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Posted by John on 02/08/2010 at 11:44 AM in Financial Markets | Permalink | Comments (0) | TrackBack (0)
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Posted by John on 02/08/2010 at 11:35 AM in Current Affairs, Economy, Financial Markets | Permalink | Comments (0) | TrackBack (0)
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Financial
markets were down again for the week closing January down uniformly. While
the vast majority of companies met or exceeded earnings estimates for the fourth
quarter and full year 2009, many did so without demonstrating meaningful top
line revenue growth. At one point, aggregate gross revenue growth, x
financials, was 0%, even as net earnings growth was in low double digits.
Investors appear to be shifting from emphasizing reported earnings growth to
top line growth as evidence of true economic recovery. GDP reported on Friday
was superficially positive at 5.7% but upon further review demonstrated that
most of the growth was via inventory reduction and not from much needed corporate
and consumer spending. Fasten your seatbelts!
·
On Wednesday, the FOMC
stated it would continue to maintain the Fed Funds rate at 0.25% for an “extended
period”. ·
GDP grew at 5.7%
annualized for the fourth quarter of 2009. ·
Durable-goods order
increased (positive) but less than expected (negative). ·
Both existing and new
home sales declined for December – both declines were unexpected. ·
Consumer confidence
increased slightly to its highest level since September 2008. Upcoming
Items of Interest ·
Personal
Income, construction spending and manufacturing activity all reported on
Monday, the ISM non-manufacturing report on Wednesday, productivity and
factory orders on Thursday and employment and consumer credit on Friday. We’ll
also hear from the White House regarding the 2011 Federal budget. Expect
continued coverage of the financial crisis in
Data source: All information is based
on sources deemed reliable, but no warranty or guarantee is made as to its
accuracy or completeness. Neither the information nor any opinion expressed
herein constitutes a solicitation for the purchase or sale of any securities,
and should not be relied on as financial advice. Headlines and upcoming items
of interest are pulled from published reports of Vanguard, Briefing.com and |
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Posted by John on 02/01/2010 at 08:31 AM in Current Affairs, Economy, Financial Markets | Permalink | Comments (0) | TrackBack (0)
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Posted by John on 01/26/2010 at 03:15 PM in Financial Markets | Permalink | Comments (0) | TrackBack (0)
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Financial markets were down sharply on
the week. Markets were down Wednesday, Thursday and Friday on continued uncertainty
regarding potential regulatory changes and the possibility of restrictions on
financial institution activity. Added to this uncertainty was mixed earnings
announcements from the corporate sector as earnings season continues and the
distinct possibility that Bernanke would not be renamed Fed Chairman. By week’s
end, investors were increasingly concerned that the nascent economic recovery
was under pressure with many pundits calling for a potential “double-dip”.
· New
housing starts fell by 4% surprising analysts expecting an increase ·
Conference Board Index
of Leading Indicators increased for the ninth consecutive month ·
Producer prices
increased 0.2% for the month and 4.4% for the year, due mainly to increasing
energy prices Upcoming
Items of Interest ·
Continued
earnings announcements for 4Q09 and calendar year 2009 ·
Fed
announcement on short term rates on Wednesday ·
4Q
GDP announced on Friday ·
Existing
home sales on Monday, consumer confidence on Tuesday, new home sales on
Wednesday, durable goods orders on Thursday and employment cost index on
Friday
Data source: All information is based
on sources deemed reliable, but no warranty or guarantee is made as to its accuracy
or completeness. Neither the information nor any opinion expressed herein
constitutes a solicitation for the purchase or sale of any securities, and
should not be relied on as financial advice. Headlines and upcoming items of
interest are pulled from published reports of Vanguard, Briefing.com and |
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Posted by John on 01/25/2010 at 09:47 AM in Current Affairs, Economy, Financial Markets | Permalink | Comments (0) | TrackBack (0)
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Posted by John on 01/23/2010 at 09:23 AM in Financial Markets | Permalink | Comments (0) | TrackBack (0)
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Posted by John on 01/21/2010 at 02:30 PM in Financial Markets | Permalink | Comments (0) | TrackBack (0)
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Equity markets held up well despite
news that wasn’t quite as strong as investors had expected. All major indexes
opened 2010 on a positive note advancing more than 1% and in many cases more
than 2% for the week. The underwhelming jobs data helped push down the 10
year yield as it fell slightly. Fed meeting minutes also highlighted the
fragility of the economic recovery.
