Weekly Commentary: Giving Thanks

November 22, 2011

Risk is not on anyone’s plate at this year’s Thanksgiving dinner, at least not if they can
avoid it.  Of course with the continued dominance of Europe’s debt debacle, it’s no wonder U.S. treasuries are bought and global stocks are sold. Add a bit of flavor from the U.S. Stupor Committee [they’re not really “super”, are they?] and once again we are left with more uncertainty than before. We are not thankful for our political leaders’ lack of leadership both here and abroad.

However digging through the constant, blaring noise of negativisms and we find many things to be thankful for, such as:

  • U.S. economy continues to grow
    • Housing  – 9 straight months of inventory drawdown
    • Better than expected retail sales
  • Equity dividend yields are attractive and dividends are growing
  • The Oracle of Omaha, Warren Buffet, is buying stocks in a big way

2011 is winding down quickly and we are not ruling out the potential for a “Santa Claus Rally.” The holidays are a very busy time of year; however, we recommend taking a moment to review your personal financial situation for 2012 and beyond.

Happy Thanksgiving

“Sometimes we stare so long at a door that is closing that we see too late the one that is open.”
– Alexander Graham Bell

Weekly Commentary: Gradual Improvement

November 15, 2011


The market advanced four of the last five days, with the DJIA up 1.4% and the S&P up 0.8%.  Jobless claims were slightly less than expected, the trade deficit and government budget deficit were also smaller than expected, while CSCO, BBY and GM all beat earnings expectations.

This positive weekly result masked a violent midweek air pocket as markets dropped 3.6% Wednesday, declining as contagion fears spread to Italy from Ireland and Greece [among others].

The IPO calendar, a measure of market psychology, is filling. Angie’s List, Delphi Automotive, InvenSense [motion detection] and Manning & Napier are among the ~9 firms slated to come public this week [up from 5 last week].

This week’s economic data include:  PPI, Retail sales, CPI, industrial production, housing starts and Leading Indicators.

Addendum:  Core retail sales [released 11/15] were up a better-than-expected 0.6% in October, boosted by an unsustainable 3.7% increase in electronics and appliances [the iPhone 4s?].

As a result, the outlook for 4Q GDP is improving to ~3% or more, from earlier fears of only 2.25% growth.

“Government is a trust, and the officers of the government are trustees; and both the trust and the
trustees are created for the benefit of the people.”

-Henry Clay

Weekly Commentary: Less Hierarchy

November 8, 2011


The monthly employment report was released on Friday and it provided some unusual glimmers of encouragement through the revisions made to the prior two months. October saw only 80,000 new jobs, but the revisions for August and September were up 102,000.  The backbone of our economy continues to be the small business.  Most of the growth in October was small and medium size businesses.  While large companies continue to out source and send jobs offshore, the small business person plugs along adding jobs to the system.  It is shocking that large companies now only employ 17.5 million workers domestically.  We certainly need to encourage the smaller companies with positive incentives.

Meanwhile back in Europe we have a new government coming to Greece and a new national head about to be announced.  It would seem the changes will help Greece to receive the package they need.  In Italy interest rates have been soaring to levels feared to be deleterious to the country.  While Italy may have to seek a bailout, it is not yet clear how Europe could handle a problem of this magnitude.  Stay tuned as the soap opera called Europe plays out.

“Doubt is the incentive to truth and inquiry leads the way.”
– Hosea Ballou

Weekly Commentary: Witches’ Brew

October 31, 2011


Last week was a witches’ brew of economic data & events with a volatile mix of stock and bond returns. The major point of discussion was the decision to cut 50% of Greek debt, a potential turning point in the European debt debacle. Stocks in the S&P 500 responded very favorably to the decision which was a big contributor to the 3.8% weekly gain. We’ll take the upside for now but we are still skeptical about the plan’s implementation and efficacy.

A majority of U.S. companies have posted 3rd quarter earnings with an average of 75% beating their projected earnings per share. As the reporting season winds down, markets will shift their focus back to economic data. This week will include:
1. Auto sales
2. Manufacturing
3. Employment situation
The private sector has been the linchpin to job creation however the overall jobs picture is still subpar. We’ll need to see nonfarm payrolls sustainably exceed 150,000 jobs per month to get the economy moving and reduce the still elevated 9.1% unemployment rate.

Happy Halloween

“Thinking is easy, acting is difficult, and to put one’s thoughts into action is the most difficult thing in the world.”
– Johann Wolfgang von Goethe

Weekly Commentary: Time for Action

October 24, 2011


Last week saw U.S. stocks rise to a two-month high with the S&P 500 closing at 1238.25 (up 1.1%).  Bonds were little changed on the week as the 10 year Treasury note closed at 2.21%.  No Joy in Mudville has changed to, perhaps, a glimmer of hope in stock land … we’ll see.

Earnings reports have been reasonably strong with over 70% of companies reporting better-than-expected results.  Corporate balance sheets remain strong, and we suspect that things are not quite as bad as headline news would lead to us to believe.  Mergers and acquisitions could provide a bump to market sentiment as companies look to put their large cash positions to work.

