Ups and Downs

May 12, 2014


Last week the DJIA set a fresh record high of 16583 and shares of small companies as well as biotech and internet stocks bounced back somewhat from recent weakness. Major indexes continued to fluctuate near record highs as investors weigh weak 1st quarter corporate earnings against improving economic reports. Biotech and internet stocks have fallen 25% from earlier highs and money has been shifting to safer dividend paying stocks such as utilities and telecom.

High dividend stocks are not as attractive as a few years ago when their yields were above those of U.S. Treasuries, but dividends matter. From 1970 to 2012 dividend yield accounted for two-thirds of real stock market returns in major markets according to Credit Suisse. Value has been outperforming growth year to date.

“To repeat what others have said, requires education; to challenge it, requires brains.”
-Mary Pettibone Poole

Spring Thaw, part II

May 5, 2014


The markets struggled mightily last week, but ended a difficult week with a ~1% advance. Economic news, especially on the domestic front, was mostly positive, while challenges came from abroad. The Ukrainian-Russian conflict, German economic stagnation and the rapidly inflating UK housing bubble are just a few of the international hot-spots.

US manufacturing continues to rebound from a deep-freeze winter as the ISM rose from 51.3 in December to  54.9 in April [2H13 averaged 56.2]. Payrolls grew by 288,000 while the unemployment rate fell to 6.3%, the lowest since September 2008. Unfortunately, the labor force shrunk by 806,000, which brought the participation rate down to 62.8%, its lowest rate since 1978. The WSJ has charted the “gains…and pains” succinctly as follows:

Overall, the US economy grew by only 0.1%, well below expectations of 1.2%. Housing, trade and investment were all drags. Consumers did rebound, but the consumption numbers were boosted by healthcare [Obamacare?] and heating expense increases. There was no money for incremental holiday cheer since so much was spent feeding the household furnace. In these situations, it is best to remember that:

“The Best Things in Life are Free” – performed in 1948 by the  Ink Spots

Three Yards and a Cloud of Dust …

May 1, 2014

The Woody Hayes market continues. Equity markets continued to grind last week on the heels of decent earnings and a notable pickup in M&A deals. Despite reasonable market and economic news, most of last week’s volatility and weakness came on Friday due to rising tensions in Ukraine.

For the week, the Dow Jones Industrial Average finished at 16,361.46 to close the week lower by 0.29%. The broader-based S&P 500 closed at 1,863.40 for a slight loss of 0.08% for the week. The Nasdaq Composite closed the week at 4,075.56 for a decline of 0.49% (due to selling in biotech and technology). International markets followed U.S. markets lower as the Dow Jones Global (ex US) Index dropped 0.31% for the week (following nice gains over the past months … perhaps catching-up to U.S. equities). After last week’s give-back, market averages are somewhat mixed for the year-to-date period with the Dow Jones Industrial Average down 1.3% and the NASDAQ lower by 2.4%. The S&P 500 is eeking-out a gain of 0.8% for the same year-to-date period. The 10-year Treasury rallied slightly to close the week at a yield of 2.67% … down a bit from last week’s 2.72% yield.

Economic news released last week was fairly mixed, but there was enough data to support a slightly positive bias in the economy. Among the better-than-expected releases were FHFA house prices, Richmond Fed manufacturing, durable goods orders, University of Michigan confidence and existing home sales. New home sales, Kansas City Fed manufacturing and jobless claims were less-than-expected. Purchasing Managers’ Index news out of China was in-line with expectations, and Eurozone PMI were ahead of expectations. Earnings news out of the U.S. is reasonable with 73% of the companies in the S&P 500 reporting better-than-expected results (about one-half of the S&P 500 companies have already reported).

We continue to expect more of the same over the next few months – increased volatility and markets grinding higher and lower on mixed news. Stay the course.

Spring is here, and as Candide said “… let us cultivate our garden”.