· Non-farm
payrolls dropped by 85,000 which was much more than expected. ·
Consumer
credit declined by $17.5 billion in November, an 8.1% decline which was the
largest since 1980. ·
The
ISM Purchasing index reached its highest level since early 2006. ·
Factory
orders increased more than expected. ·
Construction
spending declined more than expected. Upcoming
Items of Interest This week brings the Fed Beige Book on
Wednesday, jobless claims, retail sales and business inventories on Thursday
and the CPI and industrial production data on Friday. It is also the start to
4Q09 earnings season with Alcoa up first. Data source: All information is based
on sources deemed reliable, but no warranty or guarantee is made as to its
accuracy or completeness. Neither the information nor any opinion expressed
herein constitutes a solicitation for the purchase or sale of any securities,
and should not be relied on as financial advice. Headlines and upcoming items
of interest are pulled from published reports of Vanguard, Briefing.com and |
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Posted by John on 01/11/2010 at 05:38 PM in Economy, Financial Markets | Permalink | Comments (0) | TrackBack (0)
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Equity markets turned down during the
final, holiday-shortened, week of the year but that didn’t dampen the
enthusiasm building for 2010. The indexes all finished 2009 much higher than
where they began the year showing remarkable resiliency. The breadth of the 9
month long rally was impressive as well as the Dow, the S&P, The World,
and the Russell 2000 all posted healthy gains. Of some interest was the
rather significant increase in 10 year T-bond yields over the last month.
Yields had reached 3.94% in
· Consumer
confidence was slightly higher than expected as reported by the Conference
Board on 12/29. ·
Initial
Jobless claims were well below expectations. Upcoming
Items of Interest The new year enters with a busy week
of reporting. We get the latest ISM reports for manufacturing activity
(Monday) and service-sector activity (Wednesday), construction spending
(Monday), factory orders (Tuesday), FOMC meeting minutes (Wednesday) and, on
Friday, unemployment rate, payroll and consumer credit. We’ll also hear
throughout the week about the strength of the Christmas retailing season.
This will be important to participants as a gauge of consumer sentiment.
Early reports are that consumers were spending more than expected and that
should be a sign of optimism for 2010.
Data source: All information is based
on sources deemed reliable, but no warranty or guarantee is made as to its
accuracy or completeness. Neither the information nor any opinion expressed
herein constitutes a solicitation for the purchase or sale of any securities,
and should not be relied on as financial advice. Headlines and upcoming items
of interest are pulled from published reports of Vanguard, Briefing.com and |
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Posted by John on 01/04/2010 at 08:55 AM in Economy, Financial Markets | Permalink | Comments (0) | TrackBack (0)
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The economic news last week was
generally positive but market performance suggests these results were already
priced in. Equity markets mostly declined last week (with small cap the
exception) while bond yields held steady. While the Fed acknowledged the improving
economy, it continued to hold the short-term interest rate (Fed Funds rate)
steady and suggested it will do so for “an extended period.” The Conference
Board’s index of leading indicators was up again for the eighth consecutive
month (and exceeded expectations). The current level is higher than the
previous peak in July of 07, but the Board noted that growth was slowing.
Prices increased at both the producer and consumer levels, both driven by
increasing energy prices. This is something to watch as recent declining
prices (measured by the PPI and CPI) have been driven mostly by declining energy
prices. If energy has found a bottom we may be seeing the first signs of an
uptick in inflation.