Valuations remain reasonable, and we look for prices to move higher into year-end.  Earnings reports and news out of Europe will likely dictate market direction this week.  Let’s hope that European leaders are serious enough to stem the euro crisis.

“Take time to deliberate; but when the time for action arrives, stop thinking and go in.”
-Napoleon Bonaparte


Weekly Commentary: Whipsaw

October 17, 2011


Whipsaw – A condition where a security’s price heads in one direction, but then is followed quickly by a movement in the opposite direction. The origins of the term is derived from the push and pull action used by lumberjacks to cut wood with a type of saw with the same name.
– Investopedia

Through the first two weeks of October, stocks have bounced back significantly from the recent lows of the 3rd quarter. The S&P 500 has increased ~ 8% this month following last quarter’s loss of ~ 14%. We have been experiencing this level of whipsawing since August; however the S&P 500 has essentially been flat over this time period. I was always taught to keep my eyes on the horizon when I felt seasick, investors should do the same.

This week will be full of earnings reports as earnings season kicks into gear. We will focus on the strength of the previous quarter as well as management’s tone about the future. We suspect they will be a bit less sanguine than in recent quarters as storm clouds linger.

“A smooth sea never made a skilled mariner”
– English Proverb

Weekly Commentary: Jobs & Great Opportunities

October 11, 2011


Last Friday the jobs report for September showed employers added 103,000 jobs which was better than consensus expectations although 45,000 of that was due to the return of striking Verizon workers. On a positive note August jobs were revised up by 57,000 from zero. The unemployment rate remained at 9.1%.

According to most estimates employers need to add 125,000 jobs per month just to keep up with population growth and 200,000 per month to bring the unemployment rate down.

This week look for the start of earnings reporting season beginning with Alcoa on Tuesday followed by PepsiCo, Google and J.P. Morgan Chase. In July analysts expected companies in the S&P 500 to post earnings growth of + 17%. As of last week that had been revised down to + 12.6% which may give companies an opportunity to exceed expectations and lend support to last week’s rally. As a reminder the 4th quarter has been the best quarter for the stock market with an average return of 4.5%.

“We are all faced with a series of great opportunities brilliantly disguised as impossible situations.”
– Charles R. Swindoll

Weekly Commentary: Stocks & Bones?

September 28, 2011


This week marks the end of the 3rd quarter and the month of September. The markets have been extremely volatile over this time period and as we mentioned previously, September has lived up to its historical position as (hopefully) the worst month of the year. Stocks continue to be whipsawed depending on the macro views of Greek default/European insolvency or the hope of a European solution. There is no doubt these extreme price changes are testing the nerves of individuals and investment professionals alike. We are not sure when the markets will calm down, however diversification has certainly helped mitigate the day-to-day swings.

At the risk of being obvious, we would like to mention a few opportunities:

  1. Falling commodity prices will help ease the strain of your wallets at the grocery store and the gas pump.
  2. Review your current mortgage rate as current interest rates have come down potentially opening the door to refinancing.

“For a nation to try to tax itself into prosperity is like a man standing in a bucket and trying to lift himself up by the handle.”

– Winston Churchill


Weekly Commentary: The Behavior Penalty

September 19, 2011


Last week investors experienced volatility on the upside with the DJIA posting a 4.7% gain as concerns ebbed over the European debt crisis. Year-to-date the DJIA is down 0.6% though most people “feel” as though the markets are much lower.

This week’s calendar is quite busy. Below are some of the highlights we’ll be following:

  1. President Obama’s deficit reduction program which will include the “Buffet Rule” of taxing the rich.
  2. Several updates on the state of the housing industry; none of which are expected to be positive as we continue to work through excess inventories and tight credit.
  3. FOMC meeting
  4. Leading economic indicators

Over the past four months, U.S. equity funds have experienced net outflows to the tune of $75 billion. This outflow already supersedes the redemptions experienced during the months following Lehman Brother’s collapse.

As this chart highlights, the average investor lets emotions dictate his decision making process and therefore continues to buy high and sell low. Take a moment, revisit your goals and time frames, and minimize such costly errors of short term emotionally driven investing.

“In the middle of difficulty lies opportunity.”
– Albert Einstein

Weekly Commentary: Economy, Life & Topography

September 12, 2011


Last week the DJIA declined 2.2% again weighed down by concerns over the European debt crisis. This week the credit ratings for France’s largest private banks may be cut by Moody’s putting further downward pressure on the Euro.

This week look to Thursday for reports on the CPI and industrial production for August. CPI should show some easing of inflation concerns as lower commodity prices result in a reading of +0.2% down from +0.5% in July.

However, industrial production, which accounts for less than 20% of US GDP, is expected to be flat versus a +0.9% reading in July – further evidence that the U.S. economy continues to struggle with slower growth.

“Life is like topography, Hobbes. There are summits of happiness and success, flat stretches of boring routine, and valleys of frustration and failure.”
– Calvin & Hobbes