The markets closed the week with little change but again reached new highs along the way. Through the close Friday, the Dow was higher by 0.3%, the S&P also rose 0.3%, and Nasdaq returned 0.4%. Gold continues to climb, up 2.9% this week. Also continuing to climb, oil prices reached new highs with (WTI) crude within inches of $110 per barrel and up 6.0% this week. Brent crude (the other major oil type) rose to $125 per barrel.
Source: MSN Moneycentral
Several times this week the Dow crossed the 13,000 mark, a level that hasn’t been reached since mid-2008. Although this is a meaningless round number, it is a milestone that garnered much attention. The Dow wasn’t able to close above this mark, though, but it has had a remarkable ride to get to this point. Still, the Dow and S&P closed at the highest level since mid-2008 and the Nasdaq closed at the highest level in 12 years.
Helping the markets this week was again news from Greece. Over the weekend, they wrapped up their latest bailout package. While there are legitimate questions over whether Greece can live up to their end of the deal, it does take a messy default off the table - for the time being.
China also helped the markets by loosening lending requirements. While China is still growing, their rate of growth has slowed recently. Loosening lending requirements makes it easier for the Chinese to borrow, therefore spurring consumption. This is the same thing many other countries around the world are doing (including us) to boost their economies.
All these bailouts and cheap lending may prop up the market in the short term, but they eventually fall when the stimulus wears off. And it does little, if anything, to help the economy. That is a reason why gold has been rallying recently, and why it looks good in the long run. In the end, these countries will have a weaker currency, higher debt, and higher inflation. That is good for gold.
That also leads us to the big story of the week, oil. Oil prices continue to climb, spiking to levels last seen - and rising in a similar fashion - to a year ago. The proverbial ‘pain at the pump’ is a serious problem for people and the economy. Sadly, the momentum higher shows little sign of subsiding.
It is even more problematic when you consider that every recession since the 1970’s has been preceded by a spike in oil prices. We believe that was a major factor behind the market crash and recession in 2008. While oil isn’t near the $150 per barrel we saw back then, the trend is troubling.
Also giving us reason to be cautious on the market, corporate insiders are now at their most pessimistic level since July, 2011 (as measured by the level of insider buying to selling). It was at that time when the market dropped around 15% in a matter of weeks. While this insider indicator isn’t always correct, it tends to be right more often than not. This alone is not a reason to sell, but is another factor behind our cautious outlook.
Next Week
Earnings season has quieted down, so there will be few earnings releases next week. There will be several releases on economic data, but none of significant importance. We will get info on housing, durable goods, consumer confidence, personal income and spending, and the Fed’s Beige Book.
Investment Strategy
No change here as we are still very cautious. This week we noticed more vocally bearish (pessimistic) comments and more calls for a top - although the market usually does what the majority thinks it won’t. We are not actively selling, but are not buying into the stock market.
If we were to get a pullback, we would put money into large cap higher-quality stocks, particularly companies with operations overseas. Smaller and little-known stocks with low correlation to the market are also promising.
There is always the opportunity to find undervalued individual stocks at any point. There are several ideas we are especially bullish (optimistic) on. With the high oil prices, we like oil production companies, especially ones related to the shale play, and would add to these positions on a pullback.
We also like businesses related to auto repair as people hold on to their cars for longer periods. Many think that means car sales will eventually pick up soon, but we don’t. Fuel efficiency requirements have raised the costs of new vehicles (and will significantly raise costs in the future). And the costs for used cars has increased, too. Older cars mean more repairs. Still, these stocks are also expensive and would look to buy on a pullback.
The other idea we like is very low end retail stores. These companies will do well as costs increase and shoppers look for bargains.
We like commodities for the long term but fear a slowdown in China, who has been a major driver of commodity prices. Like we mentioned above, debt problems and continuing bailouts around the world should be favorable to commodities like gold in the long term. However, we would be hesitant to add more at these higher prices.
We have been looking for Treasury bond yields to rise (and thus prices fall) for some time now, and have looked to short them (bet on the prices falling). However, that is looking like a lost cause. With the Fed keeping rates low as far as the eye can see, the likelihood of yields rising in the near term is slim. We thought the bond market would force rates higher, but fighting the Fed has simply been a losing proposition. A short bond position provides a nice hedge here, but the potential for profit is low at the moment.
