Commentary for the week ending 12-24-09

Please note: There will be no market commentary next week. Thank you.

Amid a holiday-shortened week and light volume, the markets posted some solid gains. For the week ending Thursday, the Dow was up 1.85%, the S&P gained 2.18%, while the Nasdaq topped them all with a 3.35% gain.

Contributing to the gains this week was a better than expected unemployment report. Analysts were looking for 470,000 initial jobless claims, yet the number came in much lower at 452,000. These numbers are the lowest we have seen since September of last year. While this is a promising sign, the seasonal adjustments can always be tricky, so we will be paying close attention to the employment report next week. Also important to remember is that there are over 10 million people still unemployed in the U.S. (officially), so there is still a long way to go until this economy is healthy again.

We see next week being very similar to this past week. There will be light volume and few economic or earnings reports to impact trading, so this Santa Claus Rally will likely continue. Like we mentioned above, we will be paying close attention to the jobless claims on Thursday. Also worth watching, the Treasury will be auctioning off $118 billion in debt throughout the week. Monday will be $44 billion in 2-year notes, Tuesday is $42 billion in 5-years, and Wednesday is $32 billion in 7-years. There has been dwindling interest in U.S. debt and we don't see these auctions being well received, either. We have been investing in TBT (which shorts Treasuries) for some time now, and believe these poorly-received auctions will give the fund some nice gains.

Where are we investing now?

Similar to last week, we are not doing much trading in any of our portfolios right now. If we wanted to put some money to work, we would buy equities if the market makes a pullback, especially higher-quality stocks. We are still bullish on commodities and believe the dollar will continue lower. TIPs continue to be a favorite, as we expect inflation to increase in the future. Additionally, we are looking at putting more money internationally, as emerging markets (excluding China) are an area we favor.

As we close out 2009, we would like to wish you and your family a happy and prosperous 2010.

Commentary for the week ending 12-18-09

High trading volume and several economic releases saw the markets close mixed for the week. The Dow hit a new high for the year on Monday, yet lost ground as the week progressed. For the week, the Dow closed down 1.33% and the S&P was down 0.35%, while the Nasdaq was up 0.98%.

There were several economic releases this week that signal the recovery is still in full effect. Industrial production, a coincident indicator, posted a solid gain. Housing starts continue to show improvement. The Leading Economic Indicators (Press Release) also showed a nice gain for the month. Both the Consumer and Producer Price Indexes showed an increase, with higher energy prices having a significant impact on these numbers. The price index numbers show that inflation is, in fact, occurring, albeit at a low rate.

Also this week, we heard from the Fed as they announced that the federal funds rate will remain unchanged at 0-0.25% for an "extended period". They acknowledge an improvement in economic conditions, yet the high unemployment rate justifies the historically low rates. We still worry that these easy monetary policies, if left in effect longer than necessary, will fuel another bubble and create an inflationary environment. Their argument is that the unemployment level and inflation are inversely related, so inflation is not a concern. This is typically true. One can look at the stagflation-plagued Carter era to realize that this isn't always the case.

Although the upcoming week is shortened by the Christmas holiday, we still have some important economic reports to consider. Tuesday we get the third quarter GDP estimate and existing home sales. On Wednesday, personal income and spending, consumer sentiment, and new home sales are released. Finally, on Thursday we will see November durable goods and weekly jobless claims. We don't see these having much impact on the markets and many traders will be on vacation due to the Christmas holiday, so it may be a quiet week on Wall Street.

Where are we investing now?

We are not doing much trading in any of our portfolios right now. If we were, though, we would continue to buy equities on the market pullbacks, especially higher-quality stocks. We are still bullish on commodities and believe the dollar will continue lower, despite its recent gains. TIPs continue to be a favorite, as we expect inflation to increase in the future. Additionally, we are looking at putting more money internationally, as emerging markets (excluding China) are an area we favor.

Merry Christmas from Bluefin Investments

Commentary for the week ending 12-11-09

Volatility returned to the markets as lot of movement - both up and down - saw the week close mostly higher amongst the major averages. The Dow closed the week up 0.80%, the S&P 500 was up 0.04%, and the Nasdaq was lower by 0.18%. Solid economic releases helped the markets higher late in the week.

The interesting story of the week started on Tuesday as the dollar started gaining strength. Debt issues are beginning to weigh on European countries as the credit rating of Greece and Spain was downgraded, so naturally it pulled the Euro down. Hence, the dollar is looking stronger. The trend over the past couple months had been a weaker dollar equals a stronger market, so the stronger dollar spooked the markets and sent them sharply lower on Tuesday.

As the week progressed, solid economic releases helped push the markets higher. Inventories in the wholesale sector came in positive for the first time in 14 months. An increase in exports narrowed the trade deficit of the U.S. Retail sales were up 1.3 percent, which is twice the estimate. And finally, consumer sentiment came in higher than expected. No surprise that markets were up. What is surprising is that the dollar rose while the market rose, breaking that inverse relation that we mentioned above.

At this time of the year, many major investment firms are releasing their 2010 forecasts. We would like to highlight some topics from the Goldman Sachs report. Why did we choose to highlight Goldman's predictions? Because they only lost money trading on ONE day last quarter. And TWO days the previous quarter (Link to Story). They are market makers and we take heed to what they say. Here are some highlights:

· They predict the S&P will reach 1,300 (it's just over 1,100 now) around mid-year, yet close the year around 1,250.

· No hike in rates from the Fed until 2012.

· Cash coming off the sidelines and into equities.

