Please note: There will be no commentary next week. In addition being a long weekend, the author of these commentaries will be spending time with his Army brother before he departs for Iraq – again. As a reminder, all Bluefin services are free for enlisted military members and half price for retired military and veterans.
It was a fairly uneventful week on Wall Street with the markets closing slightly lower. For the week, the Dow was off 0.7%, the S&P fell 0.3%, and the Nasdaq dropped 0.9%. Oil was up slightly and is trading around the $100 per barrel level. Gold was also up slightly and is just over the $1,500 an ounce level.
Source: MSN Moneycentral
The market started out the week in a downward direction, moving lower both Monday and Tuesday. Manufacturing data came in considerably lower than expected and latest housing statistics were horrible. The economic recovery has been decent so far, but the data had investors thinking it might not be as strong as expected.
Those worries over Europe won’t seem to go away, either, and are back in the headlines. Greece, Spain, and Portugal continue to be a thorn in the side of the Euro while the news on the arrest of the IMF chief, Dominique Strauss-Kahn didn’t help much either (The IMF is very instrumental in the bailouts of these European countries. Since bailouts seem to be the remedy du jour for any problem in the world, it adds a wrinkle to this process).
As a result, the Euro weakened and the dollar strengthened. That stronger dollar helped commodities sell off slightly since they tend to move opposite of each other. At one point, crude oil was trading down around $95 per barrel. Prices ticked back up later in the week, but remain much lower than their recent highs.
Come Wednesday, the markets changed course and headed back higher. News that the Fed would keep its stimulative policies in place as long as needed helped contribute to the rally. However, we learned that the Fed is discussing the steps they will take when they do take the punch bowl away. The fact that they even discussed an exit strategy is important since there has been little mention of it to this point.
Many companies are realizing that interest rates may be heading higher in the coming months when the Fed does move, so they are looking to take advantage of it now. When interest rates rise, the cost for them to borrow increases. Google, for example, has never issued bonds until this week. Other companies are issuing record loads of debt in order to take advantage of the current environment. While it may be good for these businesses to borrow now while the rates are low, it will not be so good for the average person in the coming months who has to pay higher rates on things like a credit card or mortgage.
Finally, the hot story of the week was an initial public offering (IPO) on Thursday for social media stock, LinkedIn. The initial price for the stock was set at $45 per share but traded sharply higher throughout the day. At one point, the price was over $122 per share and closed the day at $94.
These ‘social media’ type stocks are all the rage right now, but we just don’t get it. In the case of LinkedIn, last year they had a profit of around $15 million. The price the stock reached gave the company a value of over $8 billion ($8 Billion!). These valuations just don’t add up and we were thinking what many other people were thinking, this has to be a bubble, similar to the internet bubble of the late ‘90’s.
In fact, almost everyone we heard believed this was a sign of a bubble. When you think about it, though, bubbles don’t happen when everyone thinks it’s a bubble. They happen when you can’t find someone negative on the stock or market. With LinkedIn, almost everyone is pessimistic, yet the stock is holding up (it was off about 1% on Friday, but remains at its high level). We wouldn’t touch this stock with a ten foot pole, but maybe this is not a classical ‘bubble’ – yet.
Next Week
There will be a modest amount of economic data releases next week, but nothing too important. Likely having more impact will the earnings results from several large companies like Costco, Sony, and Tiffany. Some companies have given us earnings warnings this week, meaning their results won’t be that great next quarter. This is always something to listen for. For instance, this week Gap warned of higher costs cutting into their bottom line and the stock dropped over 17% that day.
Since it is back in the headlines, any news out of Europe, positive or negative, will likely have an impact on the market. Debt problems have become more pronounced and elections in Spain next week have the potential to shine a light on the depth of the debt problems.
Investment Strategy
It is tough to say what the market will do from here. Our economy is still weak, but improving, and yet corporate profits have been solid. Record highs, even. It is a tough dynamic to make decisions in.
At these price levels, things still look expensive. We wouldn’t make any bets on the market as a whole but look for attractive individual stock picks. As value investors by nature, we like to buy things that look to be cheap or trading at a discount (using industry jargon, we like to have a margin of safety). Commodities prices have bounced back a bit, but still look a bit cheaper here.
If we were to put new money to work, in equities we are focused on large cap higher-quality stocks, particularly multi-nationals. Commodities remain a long term favorite and any weakness could present buying opportunities.
TIPs are important as we expect inflation to increase in the future, while U.S. Treasuries are a sector we are very bearish (pessimistic) on as we think yields will increase over time. Municipal bonds are still important despite the recent drop in prices. There are some nice yielding bonds out there now (try to avoid muni funds and buy the actual bond if possible).
Finally, international stocks have had a significant run already and are facing many headwinds for the future, especially inflation. Still, if we had to put new money in, we are favoring developed international markets as opposed to emerging.
Our short and medium term investments are the only positions affected by these weekly and monthly changes. These fluctuations have little impact on positions we intend to hold for several years or longer.
This commentary is for informational purposes and is not investment advice, an indicator of future performance, a solicitation, an offer to buy or sell, or a recommendation for any security. It should not be used as a primary basis for making investment decisions. Consider your own financial circumstances and goals carefully before investing. Past performance cannot guarantee results.