· Federal
Reserve holds rates steady and indicates it will do so for an “extended
period”. ·
PPI
increases 1.8%, greater than expectations, driven by increasing energy and
food prices. ·
Industrial
production increases and exceeds expectations. ·
New
construction starts were below expectations. ·
Initial
jobless claims exceeded expectations Upcoming
Items of Interest The holiday week will bring light news
and light trading markets. We’ll see GDP and existing home sales on Tuesday,
new home sales and personal income on Wednesday and durable goods on
Thursday. Markets are closed on Friday. Data source: All information is based
on sources deemed reliable, but no warranty or guarantee is made as to its
accuracy or completeness. Neither the information nor any opinion expressed
herein constitutes a solicitation for the purchase or sale of any securities,
and should not be relied on as financial advice. Headlines and upcoming items
of interest are pulled from published reports of Vanguard, Briefing.com and |
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Posted by John on 12/21/2009 at 09:13 AM in Economy, Financial Markets | Permalink | Comments (0) | TrackBack (0)
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Economic news was light this week but
what was released was generally positive and lead to modest gains in domestic
large cap stocks. Small cap stocks declined slightly as did global equities.
International stocks were likely impacted by the continuing
· Consumer
credit outstanding declined by $3.5 billion, which was good, but was less
than expected. Consumers are spending but remain unlikely to be drivers of
economic recovery. ·
Retail
sales were up, more evidence that consumers are spending. ·
Business
inventories increased which is a potential sign that the private sector is
becoming more optimistic. ·
The
trade deficit declined as the weak dollar fueled higher exports. While still
negative, a declining deficit is a good sign. Upcoming
Items of Interest The upcoming week will see bring the
latest producer price index reading as well as the latest industrial
production reading. Both are expected to increase modestly. We’ll also get
the latest CPI reading which is also expected to increase modestly. Finally,
we’ll get the latest Leading Indicators reading which is expected to rise as
well. Data source: All information is based
on sources deemed reliable, but no warranty or guarantee is made as to its accuracy
or completeness. Neither the information nor any opinion expressed herein
constitutes a solicitation for the purchase or sale of any securities, and
should not be relied on as financial advice. Headlines and upcoming items of
interest are pulled from published reports of Vanguard, Briefing.com and |
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Posted by John on 12/14/2009 at 11:41 AM in Economy, Financial Markets | Permalink | Comments (0) | TrackBack (0)
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Equity markets advanced on the week on
mostly better than expected positive news from the global economies.
Investors also adjusted their outlook regarding Dubai World as the
· Chicago
PMI reading was 56.1 which was better than forecast indicating a recovering
economy. ·
Construction
spending and new home sales both improved and were better than expected. ·
The
ADP employment report, initial and continuing claims were all better than
expected. ·
The
unemployment rate declined to 10%, better than expected, though it continues
to remain very high. ·
Factory
orders increased and were better than expected. Upcoming
Items of Interest The upcoming week will see investors
watching the latest consumer credit numbers. A decline in outstanding
consumer debt is expected as consumers continue to improve their personal
balance sheets. We’ll also see weekly initial jobless claims, the trade
balance, Treasury budget, retail sales and preliminary November Michigan
consumer sentiment index reading. Data source: All information is based
on sources deemed reliable, but no warranty or guarantee is made as to its
accuracy or completeness. Neither the information nor any opinion expressed
herein constitutes a solicitation for the purchase or sale of any securities,
and should not be relied on as financial advice. Headlines and upcoming items
of interest are pulled from published reports of Vanguard, Briefing.com and |
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Posted by John on 12/08/2009 at 01:09 PM in Economy, Financial Markets | Permalink | Comments (0) | TrackBack (0)
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Posted by John on 12/07/2009 at 01:25 PM in Financial Markets | Permalink | Comments (0) | TrackBack (0)
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Posted by John on 12/07/2009 at 01:19 PM in Financial Markets | Permalink | Comments (0) | TrackBack (0)
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Equity markets very modestly positive
through Wednesday ahead of the Thanksgiving Day holiday here in the
· Existing
home sales exceeded expectations ·
Consumer
confidence index exceeded expectations ·
Estimates
for October personal income and personal spending were higher than expected ·
Initial
and continuing unemployment claims were below expectations ·