· They like the BRIC countries (Brazil, Russia, India, China), high operating leverage stocks, cyclical stocks (Tech, Energy, Materials), and high Sharpe Ratio stocks.

All-in-all, these are reasonable predictions from Goldman. However, we find it interesting that they don't believe rates will be raised until 2012. If that does happen, we believe that will cause a huge bubble in equities (which may still be happening at the moment).

A lot of useful information will be released this week. Tuesday has the releases of the PPI (Producers Price Index), Empire State survey, industrial production, and home builder's survey. Wednesday we will get the CPI (Consumer Price Index) and housing starts, as well as the Fed announcement on interest rates. Thursday we get the leading economic indicators. Finally, Friday is quadruple witching Friday, so we should see a pick-up in volatility to close out the week. These economic reports are all predicted to come in higher, yet any surprise could rattle this already nervous market.

Where are we investing now?

Little change in our strategy here. Until the Fed raises rates, or hints that they will, we continue to buy equities on the market pullbacks, especially higher-quality stocks. We are still bullish (positive) on commodities and the dollar will continue lower, despite its surge this week. TIPs continue to be a favorite, as we expect inflation to increase in the future. Additionally, we are looking at putting more money internationally, as emerging markets (excluding China) are an area we favor.

Commentary for the week ending 12-4-09

Positive economic reports released this week helped push the markets higher. The Dow gained 0.76% for the week, with the Nasdaq up 2.61% and the S&P 500 up 1.32%.

The big news of the week came on Friday with the November jobs report. Economists were predicting over 100,000 job losses for the month, yet the number came in at just 11,000. When initially announced, many traders on Wall Street believed there was a typo. Nonetheless, this sent markets sharply higher for a short period until traders digested the information further. A lower unemployment rate means an improving economy and possible Fed rate hikes, as well as a stronger dollar. Remember, this market has been feeding on the easy-money, cheap dollar policies of the Fed. This frightened many on Wall Street and the market turned briefly negative, yet managed to close up by just 0.2%, significantly below the highs of the morning.

Jobs had been the big topic all week - even before the unemployment report - as the Obama administration held a "Jobs Summit". It seems that the only conclusion to come from this summit is that the government needs to spend more money to create jobs. We could write a whole article on the failures of these Keynesian policies and the backward thinking of this administration, but we won't. What we do see if a second stimulus is implemented, however, is an increase in an already record high debt, a weaker dollar, and higher taxes. Each, a factor that will hurt the economy in the future.

Despite the headwinds from the government, we see continued economic growth in the future. How this will affect the Fed's decision to raise interest rates, we aren't sure. Friday's market sell-off provides us some insight in how the market may behave in the face of rising interest rates. The market has come a long way since its lows back in March and has certainly gotten ahead of itself, so a pause or a sell-off is not unlikely. Until that time, however, we see the markets pushing higher.

A relatively quiet week awaits us in terms of economic releases. The trade balance comes in on Thursday and Retail Sales on Friday. We do not see these having much impact on the market. Unfortunately we will be subjected to the Copenhagen climate nonsense beginning Monday, as well.


Where are we investing now?

Until the Fed raises rates, or hints that they will, we continue to buy equities on the market pullbacks, especially higher-quality stocks. We are still bullish (positive) on commodities as the dollar trends lower. TIPs continue to be a favorite, as we expect inflation to increase in the future. Additionally, we are looking at putting more money internationally, as emerging markets (excluding China) are an area we favor.

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.

Commentary for the week ending 10-23-09

Markets closed the week lower as some volatility returned to the market. The Dow bounced around the 10,000 mark, making new 2009 highs on Monday, only to close down 0.2% for the week. The S&P 500 closed down 0.7% and the Nasdaq was lower by 0.1%.

So far, quarterly earnings have continued to beat estimates. A large portion of this outperformace can be attributed to cost-cutting (i.e.-layoffs) and further inventory reduction, as well as strong exports from multi-national corporations. We believe that remaining earnings releases will continue this positive trend.

A positive Leading Economic Indicator report (Conference Board Leading Indicators) was released Thursday, making this the 6th straight monthly increase. The leading indicators are a basket of 10 statistics that are helpful in forecasting economic activity in the future. Eight out of ten indicators increased this month, with the average workweek and building permits being the only laggers. Nonetheless, this is a positive signal for the market.

The week also saw Oil and Gold markets close near their highs for the year. Contributing to their rise has been the continued weakness of the dollar, as the easy-money policies of the U.S. have raised concerns of foreign governments. While the dollar is not in any immediate danger of losing its reserve status, it remains a concern that these discussions are occurring. We see the strength of the dollar continuing to weaken in the near future. The weak dollar does make our exports more attractive to foreign buyers, however. Unfortunately this short-term boost from dollar weakness can have negative long-term ramifications.

Next week we will see more earnings releases, as well as the 3rd quarter GDP numbers. Economists are predicting an over 3.5% gain in GDP, unfortunately aided by an increase in government spending. Remember, the 3rd quarter saw the cash-for-clunkers program, plus the $8,000 tax credit for first-time home buyers, amongst other stimulus spending. It will be interesting to see how this economy behaves once government support has receded.

Where are we investing now?

We continue to buy equities on the market pullbacks, especially multi-nationals. We believe that the cash on the sidelines will continue to push the market higher (The 'Technical Recovery' continues). We worry about the high unemployment and $80+ barrel of oil, both of which contribute to lower consumer spending.

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.

Weekly Market Commentary