The markets shook off their Thanksgiving turkey hangover and started December with a bang. For the week, the Dow gained 2.6%, the S&P rose 3.0% and the Nasdaq climbed 2.2%. The commodity sector continues on its tear, with oil rising to a new 2-year high after climbing 6.5% this week. Gold crossed the psychologically important $1,400 level and was up 3.1% this week. Also this week, silver made a new 30-year high.
Source: MSN Moneycentral
The week started out with worries over Europe weighing on the markets. Both Monday and Tuesday opens were much lower, but luckily for the market, the Fed was poised to inject several more billion into Wall Street and push the markets back higher. The Fed has really ramped up its securities purchases, which makes it really hard for the markets to go lower.
Wednesday saw a big move higher. Favorable news out of Europe and an optimistic employment report fueled the big rise.
The big worry in Europe (at the moment) is a default from Ireland. Steps have been put into place to provide funds and stimulus to this struggling country, similar to the bailouts that have taken place here in the U.S. Since flooding the world with money and bailing out failure seems to be the remedy du-jour, the markets found some relief and soared higher.
To help calm the markets even further, it was also announced on Wednesday that the U.S. would increase the funds it has promised for the Europe bailout (don’t forget, these bailouts are done through the IMF, of which the U.S. contributes over 20% to). In the chart above, you can see the pop higher in the early mid-day based on this news. We aren’t sure how it is good news that the U.S. is spending even more money it doesn’t have on these countries, but the market liked it. In the end, it turned out that this news was false, but the market didn’t seem to notice and kept chugging higher.
On to Friday now and the much anticipated employment report release for the month of November. Markets have been excited about a big employment gain, and was pricing an increase of around 150-200 thousand. The number turned out to be an extremely disappointing number of just 39,000 new jobs and the unemployment rate rose to 9.8%. You would think this would send the markets lower, but it did not. The bad news is good news now, as investors are counting on the bad news to force the Fed into injecting billions more into the economy. Who doesn’t like free money, right?
We’d like to briefly touch on Washington now, as this week was another confirmation to us that any chance of an Obama administration moving to the center is practically dead.
First, in the wake of oil prices at a two-year high, the administration has announced a ban on new drilling in virtually all the places oil is drilled for in this country. As we have seen in the past, when oil crosses the $90 level and higher, economic activity slows dramatically. This move is very short-sighted and horribly wrong, as well as extremely frustrating.
Second, reported this week in the Journal was an article on a new regulation facing retail stores. Apparently companies like Wal-Mart, Target and thousands of others must report on weather their products contain minerals from war-torn countries in Central Africa. Each store must somehow find out if any tin, tungsten, tantalum, or gold from Congo is in any of their products. Frankly, this is one of the stupidest things we have ever heard. Although this regulation comes from the Dodd-Frank Financial Regulation Bill (how is this financial regulation?), we don’t see the administration doing anything to curb and reduce these abuses and continues to forge down this road. We are slowly being regulated to death and the economy will certainly suffer.
Next Week
Next week will be rather light in terms of economic and corporate earnings reports. A few stores like Costco, Talbots, and AutoZone, as well as H&R Block and Novellus are really the most exciting reports we will get.
The Euro worries are still not over, despite last weeks announcements. The bailout is not a done-deal yet, so any drama here will impact the markets as it is finalized. Let’s not forget that after Greece and Ireland, many more European countries face tough economic situations, so there is likely to be many more of these stories coming out of Europe.
Where are we investing now?
With the markets continuing to go up and the Fed there to make sure that it does, it is hard to bet against it. Economic data is really poor, although corporate earnings have been relatively decent, and growing government regulations has us worried. In normal times we would be betting against the market here. It has had a very strong rise the past couple months and is due for a sell-off. With the Fed ramping up its printing press, though, you just can’t be bearish (pessimistic).
Investment managers that have missed the rise and need to get some good returns for the year-end will also push the markets higher.
In order to avoid the market manipulation by the Fed, the high frequency traders, and hedge fund algorithms, we are increasingly turning to smaller individual stocks. The lack of correlation to these other factors is a nice change. By no means is this a major portion of our portfolios, but something we have been pleased with.
For the rest of our portfolio, in equities, we are focused on higher-quality and multi-national stocks. We continue to avoid banking and insurance sector stocks. 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 yields will increase over time.