Durable
goods orders fell and were below expectations ·
Michigan
Sentiment Index was revised upward beating expectations ·
New
home sales for October beat expectations Upcoming
Items of Interest The focus this week will be on Data source: All information is based
on sources deemed reliable, but no warranty or guarantee is made as to its
accuracy or completeness. Neither the information nor any opinion expressed
herein constitutes a solicitation for the purchase or sale of any securities,
and should not be relied on as financial advice. Headlines and upcoming items
of interest are pulled from published reports of Vanguard, Briefing.com and |
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Posted by John on 11/30/2009 at 10:54 AM in Economy, Financial Markets | Permalink | Comments (0) | TrackBack (0)
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While catching up on my reading over the weekend and this morning several thoughts came to mind (it does happen from time to time):
1) It seems to me that market performance over the last quarter has been driven by the weakening dollar rather than by expectations for economic performance. That is equity market performance has been driven by liquidity rather than fundamentals (someone else's phrase but fitting just the same). This is disconcerting as it suggests to me that a real correction is possible - greater than the 10-15% or so I have been assuming for awhile. I don't think it will happen in the next 5 weeks, though some suggest a sell-off is possible in late December as active investors lock in gains and reduce risk to ensure year-end bonuses. More likely it'll occur in the early part of 2010. I'm a strong advocate for constructing portfolios that are more conservative than an investor's risk tolerance. Such a portfolio pays an "insurance premium" to reduce volatility and hopefully hedge downside risk. If you haven't done so, give this some thought heading into year-end.
2) I went to grad school in the early 90's and Monetarism was favored over Keynesianism. I favor less government and more private enterprise but acknowledge that the government has a role in providing services private participants are unwilling to provide. However, these services should be provided in relationship to the government's ability to pay for them. This link is to a new study by two Harvard economists that finds that "Fiscal stimuli based upon tax cuts are more likely to increase growth than those based upon spending increases. As for fiscal adjustments those based upon spending cuts and no tax increases are more likely to reduce deficits and debt over GDP ratios than those based upon tax increases. In addition, adjustments on the spending side rather than on the tax side are less likely to create recessions." I'm biased in this direction but it is nice to see new evidence that supports tax cuts over spending. Policies favoring increasing spending, increasing debt and increasing taxes are not good for investors. Which leads to point 3.
3)
Source: Mark Perry
The emerging markets, particularly Asia, despite recent equity market run-ups continue to look attractive. As this chart shows the Asian countries have significantly increased their contribution to global GDP and at the expense of the EU15. The dip in the late 90s is likely attributable to the currency crisis in 97 and the Russian default/LTCC debacle in 98. Lessons were learned at that time that helped in 2007-2008. Per the IMF, advanced economics (largely the EU, US, Japan) had a current account balance of (.66)% of GDP for 2009 and are forecast to only reduce that to (0.33)% by 2014. Emerging and developing countries, by comparison, had a current account balance of 2.02% for 2009 and are forecast to increase that to 3.5% by 2014. Additionally, gross national savings for advanced countries is forecast to 17.5% of GDP in 2010 but 33.5% for developing and emerging countries. Stronger balance sheets and higher savings rates lead to improvements in net worth (standard of living) and to better investment returns. Continue to consider emerging markets for your portfolios at the expense of the U.S. and other developed markets. This isn't to say eliminate developed markets just be skeptical of equity market returns in the near term.
Posted by John on 11/24/2009 at 08:33 AM in Economy, Financial Markets, Investments | Permalink | Comments (0) | TrackBack (0)
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Equity markets backed up for the week
as mounting data suggested the U.S. recovery, and potentially the global
recovery, is going to a long, tough slog. The uncertainty among investors
caused a sell-off in equity and positive flows into gold and short-term fixed
income. T-bill yields declined to just 0.05% with yields dropping below zero
briefly on Thursday. Low interest rates and a declining dollar have enabled
equity investors to push prices up and have led to a disconnect between
equity and fixed income markets. It appears that equity market participants
are more enthusiastic about the recovery than fixed income investors. At some
point in the near future, one group will be proven correct. It would appear
equity investors are beginning to grow concerned that it won’t be them.
