The Dow danced around its 13,000 level for much of the week but ended relatively unchanged, along with the other major markets. For the week, the Dow closed down just 0.04% to 12,977, the S&P rose 0.3%, and Nasdaq was higher by 0.4%. Gold hit 3-month highs only to sell off sharply, closing the week down 3.7%. Thankfully oil also sold off, down 2.8% to $108 per barrel, although gas prices remain frustratingly high. Brent crude (the other major oil type, used in much of the gas here on the East coast) closed at $123 per barrel.
Source: MSN Moneycentral
The Dow had a hard time moving above this psychologically important 13,000 level. It closed above there only once this week, on Tuesday, and popped higher early Wednesday. From there, though, it trended lower for the remainder of the week.
We had a lot happening on Wednesday to move the market. Fed chief Ben Bernanke testified in front of Congress and spoke of his cautious view of the economy. He did strike an upbeat tone on the employment situation, though. For the time being, that has him sidelining any additional stimulus for the next couple months.
With a stock market so hungry for stimulus, the news was not welcomed and the markets dropped sharply. Since further stimulus (or money printing) is a negative for the strength of the dollar, our currency strengthened in its absence. And since commodities go higher with a weaker dollar, they fell on the news. Gold sold off strongly and finished the day down over 4%.
Europe also was in the headlines. Yields came down on Euro-country bonds, which was interpreted as European countries now being seen as less risky (like with a credit card, the higher the interest rate (or yield), the more risky a borrower you are and the harder it is to pay back your debts).
Of course there is more to this story. The European Central Bank (or ECB, which is the European version of our Fed) loaned out over $700 billion to European banks at a very low interest rate. Those banks then took that money and invested it back into bonds of those European countries. That pushed down the interest rates for the country. And the bank gets free money, literally, by borrowing at a very low rate and invests in something at a higher rate.
Similar to here, this doesn’t really solve any problems. It floods the market with cheap money and papers over a problem for the time being. In giving the $700 billion to European banks, the ECB printed it out of thin air, just like our Fed does. At some point we will feel the negative effects of these policies, but only when they are unable to kick that can any further down that road.
Switching gears, the technology company, Apple, made headlines this week. With its 35% climb year to date (35%!) Apple crossed the $500 billion level in market capitalization (market cap is the share price multiplied by the amount of shares outstanding). It is only the sixth company in history to reach this level and is currently the largest company in the world.
Staying on this tech theme, a new company began trading on the stock market Friday, Yelp. It’s yet another one of those funky one-word-named social media companies that has begun trading in recent months. Like the others, this company has never made a profit. Yet its share price skyrocketed and the company now has a market cap of $1.5 billion. Pretty impressive for a company that has never turned a profit. Obviously we just don’t get it.
Next Week
Next week will be fairly busy. Corporate earnings will be light, but we will get several economic reports. There will be info on the strength of the service sector, productivity, consumer credit, and most importantly, the unemployment figures for last month.
Investment Strategy
The market seems to have stalled around this level and we remain cautious. We see more risk to the downside, but are not actively selling at this point. We are very reluctant to add any new money here, though.
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 long term 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, despite the appearance of recent sales growth. Many think car sales will eventually increase, but we don’t. Fuel efficiency requirements have raised the costs of new vehicles (and will dramatically raise costs in the future). The price of 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. Debt problems and continuing bailouts around the world should be favorable to commodities like gold in the long term. Even with the pullback this week, 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, in international stocks, 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 MoneycentralThe Dow had a hard time moving above this psychologically important 13,000 level. It closed above there only once this week, on Tuesday, and popped higher early Wednesday. From there, though, it trended lower for the remainder of the week.
We had a lot happening on Wednesday to move the market. Fed chief Ben Bernanke testified in front of Congress and spoke of his cautious view of the economy. He did strike an upbeat tone on the employment situation, though. For the time being, that has him sidelining any additional stimulus for the next couple months.
With a stock market so hungry for stimulus, the news was not welcomed and the markets dropped sharply. Since further stimulus (or money printing) is a negative for the strength of the dollar, our currency strengthened in its absence. And since commodities go higher with a weaker dollar, they fell on the news. Gold sold off strongly and finished the day down over 4%.
Europe also was in the headlines. Yields came down on Euro-country bonds, which was interpreted as European countries now being seen as less risky (like with a credit card, the higher the interest rate (or yield), the more risky a borrower you are and the harder it is to pay back your debts).
Of course there is more to this story. The European Central Bank (or ECB, which is the European version of our Fed) loaned out over $700 billion to European banks at a very low interest rate. Those banks then took that money and invested it back into bonds of those European countries. That pushed down the interest rates for the country. And the bank gets free money, literally, by borrowing at a very low rate and invests in something at a higher rate.
Similar to here, this doesn’t really solve any problems. It floods the market with cheap money and papers over a problem for the time being. In giving the $700 billion to European banks, the ECB printed it out of thin air, just like our Fed does. At some point we will feel the negative effects of these policies, but only when they are unable to kick that can any further down that road.
Switching gears, the technology company, Apple, made headlines this week. With its 35% climb year to date (35%!) Apple crossed the $500 billion level in market capitalization (market cap is the share price multiplied by the amount of shares outstanding). It is only the sixth company in history to reach this level and is currently the largest company in the world.
Staying on this tech theme, a new company began trading on the stock market Friday, Yelp. It’s yet another one of those funky one-word-named social media companies that has begun trading in recent months. Like the others, this company has never made a profit. Yet its share price skyrocketed and the company now has a market cap of $1.5 billion. Pretty impressive for a company that has never turned a profit. Obviously we just don’t get it.
Next Week
Next week will be fairly busy. Corporate earnings will be light, but we will get several economic reports. There will be info on the strength of the service sector, productivity, consumer credit, and most importantly, the unemployment figures for last month.
Investment Strategy
The market seems to have stalled around this level and we remain cautious. We see more risk to the downside, but are not actively selling at this point. We are very reluctant to add any new money here, though.
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 long term 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, despite the appearance of recent sales growth. Many think car sales will eventually increase, but we don’t. Fuel efficiency requirements have raised the costs of new vehicles (and will dramatically raise costs in the future). The price of 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. Debt problems and continuing bailouts around the world should be favorable to commodities like gold in the long term. Even with the pullback this week, 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, in international stocks, 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.
