Commentary for the week ending 11-27-09

A lot of movement in a typically quiet week saw the markets finish virtually unchanged. The market opened higher on Monday as encouraging economic news helped push the Dow near the 10,500 mark. The big news of the week came on Friday, however, as the market took a hit when Dubai asked creditors for a 6-month extension on their loan repayments. In the end, the Dow closed the week down 0.08%, the Nasdaq was off 0.35%, and the S&P 500 was up 0.01%.

Existing home sales came in stronger than expected on Monday, jumping over 10% for the month. That puts the 2-month number for home sales at a 19.8% increase. Of course this dramatic increase is due to the homebuyer tax credit. We should see a considerable drop in these figures when the government intervention is withdrawn. Nonetheless, the market jumped higher on the news Monday.

Consumer Confidence numbers were also released this week, coming in slightly higher than expected at a 0.8% gain. Even though the number was higher than expected, the underlying components are still very weak. Consumers are still worried about the economy and are particularly worried about the weak labor market. In fact, fewer consumers believe the economic and employment pictures will improve over the next six months.

With the market moving sharply lower on Friday, the news out of Dubai gave investors a chance to take some money off the table and lock in their gains for the year. The Dubai situation is troubling, but we do not see it having much impact on business outside of Dubai. European and U.S. banks don't have much exposure to this area. We will wait to see how the market responds this week, but for now we see this as only a blip on the radar.

The Dubai situation may have an interesting impact on U.S. and world central bankers. To prevent a credit problem like the one in Dubai, they may leave easy-money policies in place and even promote more easing policies. As we have seen so far, this would be bullish for the market and commodities. Unfortunately, this adds more fuel to the bubble that is currently being created and increases the likelihood of a major correction in the future.

Several economic and earnings releases are due in the upcoming week. The biggest news comes on Friday with the November jobs report. Fewer job losses are expected this month, yet the unemployment rate will continue to grow from the 10.2% rate at which we currently stand. Any negative surprises here will certainly move the markets lower.

Where are we investing now?

In light of the large pullback we experienced Friday, we are content to sit on the sidelines and see how this plays out. If we decide to put some money to work, we will continue to buy equities on the market pullbacks, especially higher-quality stocks. We believe the cash on the sidelines will continue to push the market higher, despite the profit-taking seen this week. We are still bullish (positive) on commodities as the dollar trends lower. We are also putting some money in TIPs, expecting inflation to increase in the future. We are looking at putting more money internationally, as emerging markets (excluding China) are an area we favor.

Commentary for the week ending 11-20-09

A mixed week for the markets as the Dow closed higher while the S&P 500 and Nasdaq were lower. The week opened strong, with the Dow crossing 10,400 for the first time this year. Economic releases late in the week and a stronger dollar fueled a sell-off, sending markets sharply lower. Despite the drop, the Dow was up 0.46% for the week, with the S&P off 0.19% and the Nasdaq lower by 1.01%.

Some disappointing news was released this week. First, the third quarter GDP is being revised lower from the 3.5% rate to around 2.8%. Lower construction and exports are the main source of lower revisions. Disappointing housing starts also weighed on the markets for the week. This is understandable since the government tax credit was set to expire at the end of October, so activity was accelerated in that month. The government has since extended this credit, yet was unbeknownst to buyers in October.

The Consumer Price Index release came in higher than expected this week at 0.2%. This reaffirms our view that inflation will be picking up in the future. Policymakers believe that inflation will not be a factor while unemployment remains high and continue to pursue an easy money policy. Yet with Treasury rates so low, a slight increase in inflation can dramatically impact interest rates.

Also released this week was the Leading Economic Indicators report. Showing a 0.3% gain, these indicate the economy is growing, albeit at a slow rate. The troubling part of this release is that the rise can be attributed to government intervention. Interest rates are incredibly low and the money supply was increased. Other components of the leading indicators were up only slightly or down for the month.

Next week will be a quiet one with the Thanksgiving holiday. Of course, markets are closed on Thursday and volume will be light on Friday also. There a couple of news-worthy releases in the upcoming week, however. Monday we will see existing home sales. Tuesday we get the revised GDP number (which will be down from the 3.5% first release) and Consumer Confidence release. Wednesday we will see Personal Income, Durable Goods Orders, and New Homes Sales releases.


Where are we investing now?

We continue to buy equities on the market pullbacks, especially higher-quality stocks. We believe the cash on the sidelines will continue to push the market higher, despite the profit-taking seen this week. We are still bullish (positive) on commodities as the dollar trends lower. We are also putting some money in TIPs, expecting inflation to increase in the future. We are looking at putting more money internationally, as emerging markets (excluding China) are an area we favor.


HAPPY THANKSGIVING

Commentary for the week ending 11-13-09

Another good week on Wall Street as all major markets posted solid gains. The Dow crossed 10,300 on Tuesday, hitting a new high for the year. It closed the week off that high, yet still up 2.46% for the week. The Nasdaq was up 2.62% and the S&P was up 2.26 percent.

Commodities closed the week mostly lower. Oil continues to drop as inventories continue to grow. One area that did show improvement for the week was gold. Gold closed the week at $1,116 an ounce, marking a new high and continuing its upward trend. Up until recently, oil and gold moved in tandem, based on the direction of the dollar. As you can see, this trend may be ending. We don't see it having much impact on the markets, but it is still interesting to note.