· Leading
indicators rose for the seventh consecutive month but only by 0.3%. ·
New
home construction fell 10.6% to the lowest level in six month and 30.7% below
the pace of one year ago. ·
Core
CPI increased only 0.2% suggesting inflation is in check. ·
Industrial
production rose for the fourth consecutive month by 0.1% which was less than
expected. Upcoming
Items of Interest Despite a short week, there will be an
abundance of economic data reported this week. First up is existing home
sales on Monday. Tuesday we’ll see the latest GDP report, consumer confidence
and the Federal Open Market Committee meeting minutes. On Wednesday, we’ll
get durable-goods orders, personal income and spending, and new home sales.
Keep in mind that roughly 70% of GDP is comprised of consumer spending. So
the consumer confidence and personal income and spending reports will be
important. The other data will highlight the economic recovery. Data source: All information is based on
sources deemed reliable, but no warranty or guarantee is made as to its
accuracy or completeness. Neither the information nor any opinion expressed
herein constitutes a solicitation for the purchase or sale of any securities,
and should not be relied on as financial advice. Headlines and upcoming items
of interest are pulled from published reports of Vanguard, Briefing.com and |
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Posted by John on 11/23/2009 at 09:48 AM in Economy, Financial Markets | Permalink | Comments (0) | TrackBack (0)
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Posted by John on 11/18/2009 at 09:06 AM in Financial Markets | Permalink | Comments (0) | TrackBack (0)
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Financial markets rallied over the
last week reversing a two week decline. The
· Commercial
property prices increased for the first time in more than a year based on the
latest report from the
· Planned
lay-offs fell for the third consecutive month in October according to
Chancellor, Gray & Christmas
·
The
Fed indicated that it is unlikely to raise rates for an “extended period” ·
Mortgage
rates dropped below 5% for the first time in three weeks according to Markets will be focused on news
released over the weekend by the G20 indicating their intentions to continue
to support the stimulus measures boosting the global economy. Thursday brings
the latest employment news – initial and continuing claims (market consensus
is for a slight decline in both), and Friday brings the latest U of Michigan
Sentiment Index measuring consumer sentiment (market forecast is for a slight
increase). Data source: All information is based
on sources deemed reliable, but no warranty or guarantee is made as to its
accuracy or completeness. Neither the information nor any opinion expressed
herein constitutes a solicitation for the purchase or sale of any securities,
and should not be relied on as financial advice. Headlines and upcoming items
of interest are pulled from published reports of Briefing.com and |
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Posted by John on 11/09/2009 at 09:08 AM in Financial Markets | Permalink | Comments (0) | TrackBack (0)
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I've seen a number of articles lately on the role of the financial advisor. I've also been asked lately where do I think the markets are headed. Both thoughts dovetail nicely I think.
The financial advisor's role is to help protect and build your asset base. You have worked hard over the years to build up a 401k balance, own a nice home and build, hopefully, a taxable investment portfolio as well. You have also tried to save money for college, for retirement and for future generations. You want to retire earlier than your parents did and enjoy the "fruits of your labor". This is where the advisor comes in.
Most of us do not have the ability to forecast the future with precision. Thus, our objective is to forecast as best as possible and hedge the potential risks we expect to encounter along the way. We will attempt to protect your assets via financial and estate planning techniques so that you keep as much as possible of what you have earned and have the best opportunities to pass on a legacy to future generations of your family. A number of risks are encountered in this process - legal and regulatory changes, economic cycles, etc. Not all can be forecast with certainty and the advisor should account for that uncertainty.
With regard to investments, I believe advisors should be focused on constructing portfolios that attempt to meet basic goals - generate an absolute return that exceeds inflation plus a spending percentage and hedge against potential downside risks. These are competing goals and thus require constant examination. Asset allocation is not dead but does need to be revisited conceptually. I believe that rather than regarding asset allocation as an equity/fixed/other combination, advisors should be viewing asset allocation as core-satellite or on a risk basis. The allocation decision is driven by risk targets first, then by return. So the objective is to properly allocate risk among various assets. In this assessment, lower risk strategies are considered core strategies and can be fixed income, equity or other assets. Same goes for riskier assets (satellite). This does involve a degree of tactical asset allocation which involves trading more the riskier assets more frequently. I'm not trying to time the perfect entry and exit, rather, I'm trying to take advantage of volatility to provide excess return when assets are moving up and hedge downside risk when assets are declining. It's not perfect but I think better addresses my primary objectives than the traditional asset allocation approach.