On the bond theme, we think TIPs are important as we still expect inflation to increase. Municipal bonds also work and there are some nice yielding bonds out there now (try to avoid muni funds and buy the actual bond if possible).
Finally, international stocks are facing many headwinds, most notably slower growth and inflation. Still, if we had to put new money in, we favor developed international markets as opposed to emerging.
These day-to-day and week-to-week fluctuations have little impact on positions we intend to hold for several years or longer. Our short and medium term investments are the only positions affected by these daily and weekly fluctuations.
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.
The markets turned in another solid performance, again reaching new highs. For the week, the Dow rose 1.2%, the S&P was up 1.4%, and Nasdaq turned in a gain of 1.7%. Gold again had little change, up 0.1% for the week. High oil prices continue to pose a problem as prices rose 4.6% to $103 per barrel. Brent crude (the other major type of oil) was up nearly 2% to almost $120 per barrel. We will discuss oil prices further below.
Source: MSN Moneycentral
The markets just keep chugging higher and have shown little signs of slowing down. Some good news about the economy, as well as Europe, provided the momentum this week. The Dow is currently near its highest level in four years.
We opened the week with news out of Greece. Over the weekend, the government passed tough spending measures that allowed them to receive a new round of bailout money. However, the Greek people took to the streets, protesting and burning many businesses.
There is still the possibility that the cuts don’t take place, though, as we believe they will have a tough time being implemented. Still, the markets would like closure on this subject for now, even though we may be revisiting this issue again in the near future.
The troubles in this region have had an effect on oil prices, though the major driver behind the price increase is Iran. Iran is a real nuisance and their activities have helped push Brent crude prices to the highest level since May.
Brent is the type of oil found in most of the European region, but is also used in gas along much of the East and West coasts of the US. That is why we are experiencing a surge in gas prices. While prices are high now, they tend to be even higher in the summer. This is a troubling though and poses a major threat to our economy. Makes you wonder why we would turn down oil from Canada, forcing them to export it to China.
The Fed gave the markets some support this week. The minutes from their latest meeting showed that more stimulus is still on the table. The Fed would again buy bonds to push down interest rates and spur lending if the conditions warranted it. And the threshold looks relatively low. Any chance of decline in the employment picture, even with slow growth, would give them a green light for more stimulus.
The last few stimulus programs did little to help the economy and we have doubts that another round would help. Interest rates are already at all-time lows, yet problems persist. We have too much debt that needs to be worked off. Flooding the market with more cheap money only creates more problems and fuels inflation.
On the subject of inflation, this week we saw the January numbers on inflation in the CPI and PPI. Both showed little change, with prices rising 0.2% for consumers and 0.1% for producers. For the past year, consumer prices have risen 2.9% and 4.1% for producers. As we say every month, these numbers don’t accurately reflect the high prices people are faced with in their everyday lives. The new threat from rising oil prices is yet another inflation headwind to contend with.
Next Week
We have a short week next week with the President’s day holiday on Monday. The remainder of the week will be fairly light for economic data, with some info on housing and manufacturing. Corporate earnings will be lighter, but will still have some big names like Home Depot, Wal-Mart, HP, and Toll Brothers.
Investment Strategy
We are still cautious about the market despite this remarkable run. Climbing in practically a straight line up since the beginning of the year, the Dow has risen about 6%. The S&P is up over 8%. Even more incredibly, the Nasdaq is 13% higher! If you go back to an earlier starting point, the Dow is up over 20% from the lows seen last October. The Nasdaq is up over 26%!
Interesting to note on the Nasdaq, Apple currently comprises 15% of that index. Not sure how Apple has been able to do it, but this one company is up 24% year-to-date. This explains a large factor behind the rise of the Nasdaq market.
When markets rise this much and investors get this excited, we begin to worry. It can be frustrating having a cautious outlook on a rise like this without a pullback. Like the legendary investor John Templeton said, markets die on euphoria. It’s impossible to tell if we’ve reached the “euphoria” stage yet, but investors are clearly excited.
