Fund Update
Foundation slips market bears, barely
As he signed an historic two-year, $160,000 contract in the spring of 1930, Babe Ruth was asked how a baseball player could be paid more than the president of the United States. His reported reply was, “I had a better year than he did.” There is no question that then-President Herbert Hoover and the nation he led saw a miserable 1929. Wall Street, one Thursday in October, laid an egg that forever altered U.S. history.
But 1930, the launch year for the Great Depression, would be lousier still. The relevance is that one must look back to that year to find a month of June more brutal than the one that closed the second fiscal quarter of 2008 for the Dow Jones Industrial Average.
With increased pressure on investments, the UNT Foundation managed a scant .4 percent return for the quarter. That said, the Foundation pool outperformed its benchmark S&P 500-Lehman Aggregate by 2.6 percent. The market value of Foundation assets at the end of the quarter stood at $64.9 million.
| Foundation pool (implemented 1/1/06) |
Benchmark 75/25 S&P 500/ Lehman Aggregate |
|
|---|---|---|
| Over five years | 10.7% | 6.8% |
| Over three years | 8.5% | 4.5% |
| Over the last year | -0.7% | -8.2% |
| Quarter ending 06/30/08 | 0.4% | -2.2% |
The Dow slid 10.2 percent in June, and its closing mark was 19.9 percent below its all-time record set on Oct. 9, 2007. That had significance for market technicians, as a decline of 20 percent from a high water mark is taken as a signal for a bear market. The index slipped below the magical minus-20 percent line in intraday trading June 30, and market bulls spent the rest of the day struggling to nudge it back the other way, lest the quarter end under an evil portent. A “rally” in the Dow at close eked out a 4.4-point gain, enough to clear the hurdle.
However, so much effort for so little advance might itself be taken as a sign of weakness; the market’s bears quickly reasserted themselves, and had their bad news indicator back in place shortly after the calendar turned to July. It is easy to impose a gloomy interpretation on the whiplash turnaround the market saw from mid-May through June.
Left in the lurch was a modest but promising advance that as late as May 19 had the Dow average sitting on a 6.2 percent quarterly gain, which then dissolved into a 7.4 percent loss. U.S. stock indices were buoyed early in May by consumer splurge-spending following the distribution of “stimulus” tax rebates.
Aggressive rate cuts and other pro-growth exertions by the Federal Reserve earlier in the spring also continued to help keep equities aloft. However, by the end of June these effects had dissipated long since.
Far-reaching effects
Among the myriad problems bedeviling the world’s equity markets, inflation is the most ominous and the most universal. Serious inflation problems are now rampant among non-oil-exporting countries, and, by no coincidence, every major stock index fell during the second quarter’s last month.
The Feds’s Open Markets Committee, meeting June 25, left the Fed Funds rate at 2 percent, but made it clear in its post-meeting statement that the threat of inflation, and the expectation of inflation, had become more prominent on its worry list. That had the effect of pleasing no one. Advocates of an accommodating rate policy, like former labor secretary Robert Reich, castigated the Fed for ignoring economic stagnation from the crisis in the credit markets, loss of jobs and deflation in housing prices.
At the same time, advocates of rate discipline — from the Financial Times of London to the governor of the Central Bank of Australia — blasted the Fed for ignoring inflation not only in the United States but also among emerging nations that follow U.S. interest rate policy and that are suffering double-digit inflation.