So the financial advisor is attempting to preserve and grow what you've acquired. We should be more conservative than you most of the time and should be the "voice inside your head" attempting to reason you out of more aggressive decisions. We're not perfect, but if we successful one more time than we're not, we should do well for you.
As to where the markets are going, I don't know. I'm always skeptical (never truly a bull or a bear) and always more comfortable with a portfolio that has some "insurance" against a market decline. I think the "premium" paid to hedge some of the downside volatility is worthwhile.
Posted by John on 10/27/2009 at 10:45 AM in Financial Markets, Financial Planning, Investments | Permalink | Comments (0) | TrackBack (0)
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Financial markets were mostly flat for
the week as investors took advantage of continued better than expected
earnings reports to take profits built up over the past 6 months. Treasury
yields moved higher ahead of record note sales planned for the coming week. Economic
data was uneventful as chain store sales were slightly positive, consumer
sentiment fell slightly, the Fed suggested the economy was stabilizing in
some areas and recovering in others and the index of leading indicators
improved.
· Consumer
confidence fell suggesting consumer spending will not lead the nascent
recovery · The index of leading indicators rose for the sixth
consecutive month to a 2 year high · Sales of previously owned homes improved to a 2 year
high Upcoming
Items of Interest Earnings season has ended and
investors will now focus on holiday retail sales for evidence that consumers
will be contributing to the economic recovery via holiday spending. Investors
will also note the 10 year note sales, durable goods orders, GDP growth, jobless
claims and personal income and outlays reports. Data source: All information is based
on sources deemed reliable, but no warranty or guarantee is made as to its
accuracy or completeness. Neither the information nor any opinion expressed
herein constitutes a solicitation for the purchase or sale of any securities,
and should not be relied on as financial advice. Past performance is no
guarantee of future results. The Dow Jones Industrial Average (DJIA) is a
price-weighted index composed of 30 widely traded blue-chip |
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Posted by John on 10/26/2009 at 05:01 PM in Current Affairs, Economy, Financial Markets | Permalink | Comments (0) | TrackBack (0)
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Equity markets moved sharply higher
during the week thanks to several rounds of positive news including continued
better than expected earnings. The weight of the evidence continued to suggest
to market participants that the rate of recovery for the economy could
support higher equity prices.
·
Inflation
remained sanguine, up 0.2% in September but down 1.3% from last year. ·
Oil
and gold continue to rise while the dollar continued to fall suggesting
investors are looking for a dollar alternative. ·
The
ISM index rose above 50% for the first time in a year. An index reading over
50 suggests the economy is growing. Upcoming
Items of Interest Earnings reports continue this week
along with updates on housing starts, wholesale inflation, leading economic
indicators and existing home sales. Earnings will continue to be of
particular importance as investors look for top-line growth to improve. Top
line improvement could be seen as strong evidence that the economic recovery
is sustainable. Data source: All information is based
on sources deemed reliable, but no warranty or guarantee is made as to its
accuracy or completeness. Neither the information nor any opinion expressed
herein constitutes a solicitation for the purchase or sale of any securities,
and should not be relied on as financial advice. Past performance is no
guarantee of future results. The Dow Jones Industrial Average (DJIA) is a
price-weighted index composed of 30 widely traded blue-chip |
Posted by John on 10/19/2009 at 08:48 PM in Economy, Financial Markets | Permalink | Comments (0) | TrackBack (0)
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Posted by John on 10/15/2009 at 09:25 AM in Financial Markets | Permalink | Comments (0) | TrackBack (0)
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Equity markets moved sharply higher
during the week thanks to several rounds of positive news including better
than expected earnings from Alcoa, smaller than expected trade deficit,
falling mortgage rates and slightly better than expected employment data. The
weight of the evidence suggested to market participants that the rate of
recovery for the economy could support higher equity prices.