Searching For Income

April 21, 2014


With short-term yields and money markets yielding practically nothing, most investors find themselves looking for ways to increase their current returns. One way, of course, is to look to higher yielding common stocks; it is possible to find dividends ranging from 2 ½-4%. The caveat here is to not rely heavily on higher yielding stocks to the exclusion of more growth-oriented stocks.

Within the fixed income portion, preferred stocks offer yields in the 6-7% area. Well managed bond funds that are sensitive to the rate environment should also work out well. Typically you might find yields of 4½-5% available on these funds. High yield bond funds also add diversification and hold up better than expected when rates go up. Also desirable are emerging market bond funds and Real Estate Investment Trusts.

In sum you should not be discouraged by the low short-term rates you see at the banks and brokers. It is feasible to construct an income-oriented portion of your portfolio with a substantial current return.

“In youth we learn; in age we understand.”
-Marie von Ebner-Eschenbach

Spring Thaw

April 14, 2014


Last week stocks sold off as investors continued to take profits in biotech and technology shares. The DJIA was down 2.6% for the week and the tech heavy Nasdaq was down 3.2% for the week and 8.2% from its peak March 5.

This week earnings’ reports for the first quarter begin in earnest with reports from Bank of America, Citigroup, Intel, Google, and GE. Earnings overall for the quarter are expected to be 1.2% lower than last year’s quarter due, at least partly, to the bad winter weather.

This morning some good news as U.S. retail sales rose a strong 1.1% in March. This was the largest increase in sales since Sept. 2012. Gains were widespread and particularly strong were auto sales which were up 3.1%. In another bit of good news February sales were revised to a gain of 0.7% up from 0.3%. Consumers seem to like the warmer weather.

“Change your thoughts and you change your world.”
-Norman Vincent Peale

Three Yards and a Cloud of Dust …

April 8, 2014


The markets mostly produced a grinding ~0.5% advance last week, although the Nasdaq fell by -0.7%. Early-week advances were reversed by mixed action on Thursday, but then Friday produced steady declines throughout the day. This was in reaction to retreats by former bellwether sectors [biotech, medtech and IT tech] and uninspiring payroll data.

The Friday jobs report painted a mixed picture of the economy. Unemployment claims continue to suggest ongoing monthly payroll growth of ~200,000. The private sector is producing most of this growth [up 192,000] despite ongoing regulatory drag. Severe weather impacted New England and Mid-Atlantic USA early this year, but steady growth in construction employment [+19,000 in March v. +18,000 in Feb] doesn’t show any country-wide weather-related employment recovery. Note that hours-worked did fall to 34.3 in Feb before rebounding to 34.5 in March.

Sweet April showers

Do spring May flowers – Thomas Tusser

Grinding, Grinding, Grinding …

March 31, 2014


Equity markets continued to grind last week on the heels of mixed economic news and continuing geopolitical tensions. Bond prices moved slightly higher as yields pushed modestly lower. 

For the week, the Dow Jones Industrial Average finished at 16,323.06 to close the week barely higher by 0.12%. The broader-based S&P 500 closed at 1,857.62 for a loss of 0.48% for the week. The Nasdaq Composite closed the week at 4,155.76 for a hefty decline of 2.83% (due to selling in biotech and technology). International markets moved higher as the Dow Jones Global (ex US) Index gained 2.16% for the week (international markets have been pushing higher lately … perhaps playing catch-up to U.S. markets). After last week’s grind, several market averages remain slightly negative for the year-to-date period with the Dow Jones Industrial Average down 1.5% and the NASDAQ lower by 0.5% (the S&P 500 is up 0.5% for the same period). The 10-year Treasury rallied slightly to close the week at a yield of 2.71% … down a bit from last week’s 2.75% yield. 

Economic news released last week was fairly mixed, but there was enough data to support a slightly positive bias in the economy. Among the better-than-expected releases were durable goods orders, initial jobless claims, purchasing manager’s index and consumer confidence. Gross domestic product and pending home sales lagged expectations. Some rays of light within the modestly disappointing GDP numbers were robust consumer spending and business investment during the fourth quarter. News out of China was less-than-satisfactory as their purchasing manager’s index dropped to an eight-month low. Perhaps this soft news out of China prompts the People’s Bank of China to initiate another round of stimulus … time will tell. 