Commodities remain a longer term favorite, with metals, agriculture, and now energy showing solid gains that we believe will continue. Municipal bonds will play a larger role in our portfolios over the coming months and years as higher tax rates take effect. Finally, we are optimistic about international stocks, as emerging markets (with certain sectors in China) are areas we favor. This sector has had an incredible run this year, so caution is warranted as the odds of a sell-off are increasing.
Source: MSN MoneycentralThe week started out with worries over Europe weighing on the markets. Both Monday and Tuesday opens were much lower, but luckily for the market, the Fed was poised to inject several more billion into Wall Street and push the markets back higher. The Fed has really ramped up its securities purchases, which makes it really hard for the markets to go lower.
Wednesday saw a big move higher. Favorable news out of Europe and an optimistic employment report fueled the big rise.
The big worry in Europe (at the moment) is a default from Ireland. Steps have been put into place to provide funds and stimulus to this struggling country, similar to the bailouts that have taken place here in the U.S. Since flooding the world with money and bailing out failure seems to be the remedy du-jour, the markets found some relief and soared higher.
To help calm the markets even further, it was also announced on Wednesday that the U.S. would increase the funds it has promised for the Europe bailout (don’t forget, these bailouts are done through the IMF, of which the U.S. contributes over 20% to). In the chart above, you can see the pop higher in the early mid-day based on this news. We aren’t sure how it is good news that the U.S. is spending even more money it doesn’t have on these countries, but the market liked it. In the end, it turned out that this news was false, but the market didn’t seem to notice and kept chugging higher.
On to Friday now and the much anticipated employment report release for the month of November. Markets have been excited about a big employment gain, and was pricing an increase of around 150-200 thousand. The number turned out to be an extremely disappointing number of just 39,000 new jobs and the unemployment rate rose to 9.8%. You would think this would send the markets lower, but it did not. The bad news is good news now, as investors are counting on the bad news to force the Fed into injecting billions more into the economy. Who doesn’t like free money, right?
We’d like to briefly touch on Washington now, as this week was another confirmation to us that any chance of an Obama administration moving to the center is practically dead.
First, in the wake of oil prices at a two-year high, the administration has announced a ban on new drilling in virtually all the places oil is drilled for in this country. As we have seen in the past, when oil crosses the $90 level and higher, economic activity slows dramatically. This move is very short-sighted and horribly wrong, as well as extremely frustrating.
Second, reported this week in the Journal was an article on a new regulation facing retail stores. Apparently companies like Wal-Mart, Target and thousands of others must report on weather their products contain minerals from war-torn countries in Central Africa. Each store must somehow find out if any tin, tungsten, tantalum, or gold from Congo is in any of their products. Frankly, this is one of the stupidest things we have ever heard. Although this regulation comes from the Dodd-Frank Financial Regulation Bill (how is this financial regulation?), we don’t see the administration doing anything to curb and reduce these abuses and continues to forge down this road. We are slowly being regulated to death and the economy will certainly suffer.
Next Week
Next week will be rather light in terms of economic and corporate earnings reports. A few stores like Costco, Talbots, and AutoZone, as well as H&R Block and Novellus are really the most exciting reports we will get.
The Euro worries are still not over, despite last weeks announcements. The bailout is not a done-deal yet, so any drama here will impact the markets as it is finalized. Let’s not forget that after Greece and Ireland, many more European countries face tough economic situations, so there is likely to be many more of these stories coming out of Europe.
Where are we investing now?
With the markets continuing to go up and the Fed there to make sure that it does, it is hard to bet against it. Economic data is really poor, although corporate earnings have been relatively decent, and growing government regulations has us worried. In normal times we would be betting against the market here. It has had a very strong rise the past couple months and is due for a sell-off. With the Fed ramping up its printing press, though, you just can’t be bearish (pessimistic).
Investment managers that have missed the rise and need to get some good returns for the year-end will also push the markets higher.
In order to avoid the market manipulation by the Fed, the high frequency traders, and hedge fund algorithms, we are increasingly turning to smaller individual stocks. The lack of correlation to these other factors is a nice change. By no means is this a major portion of our portfolios, but something we have been pleased with.
For the rest of our portfolio, in equities, we are focused on higher-quality and multi-national stocks. We continue to avoid banking and insurance sector stocks. 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 yields will increase over time.
Commodities remain a longer term favorite, with metals, agriculture, and now energy showing solid gains that we believe will continue. Municipal bonds will play a larger role in our portfolios over the coming months and years as higher tax rates take effect. Finally, we are optimistic about international stocks, as emerging markets (with certain sectors in China) are areas we favor. This sector has had an incredible run this year, so caution is warranted as the odds of a sell-off are increasing.
