No matter how long the winter, spring is sure to follow.  ~Proverb

With the first day of spring a couple of weeks ago and yet another Denver spring snowstorm this week, I have been thinking about things that I look forward to in spring.  I think many of us enjoy the spring snow and showers, the early crocus sprouts, then daffodils and tulips, the flowering fruit trees and the return of the green trees and grasses, the longer days, and the opportunity for more outside time and activities.

This year, the proverbial return of springtime seems particularly appropriate.  I have been feeling, over the past few weeks, that many people in the media and national political scene are finally realizing that this recession, like prior and future downturns, is part of the business cycle – more painful and stronger than usual, but not the end of the world.  While First Western must be cautious and conservative in this environment, this is also a time of opportunity

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As the new year started, investors were hoping for a calmer ride after the queasiness from the roller-coaster of 2008. The first two months of the year brought no such luck, as volatility continued and equity markets hit new 12-year lows in early March, bringing peak losses to about 55%. As the quarter came to a close, however, investors were greeted with a significant 20% rally. All eyes were focused on Washington, D.C., as the year began, hoping for change and a return to stability. Although early hopes of a quick, comprehensive solution to the financial crises were dashed and markets sank to new lows, the barrage of negative news finally turned. Sparking the rally were comments made by several banks that they were in fact profitable during the first two months, a meaningful turnaround from losses seen in the fourth quarter of last year. Economic data that showed some improvement from the fourth quarter also made investors hopeful. Finally, the litany of government programs announced during the quarter grew, with several that moved markets significantly. First, the Federal Reserve announced it would be buying U.S. Treasuries, in an effort to keep longer-term interest rates low, a move that was initially greeted favorably by all markets except by the domestic currency market, as this could weaken the U.S. dollar with higher inflation in the future. Second, the U.S. Treasury Department, in an effort to further improve the original TARP program, unveiled a new detailed plan to help banks with the troubled loans and securities that have been weighing them down.

For most investors, the backbone of their portfolio is their fixed income allocation.  Providing stability in cash flows and a return above inflation are the goals for bonds in most portfolios.  Corporate bonds, mortgage-backed securities, agency debentures, and Treasury notes compose the primary options for tax-exempt investors, such as pension plans and foundations.  Individuals, however, often look to municipal bonds for the diversification and income needs for their nest eggs.  Substantial tax benefits, most often exemptions from federal and state taxes, and an extremely low risk of default enable an extra degree of comfort.  Furthermore, the purchase of municipal bond insurance by the majority of issuers has historically enabled most bondholders to enjoy a few extra minutes of quality REM sleep.

The First Western Trust Bank Newsletter and the information and research contained herein do not represent a recommendation of investment advice to buy or sell stocks or any financial instrument nor is it intended as an endorsement of any security or investment and it does not constitute an offer or solicitation to buy or sell any securities. The articles within the First Western Trust Bank Newsletter represent the author’s own opinions and should not be construed as personalized investment advice. Investments, insurance, annuities and similar products are not FDIC insured, may lose value, and have no bank guarantee.