· ·
·
The
ISM index rose above 50% for the first time in a year. An index reading over
50 suggests the economy is growing. Upcoming
Items of Interest Earnings reports continue this week along
with updates on retail sales, business inventories, the consumer price index,
jobless claims and consumer sentiment. Earnings will be of particular
importance as investors look for top-line growth to improve. Top line
improvement could be seen as strong evidence that the economic recovery is
sustainable. Data source: All information is based
on sources deemed reliable, but no warranty or guarantee is made as to its
accuracy or completeness. Neither the information nor any opinion expressed
herein constitutes a solicitation for the purchase or sale of any securities,
and should not be relied on as financial advice. Past performance is no
guarantee of future results. The Dow Jones Industrial Average (DJIA) is a
price-weighted index composed of 30 widely traded blue-chip |
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Posted by John on 10/12/2009 at 07:43 PM in Economy, Financial Markets | Permalink | Comments (0) | TrackBack (0)
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An excellent article in Canada's National Post today by Terrence Corcoran regarding the current dispute between economists such as Krugman & Posner, favoring Keynesian economics, and most everyone else, favoring rational expectations.
The jist of the dispute is that Krugman and Posner believe we need a return to classical Keynesian economics with significant government involvement to ensure that market and economic participants who would not otherwise act "rationally" do so. The rational expectations side argues that participants will act rationally on their own with the information they have at that moment. Given that the information is not perfect, decisions will not always be perfect. Importantly, participants cannot be fooled for acting "rationally" as determined by the government.
To me the argument is for more government involvement because "the government knows best what is good for participants" vs less government involvement because market participants "know best" what is good for them. I'm on the side of participants.
Posted by John on 10/06/2009 at 09:56 AM in Economy, Financial Markets, Government Policy | Permalink | Comments (0) | TrackBack (0)
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The Markets
Major equity markets turned south
for the week as much of the economic data was negative. The
|
2008 Close |
Prior Week |
As of 10/2/09 |
Week Change |
YTD Change |
|
|
DJIA |
8776.39 |
9820.20 |
9487.67 |
-3.06% |
7.66% |
|
S&P 500 |
903.25 |
1044.38 |
1025.21 |
-1.84% |
13.50% |
|
MSCI World |
920.226 |
1115.398 |
1088.903 |
-2.38% |
18.33% |
|
Russell 2000 |
499.45 |
598.94 |
580.20 |
-3.13% |
16.17% |
|
Fed. Funds |
.25% |
.25% |
.25% |
0 bps |
0 bps |
|
10-year Treasuries |
2.24% |
3.33% |
3.22% |
-11 bps |
98 bps |
·
·
·
·
Upcoming Items of Interest
Light on news this week but a few
items of interest will be released. First up is the ISM Non-Manufacturing
Index. Investors will be looking for a number greater than 50 which would
indicate economic improvement. On Wednesday, the latest data on consumer credit
will be announced. Current consensus is for a contraction of approximately $8.5
billion. Outstanding debt has been falling steadily since late 2007. On Thursday, the latest jobless claims data
will be released. Current consensus is 540,000 new claims which would continue
a relative decline in claims. The four week average should also show a decline
which would be indicative of continued economic recovery.
Posted by John on 10/05/2009 at 03:19 PM in Current Affairs, Financial Markets | Permalink | Comments (0) | TrackBack (0)
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Posted by John on 10/05/2009 at 10:24 AM in Financial Markets | Permalink | Comments (0) | TrackBack (0)
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Posted by John on 10/01/2009 at 10:26 AM in Financial Markets | Permalink | Comments (0) | TrackBack (0)
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The Markets The rally took a breather (or possibly a last gasp?) this week. The Dow backed away from the tantalizingly close 10,000 level with a 177-point intraday swing on Wednesday after the Federal Reserve's discussion of its future bond-buying plans. It was largely downhill from there as the major indexes took back much of last week's gains.
