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

Weekly Commentary: Less Hierarchy

November 8, 2011

11.08.11

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

10.31.11

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

10.24.11

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