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

 

Weekly Commentary: Whipsaw

October 17, 2011

10.17.11

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

10.11.11

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

09.28.11

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

09.19.11

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

09.12.11

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

Weekly Commentary: The Cruelest Month

September 6, 2011

09.06.11

September is historically the worst month for stock returns, and this September is not off to a good start.  The DJIA and the S&P 500 lost ground last week as investors grappled with spotty and conflicting economic and geopolitical news.

Friday’s U.S. jobs report showed that no new net jobs were added in August.  Unemployment remained at 9.1%.  Businesses were reluctant to bring-on new hires due to lack of confidence in the future (regulatory overhang, lack of leadership in Washington, European sovereign debt issues, etc…).

Consumers, interestingly enough, continued to spend at a decent rate during July.  Consumer spending increased 0.8% in July – the fastest pace in five months.  The ISM manufacturing number came in at 50.6 against an expectation of 48.5.  The ISM non-manufacturing number for August came in at a better-than-expected 53.3.  The ISM numbers are consistent with GDP growth of close to 2%.

Talks of a recession loom large.  No doubt, the odds of a recession have risen over the past month or so, but we still believe that the U.S. economy will be able to limp along while avoiding an outright recession.  The good news is that the markets seem to be discounting much worse.

The week ahead includes a G-7 finance meeting, a meeting of the ECB, and President Obama’s speech on jobs and deficit reduction.


“A pessimist sees the difficulty in every opportunity; an optimist sees the opportunity in every difficulty.”

– Winston Churchill

Weekly Commentary: Bernanke’s Hot Potato

August 30, 2011

08.30.11

Hurricane Irene, which thankfully had weakened to tropical storm intensity [less than 74 mph] by the time it reached New England’s shores, caused much less damage than anticipated.  The same can be said about the summer’s “Bear Market”, which rallied by 4.7% last week.

Although second quarter GDP was revised downward to +1.0% [+1.1% expected vs. 1.3% preliminary], Bernanke’s Jackson Hole speech implied that the value of the dollar is somewhat important [!!] when the Fed is deciding monetary policy.  Moreover, he threw the “stimulate growth” hot potato to the congress and the administration.

The rally pushed further ahead on Monday [this is a hurricane-delayed update] based on some progress in resolving the Greek financial crisis coupled with better July consumer spending.  Upcoming data points this week include Fed minutes, unemployment claims and nonfarm payrolls.