olympics, “SOME PAIN, NO FEAR”, I would add “GREAT GAIN”. As significant as that was, her statement after was more expressive. “Americans perform well under pressure…we don’t hold anything back…we’re free spirited and we’re really determined people.” These comments also can be applied to investing in global markets.

At the present time there are cross currents in both the political and economic arenas. The cross winds are causing confusion, concern and near chaotic feelings across the land. However, many leaders, both government and business, have become so entrenched in positions that no compromise appears possible.

In the political arena the beltway boys appear to have turned off their hearing aids and stopped reading the lips of their constituents. The administration and the Democratic majority seem to become fixated on Obamacare and will do almost anything to get it passed. If the White House health care summit produces no compromise agreements and the Democrats try to get their healthcare initiative passed using a reconciliation bill which only requires a simple majority for passage, the discord created will make any debate between the two parties on any other matter almost impossible.

It will adversely impact any serious discussions on other legislative initiatives such as carbon tax, additional stimulus packages (only about 30% of the first stimulus bill has been spent); financial reform et al. Nuclear power proposals may be hampered as many states may block increased expansion as the NIMBY (not in my back yard) syndrome increases.

The stock market is very volatile- some would say schizophrenic—as traders and investors look at second to second economic reports. This is an indication that few are convinced of a robust and sustained economic and market rebound.

One of the key economic indicators is job growth. The recent job numbers indicate a slow, uneven recovery. Historically the employment report takes 12-18 months to reflect economic recovery since this is a lagging indicator. We have a length of time to see that process complete.

However, recent data has shown an increase in manufacturing production. This is a prelude to new hiring. Labor productivity has grown but technology can only go so far in increasing productivity. Manufacturers have been increasing hours but sooner or later, they will have to begin hiring more workers.

Jobs, Jobs, Jobs - this is the major component of economic expansion. Some of this hiring is being constrained due to uncertainty as to whether or not the rebound is real or just temporary. There is a wait and see attitude by business until it is clearer that the improvement is sustained. Also, small businesses are concerned with the impact of proposed health care legislation. Depending on what is contained in the bill, the cost of hiring new workers could be prohibitive.

Even with all the above worries and concerns -political and economic- I believe that the economy and market will show recovery, though not in a straight line. There will be ups and downs and many detours but by year’s end the market will overcome the travails and move substantially higher.

My aggressive year end forecast for the major equity indices follows:

                   Dow Jones Index            12,500
                   S&P 500 Index                 1,340
                   NASDAQ Index                2,725

Remember - Think, Act, Quality Names always Count

The views expressed in this commentary are the personal views of Jack Regan of The Vine Group Inc. (together with its affiliates, “Vine Group”) and do not necessarily reflect the views of The Vine Group itself.