If we were to get a pullback, we would put money into large cap higher-quality stocks, particularly companies with operations overseas. Smaller and little-known stocks with low correlation to the market are also promising.
We like commodities for the long term but fear a slowdown in China, who has been a major driver of commodity prices. Debt problems and continuing bailouts around the world should be favorable to commodities like gold in the long term. However, we would be hesitant to add more at these higher prices.
We have been looking for Treasury bond yields to rise (and thus prices fall) for some time now, and have looked to short them (bet on the prices falling). However, that is looking like a lost cause. With the Fed keeping rates low as far as the eye can see, the likelihood of yields rising in the near term is slim. We thought the bond market would force rates higher, but fighting the Fed has simply been a losing proposition. A short bond position provides a nice hedge here, but the potential for profit is low at the moment.
On the bond theme, we think TIPs are important as we still expect inflation to increase. Municipal bonds also work and there are some nice yielding bonds out there now (try to avoid muni funds and buy the actual bond if possible).
Finally, international stocks are facing many headwinds, most notably slower growth and inflation. Still, if we had to put new money in, we favor developed international markets as opposed to emerging.
These day-to-day and week-to-week fluctuations have little impact on positions we intend to hold for several years or longer. Our short and medium term investments are the only positions affected by these daily and weekly fluctuations.
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.
Markets trended higher for much of the week, again reaching new highs, until negative news out of Europe sent the markets sharply lower on Friday. For the week, the Dow fell 0.5%, the S&P was off 0.2%, and Nasdaq was slightly lower, returning -0.1%. Gold sold off modestly with a -0.8% return. Oil was higher by 0.9% this week to $98.67 a barrel. Brent crude (the other major type of crude) has risen to $117 per barrel. Since much of the gas in our region uses this type of crude, it explains why pump prices have continued to rise.
Source: MSN Moneycentral
Yes, Europe was back in the news this week. Greece, more specifically. The news really had little effect on the markets until Friday, though.
As a condition of a Greek bailout, they had to show a commitment in reducing their debt to receive a new infusion of cash. Some of the austerity measures announced included cuts in the amount of government employees and a reduction in minimum wage. That news was generally well received by the markets, seen as a sign of progress.
Not surprisingly, the Greek citizens were less than enthused. They took to the streets, voicing their displeasure with another round of protests. By Friday, it looked as though the deal might fall through and the markets dropped sharply on the news.
Much was made this week over how tiny Greece is and comparisons were made saying it is roughly the size of Rhode Island. Therefore, there is little to worry about. After all, if something bad were to happen to Rhode Island, the impact on the other states would be miniscule. We feel that this Greek drama is more symbolic and perhaps a canary in the coal mine. Once that first domino falls, it is very likely that others will fall behind it.
Getting back to the US, this week had some big news for the banking sector. We saw a settlement in the ongoing foreclosure “abuse” drama. It was announced that several of the big banks agreed to pay $26 billion to settle the legal dispute with the government. The proceeds will go to help homeowners near foreclosure by reducing principal and rates. Additionally, those who have been foreclosed on are eligible for around a $2,000 payment.
If a bank made a mistake in the foreclosure process, there is no doubt they should be penalized. However, it is frustrating to see someone who stopped making payments on their house be the beneficiary of this decision. The responsible homeowner who made a large down payment and played by the rules gets nothing.
It is dangerous precedent when a contract can be altered at the whim of a government. Contractual law has been again usurped. What bank would want to write mortgages when the government can change the terms as they see fit? To compensate for this risk, a bank will charge a premium. In the end, future homeowners will end up paying more for this.
On the positive side, the banks were prepared for this settlement. They have been setting aside funds to pay for this very problem. When the news was announced, bank stocks rallied as they finally have some closure on this subject.
Another good outcome is that it gets the foreclosure ball rolling again. For much of the past year, the banks have been stuck in a foreclosure-limbo. Being able to proceed here allows the housing market to bottom. That is what is needed. The market will never recover until it allows itself to find a bottom – naturally.