We suspect that the next few months could see more of the same – increased volatility and markets grinding higher and lower on mixed news. First quarter earnings will likely be challenged due to lousy weather over the quarter … analysts have already cut their first quarter earnings estimates by 4.5%, according to FactSet. The next month or so will bring a mixed-bag of quarterly earnings reports … buckle-up. 

Spring is here (even if it doesn’t feel like it) … we suggest investors head outside and take-in some fresh air.

“No winter lasts forever; no spring skips its turn.”
-Hal Borland


Laissez Les Bon Temps Rouler

March 24, 2014



While there are plenty of issues to keep us up at night-Putin’s Ukraine forays and the sad story of the Malaysian Airliner- there is a happier event to report.  The Fed has completed its recent stress test for the major banks in the United States and 29 of 30 have passed the test.  As a result, we expect many banks and financial institutions to be allowed to raise their dividends and/or buy back their shares.  There will certainly be jockeying between the Fed and the banks, and we should know what will be allowed this week.


One of the banks we follow closely is Citicorp which is only paying $.04 per year while earning $4.35 last year.  They seem ready for a substantial increase in dividend. Some of the best capitalized banks were American Express, RBS Citizens, PNC, Wells Fargo and U.S. Bancorp. 


We feel confident this will be the year that major banks will be permitted to show shareholders some affection. We’ll find out very soon….ayez de la patience

“Being the richest man in the cemetery doesn’t matter to me. Going to bed at night saying we’ve done something wonderful, that’s what matters to me.”
-Steve Jobs


Looking Forward to Spring

March 17, 2014


Last week the S&P 500 suffered its largest weekly loss since late January due to disappointing economic data and uncertainty over the situation in the Ukraine. Most economists are attributing the weaker reports to severe winter weather. The DJIA was down 2.4% for the week and is now down 3.1% YTD. 

This week look for several reports on the housing industry as well as the results of a 2 day Fed meeting. Most people expect the Fed to continue its tapering program by reducing bond purchases by another $10 billion per month. Economic numbers should improve as the weather improves. 

One note of caution is a report in the WSJ that insider selling, when adjusted to only include officers and directors, shows a record level of selling particularly in capital goods, technology, consumer durables and consumer non- durables.

S & P 500 Chart

     An Irish Blessing      

May your troubles be less
And your blessings be more
And nothing but happiness
Come through your door.


The Glass is Half-Full!

March 12, 2014


Despite many headwinds and distractions, the market advanced again last week.  The much anticipated payroll data was better than expected: 175,000 jobs were added to nonfarm payrolls in February, and the January revised up by 14%.  The Russian invasion of the Crimean region of the Ukraine (and the US’ impotence) is temporarily on the back burner, although Gazprom’s implied supply disruptions have a lid on European equity performance.

We have referenced the slower-than-typical economic recovery for some time now, and have referenced regulatory drag as the primary problem.  Overall this problem continues, but there are occasional glimmers of hope.  The recent Medicare Part D denouement is a case in point.

HHS proposed a plan to gut this very popular (39M beneficiaries) and very efficient (45% less costly than originally budgeted!!) drug subsidy program first enacted in 2003 (a NIH resentment?). Fortunately, this produced an overwhelming protest [277 groups signed a protest letter and a bipartisan group of 24 Senators rebelled]. Consequently, HHS decided to shelve the plan, at least for now.

Thankfully, Washington DC does occasionally act in the voters’ best interest (at least when sufficient pressure is exerted!). Note that the January market swoon has been more than offset by subsequent strength, such that the S&P 500 is now up 1.6% year-to-date. 

“Government, even in its best state, is but a necessary evil; in its worst state, an intolerable one.”
Thomas Paine