Weekly Commentary: Volatility-less

February 21, 2012


One of our favorite business writers Mark Hulbert seems to consistently come up with interesting and useful information about the markets’ behavior.  He titled a recent piece “Don’t sell a dull market short”.  In it he dissects a measure of volatility “vix” which receives much attention. A low number for the vix means there is less volatility, a higher number more.
This year volatility has been quite low as measured by vix, less than the median of 20.  The number of days in which intraday Dow movement has been more than 200 points has been just one.  Hulbert has reviewed the data and concluded that this is a good thing and cites the numbers to prove it.  So don’t feel that a lull is necessarily a bad thing.

Speaking of good things, the news regarding the Greece bailout is upbeat.  Agreement on a 130 billion euro bailout came down today.  It would be nice if this were the last bailout, but at least it takes the immediate pressure off.  In addition there is agreement that private bondholders will accept a 53% haircut on their bonds.  Austerity measures for the country will not be well received.

Finally we note with some amazement that Apple Inc. has accumulated some $100 billion in cash reserves. Some suggest a special dividend or a major stock buyback.  How about a bailout of Greece?  Apple could take the Parthenon as collateral!!

Enjoy the spring weather.

“Never spend your money before you have earned it.”
-Thomas Jefferson

Weekly Commentary: Going Slow

February 14, 2012


Last week saw a pause in the rally in the equity markets as the S&P 500 dropped 2.26 points or 0.17%. The markets continue to watch negotiations with Greece and this week Moody’s downgraded six European nations including Italy, Spain and Portugal. In addition, the firm warned that the U.K.’s rating could also be at risk.  Any slowdown in Euro zone economies will be a drag on the earnings of many large U.S. companies.

Positive earnings surprises for 4Q 2011 continue to lag prior quarters and profit margin improvements are stalling out. In the 4th quarter productivity, as measured by output per hour was up just 0.5% from the prior year.

2012 may be a challenging year for corporate profit growth.

“I shall make the most of all that comes: And the least of all that goes”
– Sara Teasdale


Weekly Commentary: High Winds

February 7, 2012


Last week was another positive week for stocks as equity markets posted decent gains. Greece/Europe and the Middle East are concerning. However, U.S. economic data continues to be resilient. Most notable data point was last Friday’s employment report which highlighted an impressive gain of 243,000 jobs and another drop in the unemployment rate from 8.5% in December to 8.3% in January.

A Greece resolution may finally be in the works nevertheless Europe is not out of the woods. The European Central Bank has restored liquidity to the area via a program called LTRO (Long Term Refinancing Operation) which is similar to our Federal Reserve’s policies of quantitative easing and accommodative interest rates. Their policies have been effective in the short term however we are not ready to say the coast is clear.

This week we will keep our eyes to the east as things continue to develop abroad. Back in the U.S. we are wrapping up another decent round of corporate earnings reports and a fairly quiet week of economic data.

“We must free ourselves of the hope that the sea will ever rest. We must learn to sail in high winds.”

Aristotle Onassis


Weekly Commentary: Time for a Rest?

January 31, 2012


The Dow Jones Industrial Average moved slightly lower last week – down 0.47%.  The S&P 500 eked out a small gain, +0.07%, for the week.  For the year-to-date period, the Dow is ahead 3.6% while the S&P is higher by 4.7%.  Oil was up by 1.4% while gold jumped ahead by 3.95% on continuing global fears and the Fed announcement.  The markets are off to a good start in 2012, but perhaps it is time for the markets to take a rest.

Last week saw mixed economic data with better-than-expected consumer sentiment and durable goods only to offset less-than-expected fourth-quarter GDP and pending home sales.  Earnings have been reasonable so far with 59.9% of S&P 500 companies beating estimates, 29% missing estimates and roughly 11% in-line.

The Federal Reserve announced their intention to keep interest rates low until the end of 2014, but their language was vague enough (of course) to allow an increase in rates if warranted.  The old adage – “don’t fight the Fed” appears to be working.  The Fed is forcing investors to take on more risk, and we see equity prices moving higher as the year progresses.  In the short-term, however, we would not be surprised (or disappointed) if the markets gave back a bit of their advance.

Europe continues to be a wildcard.  We’re fairly confident that the next crisis (yes, there will be one) will originate in Europe.  The absence of a viable Greek debt restructuring will rattle investors as spreads on Italian, Spanish and Portuguese debt widens.

“Understanding is the first step to acceptance, and only with acceptance can there be recovery.”
Joanne Kathleen Rowling


Weekly Commentary: The Big Kahuna?

January 24, 2012


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


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”


Weekly Commentary: Two Steps Forward…

January 9, 2012


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


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


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



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