Making news this week was the widening trade deficit. Both exports and imports rose, however. The increase in imports is due largely to a higher-priced barrel of crude oil, as well as an increase in auto imports due to the depletion from the cash-for-clunkers program. The increase in exports is due largely to a weak dollar, yet it indicates other areas of the globe are still growing strongly.

Next week is full of news that will impact the market. Retail sales will be released on Monday, Producer Price Index (PPI) on Tuesday, Consumer Price Index (CPI) on Wednesday, Leading Economic Indicators on Thursday, and state jobs reports on Friday. All releases are expected to be lower than their previous releases, with the exception of Retail sales. These releases will likely increase volatility in the markets. Options also expire this week, which will add to the volatility.

Where are we investing now?

We continue to buy equities on the market pullbacks, especially multi-nationals. The cash on the sidelines will continue to push the market higher. We are still bullish (positive) on commodities as the dollar slides further lower. We are also putting some money in TIPs, expecting inflation to increase in the future. We are looking at putting more money internationally, as emerging markets (excluding China) are an area we favor.

Commentary for the week ending 11-06-09

Markets took an turn to the upside this week with the three major indexes posting gains above 3%. The Dow closed the week above 10,000 with a 3.2% gain, the Nasdaq returned 3.3% and the S&P 500 returned 3.2% as volatility moved lower.

The release of solid productivity numbers on Thursday surprised the market, sending it sharply higher. Unemployment numbers came in worse than expected on Friday, with the rate now standing at 10.2%. The markets kept the gains from Thursday, however, and even closed the day higher amid the disappointing news. High productivity and high unemployment causes us some concerns. If a business can get lean and use technology to cut costs and remain productive, why would they hire any more workers? It is a troubling trend with serious long term ramifications and is something we will keep an eye on.

The high unemployment numbers renewed discussions of a second stimulus from the federal government. Late Saturday night, the House passed its healthcare bill. Congress is in the process of forming a cap-and-trade bill. While there is a long way to go before anything is final, we are seeing an unsustainable trend of government spending. It further strengthens our belief that the dollar will continue to weaken as our debt climbs to new record highs.

Next week looks relatively quiet, the only major news coming on Friday with the release of the U.S. trade balance. Both imports and exports rose during the quarter, however, the gap between exports and imports likely widened.

We believe the market will continue higher through 2010, pushed by a recovery in businesses. The easy money policy of the US Government, as well as the billions in stimulus spending, will be tailwinds for the markets. This is how bubbles are created, though. The cheap money lifts all boats, and soon the undeserving businesses fail and markets tumble. Government steps in, props up the failed business, lowers interest rates, and starts the process again. In the short term we remain bullish (positive). Looking out past 2010, we remain very bearish (negative). Tax rates will be heading back up. Government programs being financed now will need to be repaid. The business environment looks very hostile.


Where are we investing now?

We continue to buy equities on the market pullbacks, especially multi-nationals. The cash on the sidelines will continue to push the market higher. We are putting more money into foreign developed and developing markets. We are still bullish on commodities as the dollar slides further lower. We are also putting some money in TIPs, expecting inflation to pick up in the future.

Commentary for the week ending 10-30-09

For the second straight week, markets have lost ground and saw an increase in volatility. The Dow closed down 2.5% for the week. Even worse, the S&P 500 closed down 4% and the Nasdaq was lower by just over 5%. With the exception of the Dow, markets closed the month lower and the Dow was unchanged.

This week saw the release of the third quarter GDP, which was in-line with economists estimates. Nonetheless, the market popped higher on the news Thursday, making the largest single-day gain since July. Unfortunately on Friday, the market gave back that gain and then some, losing 2.5% and making the largest single-day drop since July. Consumer spending came in lower and bankruptcy talk from CIT indicates there may still be trouble in the commercial lending sector.

The dollar saw some strength this week, which helped gold and oil prices finish lower. We believe the dollar was due for a pullback and traders had become overly bearish. However, we believe the trend is still downward for the dollar. There is not one policy from the U.S. government which would cause the dollar to strengthen. Record low interest rates, a lose monetary policy, an increase in the money supply, and a growing deficit with even more government spending in the future, all point to a lower dollar in the future.

The market is experiencing an increase in volatility, which is visible in the large market swings last week. Investors are getting jittery and negative sentiment is creeping back into the market. The bears are becoming more vocal and numerous, wondering if we have already reached the highs for the year. Up to this point, we have not seen the underlying U.S. economy participate in the rally the markets have seen. We continue to believe this will be the case. We feel the markets will continue higher for the year, albeit modestly now, pushed by the cash still on the sidelines.

Next week will see the FOMC rate decision on Wednesday, which is expected to remain at 0-0.25%. Friday we get October unemployment numbers, which are expected to push unemployment to 9.9%.

Where are we investing now?

We continue to buy equities on the market pullbacks, especially multi-nationals. The cash on the sidelines will continue to push the market higher. We are still bullish (positive) on commodities as the dollar slides further lower. We are also putting some money in TIPs, expecting inflation to pick up in the future.