Archive for ND&S Updates


January 27, 2014 


Last week equity markets were rattled by economic news out of China which indicated that the Chinese economy may be slowing even further. As a result on Friday U.S. markets had their largest daily decline in 7 months. The DJIA was down 3.5% for the week and the S&P 500 was off 2.6% for the week. 

Emerging market equities were hit even harder with most markets down 6% YTD as a slowdown in China lessens demand for commodities which are the main exports for many emerging countries. 

With question marks about the strength of global recovery we may be about to experience a more extensive correction than any that occurred in 2013.

“Nothing ever becomes real till it is experienced.”
-John Keats

The New Year and the Old Inflation Concern

January 21, 2014 


The Market was mixed last week, with the DJIA advancing 0.1% while the S&P fell -0.2%. This continues the Year-to-Date pattern of flat to down markets, [only partially offset by advancing Nasdaq and Russell 2000].

One of the Market’s recurring concerns is Europe [in spite of its 2.0% YTD stock market performance]. The easy money crowd is focusing on the “low” 0.8% Euro inflation rate registered in December. In fact, The International Monetary Fund is now pressuring the European Central Bank to do something about the IMF’s deflation fears:

However, the IMF may be ignoring the difficulty of the ECB [which is not a single country central bank] instituting some form of Quantitative Easing. Moreover, individual countries occasionally need to endure falling prices in order to regain competitiveness. Finally, the Japan example does not really apply in this situation [perhaps more on that in future installments].

The market is off to a tentative start in 2014. Perhaps the 2013 market “borrowed” some performance from 2014, and we will no doubt see corrections this year, but the longer term trend is still higher.

“The ultimate measure of a man is not where he stands in moments of comfort and convenience, but where he stands at times of challenge and controversy. The true neighbor will risk his position, his prestige and even his life for the welfare of others.”
-Dr. Martin Luther King


Buckle-up – Let’s Make it a Good Year!

January 13, 2014 


Equity markets were marginally higher last week on the heels of mixed economic news. Bonds rallied on a weaker-than-expected non-farm payroll report.

For the week, the Dow Jones Industrial Average finished at 16,437 to close slightly lower by -0.15%. The broader-based S&P 500 closed at 1,842 for a gain of 0.63% for the week. The Nasdaq Composite closed the week at 4,175 for an advance of 1.06%. International markets moved higher as the Dow Jones Global (ex US) Index gained 0.60% for the week. The 10-year Treasury rallied to close the week at a yield of 2.86% … down quite a bit from last week’s 3.00% yield.

 Most economic news released last week was fairly encouraging, including ISM Manufacturing, ADP employment data, and U.S. trade data. However, Friday’s nonfarm payrolls report was a big disappointment … expectations were for a gain of over 200,000 jobs, yet the reported gain was only 74,000. Of course, the bulls immediately declared the report an anomaly due to weather and holiday seasonality. Stocks sold-off a bit on the weak report, but bonds rallied on the hope that the Fed’s easing will be pushed out a few months.

Fourth quarter earnings season begins in earnest this week. Expectations for fourth quarter earnings point to 5% earnings growth and 3% revenue growth. We expect earnings to be more-or-less in-line with consensus.

Buckle-up … it’s a new year. As we state in our year-end newsletter, we expect increased equity market volatility (we’ve gone over 830 days without a 10% or more correction in the markets) as markets finish higher by year-end. Bonds should be less volatile this year as rates move gradually higher over the course of the year. Let’s make it a good year!

Ring out the old, ring in the new,
Ring, happy bells, across the snow:
The year is going, let him go;
Ring out the false, ring in the true.
~Alfred, Lord Tennyson, 1850

The Good News And The Good News

January 6, 2014 


Who says we are only the bearers of bad new? Just about all the recent economic data has been encouraging. Factory orders are out today and they are up in November by 1.8%. This number was propelled (no pun) by huge aircraft orders, nevertheless, we’ll take it.  Consumer confidence jumped to 78.2 from 72.0. Their “expectations” number was the stronger of the two measures but the one disappointing area has been consumer spending. One thing to remember when the fourth quarter GDP comes out is that the third quarter was pushed unusually higher by a large buildup in inventories. Also the sixteen day Government shutdown is expected to knock off 0.6% from the GDP number. 

Now to our second favorite topic of the day-income investing.
Rules to remember- 

  • If the yield is extraordinarily high is that it’s probably too risky for you.
  • Be willing to accept lower dividend yields from companies that consistently raise their dividends-example GE and Proctor and Gamble.
  • Be wary of high fund management fees which eat into the yields.  
  • Diversify your sources of yield-use stocks, bonds, emerging markets, preferred stocks and MLPs
  • Don’t be obsessed with current yields to the detriment of overall portfolio structure.

“Ability is what you’re capable of doing.  Motivation determines what you do.  Attitude determines how well you do it.”
– Lou Holtz