Weekly Commentary: The Big Kahuna?

January 24, 2012

01.24.12

This week will have some important economic data releases, as well as a slew of earnings reports.

Housing numbers [will the bottoming process continue?] and the Fed’s meeting [they’re expected to keep fed funds rate next to zero] will be out on the 25th.

Unemployment [don’t forget to monitor the drop-out rate], durable goods orders, and leading indicators will be out on the 26th.  We will also get the preliminary look at 4Q2011 GDP.

Earnings reports will also power markets this week. Early reporters have produced mixed results, with technology strong, while many banks reported less-than-expected results.  Apple, the Big Kahuna, will be reporting Tuesday evening.

The conventional wisdom prevalent at the start of the year was for a difficult first half followed by a more rewarding second half of 2012.   This was an extrapolation of the Eurozone panic which impacted the second half of 2011.  However, since then fears have subsided [at least for now] and the markets have advanced.

The market has actually gotten off to a great start this year, with the DJIA’s 4.1% increase the smallest of the major indices [the Nasdaq is up 7%].  There may be a tad “too much” optimism in today’s market, but this is a presidential election year, which tends to [unrealistically?] boost the country’s outlook.

Stay tuned.
“Perpetual optimism is a force multiplier.”
– Colin Powell

Weekly Commentary: Predictive Value

January 17, 2012

01.17.12

Economic reports out today reveal trends favorable to U.S. and most foreign stock markets.  Here at home the Empire State Manufacturing Index for January improved more than expected, rising to 13.5 from 8.2 (anything above 0 means the economy is expanding).  Amusing to me the Chinese economy “only” grew at 8.9% for the quarter.  As a result China may consider more easing of monetary policy.

An interesting report from Mark Hulbert (http://www.marketwatch.com/Journalists/Mark_Hulbert) was in the news discussing the first five days of January indicator.  A commonly held theory is the market will be up for the year if it is up the first five days.  Hulbert’s data debunked such an idea.  He also brought up the “Santa Claus” theory about the last five days of the previous year and found the same lack of correlation.  And he finished off by looking at the two together and found no predictive value.

He finished his piece by pointing out the real predictors-sales and earnings going up that year.

And Hulbert’s final words of wisdom-“Hope is not a Strategy”

GO PATRIOTS!!

Weekly Commentary: Two Steps Forward…

January 9, 2012

01.09.12

On Friday the December jobs report showed the economy added 200,000 jobs and the unemployment rate dropped to 8.5% from 8.71%, continuing evidence that the economic recovery has accelerated from the 3rd quarter.  Most economists are projecting 3% GDP growth for the 4th quarter of 2011.

This week starts the beginning of the 4th quarter earnings reports, starting with Alcoa on Monday and JP Morgan on Friday.  These earnings reports may not be as robust as we experienced earlier in the year, as companies are running out of the ability to cut expenses. Also, in 2012 the projected recession in most of Europe will be a drag on earnings, including large U.S. multinational corporations.  The European debt crisis has not yet been resolved and the Euro dollar (€) has further to fall (vs. the U.S. $).

“Be the change you want to see in the world.”
– Mahatma Gandhi

 

Weekly Commentary: New Year In

January 3, 2012

01.03.12

2011 is in the history books and we can all breathe a collective sigh of relief. Most of the memorable events were negative; the Japanese earthquake, the Eurozone debt crisis or the downgrade of the U.S. debt. Despite the continuous onslaught of day to day noise, the S&P 500 closed flat for the year (for the first time since 1970)!

2012 picks up where 2011 left off:
1. Sluggish yet improving U.S. economy
-Employment improving
-Housing sales are improving as inventories decline, house prices soften and rents rise
-Consumer continues to spend, mostly at the expense of savings
2. Continuation of the Eurozone debt crisis
3. Increasing tensions in the Middle East

The U.S. is entering an election year which usually bodes well for stock prices and the economy. Although we are waiting to pull out the victory dance, we are cautiously optimistic.

The economic calendar picks up this week with updates on U.S. manufacturing, motor vehicle sales and culminating with the employment situation.