Staying on that debt theme, data this week showed that consumer credit (which includes things like credit cards, student loans, and auto loans) increased at a remarkably high rate. This was praised by many as a good sign. An increase in credit allows people to buy more “stuff”, which is good for the economy. We see this as a more dangerous sign. People are trying to keep up their standard of living and borrowing the funds to do so. Debt is not always a good thing. It can be dangerous.
Other economic data this week was light, but still showed the slow growth continuing. The employment picture looks to be improving as weekly unemployment claims fell. Also, the JOLTS report (Job Openings and Labor Turnover, our preferred metric on employment) showed an improvement. Job openings have increased at a nice pace, although the rate of positions filled was not quite as robust.
Next Week
The pace of economic data picks up next week. We will get info on retail sales, imports and exports, housing, industrial production, and inflation with the CPI and PPI. Corporate earnings will continue to come in, but the pace is slowing.
Investment Strategy
We were encouraged by the sell-off Friday, as it is healthy for the market to have pullbacks. The market has trended higher since December, returning more than 7% and we were worried that the market was getting too excited.
Despite the sell-off, the market seems to want to go higher. At these high levels, though, we haven’t been buying, but haven’t been selling, either.
We would look to put new money in on a nice pullback. If it does, we would put money into large cap higher-quality stocks, particularly companies with operations overseas. Smaller and little-known stocks with low correlation to the market are also promising.
We like commodities for the long term but fear a slowdown in China, who has been a major driver of commodity prices. Debt problems and continuing bailouts around the world should be favorable to commodities like gold in the long term. We have increased our position recently, but would still be hesitant to add more at these higher prices.
We have been looking for Treasury bond yields to rise (and thus prices fall) for some time now, and have looked to short them (bet on the prices falling). However, that is looking like a lost cause. With the Fed keeping rates low as far as the eye can see, the likelihood of yields rising in the near term is slim. We thought the bond market would force rates higher, but fighting the Fed has simply been a losing proposition. A short bond position provides a nice hedge here, but the potential for profit is low at the moment.
On the bond theme, we think TIPs are important as we still expect inflation to increase. Municipal bonds also work, and there are some nice yielding bonds out there now (try to avoid muni funds and buy the actual bond if possible).
Finally, international stocks are facing many headwinds, most notably slower growth and inflation. Still, if we had to put new money in, we favor developed international markets as opposed to emerging.
These day-to-day and week-to-week fluctuations have little impact on positions we intend to hold for several years or longer. Our short and medium term investments are the only positions affected by these daily and weekly fluctuations.
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.
The markets continued to push higher this week. Through the Friday close, the Dow rose 1.6%, the S&P climbed 2.2%, and Nasdaq posted a solid 3.2% return. Gold was higher much of the week but tumbled Friday to close with just a 0.3% gain. Oil took the exact opposite path, moving lower most the week then popping higher Friday, but still closed the week down 1.7%.
Source: MSN Moneycentral
We had another week of solid gains in the market, with the Dow closing at highs not seen since 2008. Even more impressive, the Nasdaq hit its highest level since 2000. This week we also closed out January and with a 3.4% gain, making it was the best January performance since 1997. Economic data continues to show growth, albeit slow, and a lack of negative headlines from Europe has provided a nice backdrop for the rally.
The big news of the week came on Friday with a surprising improvement in the labor picture. The U.S. added 243,000 jobs in January, while estimates were for roughly half that amount. The unemployment rate fell to 8.3%, the lowest in three years.
Not surprisingly, the markets jumped on the news, as you can see in the chart above. We haven’t had a triple digit move on the Dow since early January, yet had a nice 156 point pop for the day.
Thought the results were good, the picture becomes a bit muddied when you consider the adjustments made by the Labor Department. At the beginning of every year, they make an adjustment to reflect changes in population. This year is even odder in that it takes into account the census figures, skewing the picture even more. Comparing this month using one set of measurements to the previous month using a different set of measurements gives an unreliable picture.
Without getting too far into the weeds, the result of this adjustment was an increase in the size of the population. However, a record 1.2 million people were excluded from the labor force entirely (the labor force includes those with a job or seeking a job. It leaves out those who have given up looking for work). The labor participation rate now stands at 63.7%, the lowest since 1983.