Last Week's Headlines
Eye on the Week Ahead Potential window-dressing on the part of large institutional investors could mean volatility in advance of the end of the quarter on Wednesday. Friday's unemployment claims stats are expected to continue to show job losses. Key data releases: Home prices, consumer confidence (9/29); revised Q2 gross domestic product (9/30); auto sales, personal income and spending, manufacturing (10/1); unemployment, nonfarm payrolls (10/2). Data source: Includes data provided by Forefield, Inc. & Brounes & Associates. All information is based on sources deemed reliable, but no warranty or guarantee is made as to its accuracy or completeness. Neither the information nor any opinion expressed herein constitutes a solicitation for the purchase or sale of any securities, and should not be relied on as financial advice. Past performance is no guarantee of future results. The Dow Jones Industrial Average (DJIA) is a price-weighted index composed of 30 widely traded blue-chip U.S. common stocks. The S&P 500 is a market-cap weighted index composed of the common stocks of 500 leading companies in leading industries of the U.S. economy. The NASDAQ Composite Index is a market-value weighted index of all common stocks listed on the NASDAQ stock exchange. The Russell 2000 is a market-cap weighted index composed of 2000 U.S. small-cap common stocks. The Global Dow is an equally weighted index of 150 widely traded blue-chip common stocks worldwide. Market indexes listed are unmanaged and are not available for direct investment. |
Posted by John on 09/28/2009 at 12:21 PM in Current Affairs, Financial Markets | Permalink | Comments (0) | TrackBack (0)
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Whenever markets decline, talk invariably turns to "cash on the sidelines" and the impact it will have when it returns to the markets. Annaly Capital Management has a commentary that shows several charts regarding "cash on the sidelines". The essence is that cash never leaves the sidelines! I would guess that the cash holding is a policy decision and the few investors that do move to all cash at some point during a downturn don't materially impact the aggregate level of cash. This is an interesting chart from Annaly Capital Management:
To me, it highlights clearly the introduction of leverage into the markets in the late 1970s (Milken?!) and the continued increase in leverage until the mid 90s at which point it more or less stabilizes just over 20%. Cash collateral again declines during 2001 (hedge fund boom) and bottoms last year before turning back up, much as it did in 2000 (post interet bubble burst). Clearly, there remains significant leverage in the equity markets. I think the question is will this de-levering trend continue or will we see a reversal as we did in 2001/2002? If market participants continue to de-lever, markets are unlikely to move materially higher - it stands to reason that "un-levered" markets will trend consistent with earnings trends. If leverage isn't reduced, then we could see markets continue to accelerate a rate greater than earnings growth (more dollars translates to greater demand). I don't know the answer but I do think it needs to be an important consideration for any forecasts of future returns.I expect participants will continue to de-lever in anticipation of potential inflation (which will increase borrowing costs) and because of a desire to improve balance sheets and reduce risk. To what point I don't know, maybe to 25% from roughly 20% now. That would suggest a 25% reduction in debt still to come. That should dampen returns but suggests that we won't see a true 1-1 relationship between financial market growth and earnings growth. In other words, it is possible that we won't see P/Es return to historical averages (such as 15 on the S&P) but rather some level above that.
Currently, the S&P is trading at 19.6X bottom-up 2009 estimates and 14.5X 2010 estimates. P/Es tend to contract after the economy troughs as real results start to meet and exceed expectations upon which prices are set. If P/Es contract to 15 (historical average), the potential year-end 2010 S&P index level would be 1094. I think many would see that as reasonable given the current economic environment of slow improvement in fundamentals. But if leverage doesn't decline as much as people, including me, have expected, the P/E ratio may contract only to, say, 17.3 (50%). Then the S&P might close 2010 at 1262. That would be a roughly 19% gain over the next 15 months.
I will continue to hedge downside risk but will be paying close attention to the ratio highlighted in the chart above (as well as to overall economic data). If 09 earnings do hit current S&P estimates, then it may be time to revise my personal outlook.
Posted by John on 09/24/2009 at 09:48 AM in Financial Markets, Investments | Permalink | Comments (0) | TrackBack (0)
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