The markets turned in another solid performance this week as the Dow reached a new three year high. At the close, the Dow climbed 1.3% the S&P rose 1.4%, and the Nasdaq was higher by 1.7%. There was very little movement in gold, which rose just 0.1%. Oil prices continue to be a problem as a crude crossed $108 per barrel this week with a 2.4% gain (Brent crude closed near $120 per barrel).
Source: MSN Moneycentral
This week also saw the end of a solid first quarter. In fact, it was the best first quarter for the Dow in 12 years. It rose 6.4%, the S&P was higher by 5.4%, and the Nasdaq climbed 4.8%. The shocks from the Japanese earthquake and the Mid East/North Africa conflicts took their toll early on, but the markets rebounded late in the quarter. Actually, nearly all the gains came in just the final three weeks.
On to this week, as the upward trend in the markets continued. Early in the week, the markets rallied on some good manufacturing data, as well as expectations of a good employment report later in the week.
For the employment report, the markets were expecting a gain of roughly 190,000 new jobs in the month of March. When the number came in at 216,000 on Friday, the markets popped higher. This gain helped push the unemployment rate down to 8.8%, the lowest number in two years.
While that is good news, there are several negatives associated with this employment report, though they rarely get mentioned in the press. First of all, the U-6 number, which is a broader measure of employment by including discouraged workers, remains high at 15.7%.
Also, the size of labor force continues to be a major problem as it remains at a 25 year low with just a 64.2% participation. You can see in the chart on the right (courtesy of Zerohedge.com) how the rate has plummeted in the last two years (the font is very small, but each label on the bottom represents a two year period). If we were to measure the unemployment rate based on the size of the labor force two years ago, our unemployment rate would be over 12%.
Another worry is that jobs which have been acquired are low end jobs with little pay. Supporting that notion is that in the last month, over 100,000 new Americans are living below the poverty level. Additionally, food stamp usage climbed to yet another all time high, with over 44 million people now receiving these benefits. 44 million!
We hate to sound overly pessimistic since any job gain is terrific news. There have been roughly 500,000 jobs added since the beginning of the year, so we are headed in the right direction. However, these other facts cannot be ignored. It is easy to play with statistics in order to get the result you desire, so we urge caution before getting too excited.
Lastly, there was a new warning of increasing inflation from an important source. According to an article in USA Today, the CEO of WalMart said that inflation has accelerated and it will be serious. Up to this point, as a consumer, we have seen modest price increases (or maybe no price increase, but the portions or product is smaller) in stores. These companies have been getting hit with higher prices and have yet to pass along much of the costs. Unfortunately, much higher prices may soon become a reality.
Next Week
Next week will be rather quiet. There will be several speeches given by various Federal Reserve officials, so investors will be paying close attention to what is said. There is a lot of anxiety over future interest rates and possible changes to current or future quantitative easing (stimulus) programs. Any clues towards future policies will likely impact the markets.
In terms of economic data and corporate earnings, though, it will be fairly quiet.
On a lighter note, an important thing we will be watching comes to us from Augusta, GA. According to our sources, many of the bright, blooming azaleas found at the Masters golf tournament are actually fake, added to enhance existing bushes. This is a shocking revelation to us and is something we will be watching closely.
Investment Strategy
The positive unemployment report this week added to the optimistic outlook for the markets, as well as high expectations for the first quarter earnings. Earnings have not been bad the last several quarters, so the market is expecting a good showing here.
We are beginning to worry, though, that these earnings will be disappointing. Like we saw in the PPI and the recent comments from the WalMart CEO, businesses are getting hit with higher costs that they have not yet passed along to consumers. This will negatively impact their earnings and send stocks lower. It may not occur this quarter, but we do believe it will happen in the coming months.
We have other concerns over the economy, as well. Inflation is running strong, unemployment is high, and housing data worsening. We strongly believe a stagflation scenario is brewing.
Even with this negative outlook, we still think the market will head higher. We believe that Fed Chief Ben Bernanke will keep flooding the market with money to push the market higher, as has been the case in recent months. The QE2 bond buying stimulus program is set to expire this summer and without the Fed intervention, the market will likely fall. We feel that the Fed has too much invested for that to happen, so they will likely double down and try another quantitative easing program if that does happen. This will keep the markets higher in the short tem, but will cause serious problems down the road.
At this time, in equities we are focused on large cap higher-quality and multi-national stocks. Large cap has lagged mid and small, so there could be more room to run in this area. We continue to avoid banking and healthcare-related 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 we think yields will increase over time.