This labor force number skews the unemployment rate, making it look better than it otherwise would have. Earlier in the week, the CBO (Congressional Budget Office) made news when it brought up this very point. They found that if the labor force had not declined like it had since 2007, at the end of 2011, our unemployment rate would stand at 10%. We have seen other metrics that put this number closer to 11 or 12%.
Due to the distortions of this month, we would not read too much into the employment number.
Also providing excitement for the markets this week, Facebook was in the headlines. The company filed for an initial public offering (IPO) to begin selling shares on the stock exchange. Investors have been very anxious to get into this investment, although it will be several months before they start trading.
Facebook is the latest of these hyped tech stocks that have come public recently. With a potential valuation of $100 billion, it is by far the biggest, though. As a part of filing for the IPO, Facebook had to open its accounting books. We found that they have actually made a profit, something most of the other tech IPO’s did not have going for them.
It is revealing, though not surprising, that they make the bulk of their revenues through advertising. We aren’t sure how they make so much money from tiny little ads on a webpage that no one clicks on. A Bloomberg article reported that for every 7,142 ad views, only one person clicked on the ad. And the time spent on that advertiser’s site was minimal, indicating the person clicked on it by accident. Why would any company want to use this method of advertising?
We just don’t get how a company can be valued at $100 billion, coming largely from advertising. But that’s just us. Google has proven that advertising can bring in big revenues, and that’s the very reason why investors will get into this company. They are looking for the next Google. However, we just don’t get it.
On the broader earnings picture, a majority of earnings have come in, giving us a good idea of the overall picture. Though that picture is mixed, profits have risen by about 7% from last year, according to the Wall Street Journal. However, costs have increased faster than sales. Still, companies have remained profitable.
Next Week
Next week will be a bit lighter in terms of economic data, but corporate earnings will still come in at a solid pace.
Probably the most important story for the market will come this Sunday evening. It’s the Superbowl Indicator (yes, there is such a thing). History has shown that if a team from the NFC wins (this year that would be the Giants), there is a 78% chance that the market will show a gain for the year. If the AFC wins, that would indicate a decline in the market.
Sounds simple, right? After all, 78% is pretty good odds. Well, don’t forget that we’ve seen this Giants/Patriots matchup before, in 2008. The Giants won, and we had one of the worst market performances in decades. Maybe we shouldn’t rely too heavily on this indicator!
Investment Strategy
The market continues to rise and we’ve enjoyed the rally. We haven’t been selling, but we are not doing any buying. The market wants to go higher, but we become more cautious with every gain.
We’ve noticed that more investors are in this boat, increasing caution on the gains. Typically the market does what you don’t think it will. When many people think the market should go a certain direction, it never seems to work out that way.
Like we mentioned before, we aren’t looking to put more money into stocks at this point, at least for the short term. Longer term, if we had to put money in, in equities we are focused on large cap higher-quality stocks, particularly companies with operations overseas. Smaller and little-known stocks with low correlation to the market are also promising, since correlation is still very high.
We like commodities for the long term but a slowdown in China, who has been a major driver of commodity prices, has made us more cautious. Debt problems and continuing bailouts around the world should be favorable to commodities like gold in the long term. We have increased our position here recently, but would be hesitant to add more at these higher prices.
We have been looking for Treasury bond yields to rise (and thus prices fall) for some time now, and have looked to short them (bet on the prices falling). However, that is looking like a lost cause. With the Fed keeping rates low as far as the eye can see, the likelihood of yields rising in the near term is slim. We thought the bond market would force rates higher, but fighting the Fed has simply been a losing proposition. A short bond position provides a nice hedge here, but the potential for profit is low at the moment.
On the bond theme, we think TIPs are important as we still expect inflation to increase. Municipal bonds also work, and there are some nice yielding bonds out there now (try to avoid muni funds and buy the actual bond if possible).
Finally, international stocks are facing many headwinds, most notably slower growth and inflation. Still, if we had to put new money in, we favor developed international markets as opposed to emerging.
These day-to-day and week-to-week fluctuations have little impact on positions we intend to hold for several years or longer. Our short and medium term investments are the only positions affected by these daily and weekly fluctuations.
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.
Source: MSN Moneycentral