It was a fairly uneventful week on Wall Street with the markets closing slightly lower. For the week, the Dow was off 0.7%, the S&P fell 0.3%, and the Nasdaq dropped 0.9%. Oil was up slightly and is trading around the $100 per barrel level. Gold was also up slightly and is just over the $1,500 an ounce level.
Source: MSN MoneycentralThe market started out the week in a downward direction, moving lower both Monday and Tuesday. Manufacturing data came in considerably lower than expected and latest housing statistics were horrible. The economic recovery has been decent so far, but the data had investors thinking it might not be as strong as expected.
Those worries over Europe won’t seem to go away, either, and are back in the headlines. Greece, Spain, and Portugal continue to be a thorn in the side of the Euro while the news on the arrest of the IMF chief, Dominique Strauss-Kahn didn’t help much either (The IMF is very instrumental in the bailouts of these European countries. Since bailouts seem to be the remedy du jour for any problem in the world, it adds a wrinkle to this process).
As a result, the Euro weakened and the dollar strengthened. That stronger dollar helped commodities sell off slightly since they tend to move opposite of each other. At one point, crude oil was trading down around $95 per barrel. Prices ticked back up later in the week, but remain much lower than their recent highs.
Come Wednesday, the markets changed course and headed back higher. News that the Fed would keep its stimulative policies in place as long as needed helped contribute to the rally. However, we learned that the Fed is discussing the steps they will take when they do take the punch bowl away. The fact that they even discussed an exit strategy is important since there has been little mention of it to this point.
Many companies are realizing that interest rates may be heading higher in the coming months when the Fed does move, so they are looking to take advantage of it now. When interest rates rise, the cost for them to borrow increases. Google, for example, has never issued bonds until this week. Other companies are issuing record loads of debt in order to take advantage of the current environment. While it may be good for these businesses to borrow now while the rates are low, it will not be so good for the average person in the coming months who has to pay higher rates on things like a credit card or mortgage.
Finally, the hot story of the week was an initial public offering (IPO) on Thursday for social media stock, LinkedIn. The initial price for the stock was set at $45 per share but traded sharply higher throughout the day. At one point, the price was over $122 per share and closed the day at $94.
These ‘social media’ type stocks are all the rage right now, but we just don’t get it. In the case of LinkedIn, last year they had a profit of around $15 million. The price the stock reached gave the company a value of over $8 billion ($8 Billion!). These valuations just don’t add up and we were thinking what many other people were thinking, this has to be a bubble, similar to the internet bubble of the late ‘90’s.
In fact, almost everyone we heard believed this was a sign of a bubble. When you think about it, though, bubbles don’t happen when everyone thinks it’s a bubble. They happen when you can’t find someone negative on the stock or market. With LinkedIn, almost everyone is pessimistic, yet the stock is holding up (it was off about 1% on Friday, but remains at its high level). We wouldn’t touch this stock with a ten foot pole, but maybe this is not a classical ‘bubble’ – yet.
Next Week
There will be a modest amount of economic data releases next week, but nothing too important. Likely having more impact will the earnings results from several large companies like Costco, Sony, and Tiffany. Some companies have given us earnings warnings this week, meaning their results won’t be that great next quarter. This is always something to listen for. For instance, this week Gap warned of higher costs cutting into their bottom line and the stock dropped over 17% that day.
Since it is back in the headlines, any news out of Europe, positive or negative, will likely have an impact on the market. Debt problems have become more pronounced and elections in Spain next week have the potential to shine a light on the depth of the debt problems.
Investment Strategy
It is tough to say what the market will do from here. Our economy is still weak, but improving, and yet corporate profits have been solid. Record highs, even. It is a tough dynamic to make decisions in.
At these price levels, things still look expensive. We wouldn’t make any bets on the market as a whole but look for attractive individual stock picks. As value investors by nature, we like to buy things that look to be cheap or trading at a discount (using industry jargon, we like to have a margin of safety). Commodities prices have bounced back a bit, but still look a bit cheaper here.
If we were to put new money to work, in equities we are focused on large cap higher-quality stocks, particularly multi-nationals. Commodities remain a long term favorite and any weakness could present buying opportunities.
TIPs are important as we expect inflation to increase in the future, while U.S. Treasuries are a sector we are very bearish (pessimistic) on as we think yields will increase over time. Municipal bonds are still important despite the recent drop in prices. There are some nice yielding bonds out there now (try to avoid muni funds and buy the actual bond if possible).
Finally, international stocks have had a significant run already and are facing many headwinds for the future, especially inflation. Still, if we had to put new money in, we are favoring developed international markets as opposed to emerging.
Our short and medium term investments are the only positions affected by these weekly and monthly changes. These fluctuations have little impact on positions we intend to hold for several years or longer.
This commentary is for informational purposes and is not investment advice, an indicator of future performance, a solicitation, an offer to buy or sell, or a recommendation for any security. It should not be used as a primary basis for making investment decisions. Consider your own financial circumstances and goals carefully before investing. Past performance cannot guarantee results.