“An optimist stays up until midnight to see the new year in. A pessimist stays up to make sure the old year leaves.”
– Bill Vaughn

Weekly Commentary: Rear-view Mirror

December 20, 2011

12.20.11

This year investors faced a low return/high volatility market with defensive equities and long dated U.S. treasuries leading the way. Investors continue to liquidate their equity funds in droves; more so than 2008! Where are they going? They are looking in the rear-view mirror for the best performers like bonds and the perceived safety of high yielding utility stocks.

But when was the last time investors were rewarded for buying high and selling low?
It’s something to consider when making your 2012 New Year’s Resolution.

We are starting to receive the Wizards of Wall Streets expectations for 2012. This is a lengthy exercise of sifting through the wash plant for nuggets of gold. As usual, we will formulate our own economic and market views which we will be sharing with you in our upcoming quarterly newsletters. Until then, we wish all of you a peaceful, restful holiday season.

“Strategic planning is worthless — unless there is first a strategic vision.”
-John Naisbitt

Weekly Commentary: Buffett-mania?

December 13, 2011

12.13.11

 

Buffet-mania?  No, not the spread for lunch at the Marriott, but watching the every move of Warren and Co.  We were fascinated to learn more about his Son Howard the Farmer who will become the non-executive chairman of Berkshire Hathaway some day.  With all the work Howard has done in dealing with hunger in Africa, he will offer much to the community.

Meanwhile back in the economy we continue to keep score on the good news and the bad news.  Certainly the market volatility, Europe and Washington’s intransigent crowd don’t help.  But at the micro level there were a number of juicy items- Pfizer will raise their dividend 10% and buy back $10 billion in stock.  GE raised their dividend 17% and Ford has reinstated their dividend after a five year absence.  While the consensus forecast for the fourth quarter GDP had been running around two percent, the recent estimates now are 3.5%.  No one is willing to proclaim victory, but it surely feels better.

So what to do?  We come back to Buffet and his style of investing- come up with a value you want to pay for an investment and wait for it to reach that price.  Be an investor, not a market timer and remember the three rules of investing-patience, patience and more patience.

Happy holidays!!

“With time and patience the mulberry leaf becomes a silk gown.”
– Chinese Proverb

Weekly Commentary: Pass the Dramamine…

December 6, 2011

12.06.11

What a difference a week makes!  Good economic news from the US along with a rate cut in China and a surprise coordinated effort from six central banks resulted in the S&P 500 and DJIA surging roughly 7% for the week.  Bonds sold-off slightly for the week.

China dropped its reserve requirement ratio by 0.50%, and Brazil lowered interests as both countries signaled easier monetary policy.

In the United States, better-than-expected economic news provided incentives for investors to add to equities.  Among the good news: Chicago PMI, pending home sales, strong retail sales, better auto sales and higher consumer confidence.

The old adage “don’t fight the Fed” rang true last week as six central banks came together to provide liquidity to the European Central Bank.

The last few months reinforce the fact the volatility is a two-edged sword.  The markets reacted violently on the downside, and they reacted the same way on the upside.  Investors should stick close to long-term asset allocation rather than trying to time the market.

Expect more volatility … there’s a lot of market moving events in the weeks ahead.

“We can’t solve problems by using the same kind of thinking we used when we created them.”
– Albert Einstein

 

Weekly Commentary: Volatility Continues

November 29, 2011

11.29.11

The European debt crisis continues to drive volatility in global markets.  Last week U.S. equity markets were off around 3% as fear of contagion spread to Italy and Spain.

Yesterday markets rebounded as the retail sales reports for Black Friday indicated that U.S. consumers were still spending. Also over the weekend European leaders were promising plans to establish fiscal controls for European economies. Volatility will likely continue until Europe comes up with a credible plan to pay down debt.

Recently the OECD (Organization for Economic Cooperation and Development) said that “the global economic outlook has deteriorated significantly.”  They expect the euro zone economy to contract at a 1% annual rate in the 4th quarter of 2011 and by 0.4% in the 1st quarter of 2012.
Any large negative event in Europe would likely trigger a global recession.

The major economic news this week will be the monthly jobs report on Friday. Look for job growth of 125,000 and unemployment rate of 9%. Job growth is still not fast enough to reduce the unemployment rate.

“Debt is the slavery of the free”
-Publilius Syrus

 

Weekly Commentary: Giving Thanks

November 22, 2011

11.21.11
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

11.15.11

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