Commodities remain a long term favorite and any weakness could present buying opportunities since they are rather expensive at the moment. 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 ones affected by these weekly and monthly changes. These fluctuations have little impact on positions we intend to hold for several years or longer.
Source: MSN MoneycentralThis week also saw the end of a solid first quarter. In fact, it was the best first quarter for the Dow in 12 years. It rose 6.4%, the S&P was higher by 5.4%, and the Nasdaq climbed 4.8%. The shocks from the Japanese earthquake and the Mid East/North Africa conflicts took their toll early on, but the markets rebounded late in the quarter. Actually, nearly all the gains came in just the final three weeks.
On to this week, as the upward trend in the markets continued. Early in the week, the markets rallied on some good manufacturing data, as well as expectations of a good employment report later in the week.
For the employment report, the markets were expecting a gain of roughly 190,000 new jobs in the month of March. When the number came in at 216,000 on Friday, the markets popped higher. This gain helped push the unemployment rate down to 8.8%, the lowest number in two years.
While that is good news, there are several negatives associated with this employment report, though they rarely get mentioned in the press. First of all, the U-6 number, which is a broader measure of employment by including discouraged workers, remains high at 15.7%.
Also, the size of labor force continues to be a major problem as it remains at a 25 year low with just a 64.2% participation. You can see in the chart on the right (courtesy of Zerohedge.com) how the rate has plummeted in the last two years (the font is very small, but each label on the bottom represents a two year period). If we were to measure the unemployment rate based on the size of the labor force two years ago, our unemployment rate would be over 12%. Another worry is that jobs which have been acquired are low end jobs with little pay. Supporting that notion is that in the last month, over 100,000 new Americans are living below the poverty level. Additionally, food stamp usage climbed to yet another all time high, with over 44 million people now receiving these benefits. 44 million!
We hate to sound overly pessimistic since any job gain is terrific news. There have been roughly 500,000 jobs added since the beginning of the year, so we are headed in the right direction. However, these other facts cannot be ignored. It is easy to play with statistics in order to get the result you desire, so we urge caution before getting too excited.
Lastly, there was a new warning of increasing inflation from an important source. According to an article in USA Today, the CEO of WalMart said that inflation has accelerated and it will be serious. Up to this point, as a consumer, we have seen modest price increases (or maybe no price increase, but the portions or product is smaller) in stores. These companies have been getting hit with higher prices and have yet to pass along much of the costs. Unfortunately, much higher prices may soon become a reality.
Next Week
Next week will be rather quiet. There will be several speeches given by various Federal Reserve officials, so investors will be paying close attention to what is said. There is a lot of anxiety over future interest rates and possible changes to current or future quantitative easing (stimulus) programs. Any clues towards future policies will likely impact the markets.
In terms of economic data and corporate earnings, though, it will be fairly quiet.
On a lighter note, an important thing we will be watching comes to us from Augusta, GA. According to our sources, many of the bright, blooming azaleas found at the Masters golf tournament are actually fake, added to enhance existing bushes. This is a shocking revelation to us and is something we will be watching closely.
Investment Strategy
The positive unemployment report this week added to the optimistic outlook for the markets, as well as high expectations for the first quarter earnings. Earnings have not been bad the last several quarters, so the market is expecting a good showing here.
We are beginning to worry, though, that these earnings will be disappointing. Like we saw in the PPI and the recent comments from the WalMart CEO, businesses are getting hit with higher costs that they have not yet passed along to consumers. This will negatively impact their earnings and send stocks lower. It may not occur this quarter, but we do believe it will happen in the coming months.
We have other concerns over the economy, as well. Inflation is running strong, unemployment is high, and housing data worsening. We strongly believe a stagflation scenario is brewing.
Even with this negative outlook, we still think the market will head higher. We believe that Fed Chief Ben Bernanke will keep flooding the market with money to push the market higher, as has been the case in recent months. The QE2 bond buying stimulus program is set to expire this summer and without the Fed intervention, the market will likely fall. We feel that the Fed has too much invested for that to happen, so they will likely double down and try another quantitative easing program if that does happen. This will keep the markets higher in the short tem, but will cause serious problems down the road.
At this time, in equities we are focused on large cap higher-quality and multi-national stocks. Large cap has lagged mid and small, so there could be more room to run in this area. We continue to avoid banking and healthcare-related 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 we think yields will increase over time.
Commodities remain a long term favorite and any weakness could present buying opportunities since they are rather expensive at the moment. 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 ones affected by these weekly and monthly changes. These fluctuations have little impact on positions we intend to hold for several years or longer.
