Jun 1, 2010 12:00 PM

There are some signs of growth that should carry through the end of 2010, but is this growth self-sustaining?

By Michael E. Lewitt

As the Obama administration and Congress struggled to push financial reform legislation over the finish line, the financial markets enjoyed strong and relatively strong performance over the first half of 2010. This was consistent with the expectations set forth in my 2010 investment outlook (“The Illusion of Calm,” Trusts & Estates, January 2010). Equity and fixed income markets rallied toward the upper end of the range of the price targets I anticipated as the U.S. and global economies showed signs of benefitting from the Herculean efforts by central banks and governments around the world to prevent an economic collapse. The S&P 500 was flirting with the 1200 level and corporate credit spreads were tightening through 550 basis points by early spring. The Federal Reserve's zero interest rate policy remained firmly in place despite the increasingly strident warnings (and dissents) from Kansas City, Mo. Federal Reserve Chairman Thomas Hoenig that the seeds of the next credit bubble were being sown. But the fact remained that inflationary pressures remained dormant as the economy continued to nurse itself back from the deflationary shock of 2008.

At the time of this writing in early May 2010, however, two events were throwing a scare into the markets and causing them to reevaluate their appetite for risk. The first was growing strains in the European Union, the most obvious being the European Union's nearly $1 trillion bailout package for Greece and other weak European states. The second was the horrific oil spill in the Gulf of Mexico, which threatened prolonged environmental damage and threw another monkey wrench into the United State's struggle to develop a coherent energy policy. Failure to successfully address either of these crises could derail the markets' rise and will, at the very least, insure that volatility will increase over the second half of the year.

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Topics of Interest

Estate Tax	Donor Advised Funds
GSTs	Family Offices
Private Foundations	Life Insurance
2010 Tax Act News	Industry Trends Surveys

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50 years ago, in May 1962, we featured articles such as: "Future of Canadian Trusteeship" by Arthur H. Mingay", "Training Trust Employees" by Ian M. Marr, "What is a Trust Officer?" by Eric J. Brown, and "Selling Services" by Donald I. Webb.

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