Commentary for the week ending 6-28-13

Please note:  there will be no market commentary next week. 

Stocks halted their decline this week as markets moved higher.  Through the Friday close, the Dow gained 0.7%, the S&P rose 0.9%, and the Nasdaq was higher by 1.4%.  Friday also marked and end to the quarter and half, with the Dow turning in its best first-half performance since 1999 on a rise of 14%. 

Bonds hit the highest yields in over two years (so prices were at the lowest level in over two years), but moved lower as the week progressed.  Gold continues to plunge, hitting almost three year lows with a 5.3% drop this week.  Oil mirrored the stock market, rising 3.1% to $96.49 per barrel.  The international oil benchmark, Brent, rose to $102.   

Source: Yahoo Finance (a lower Monday open skewed the chart this week)

The past several weeks saw a large amount of volatility on fears of a reduction in stimulus from the Fed.  This was particularly clear last week after comments from Fed chief Ben Bernanke indicated a reduction was likely if economic conditions improve.  Those remarks prompted even more selling in the markets.  

This week was different.  In an effort to show that stimulus will not end any time soon, almost half of the FOMC members made public statements to this effect.  It seemed like a coordinated effort by the central bankers to push markets back higher.  The nearby chart is only current through Thursday, but gives a good summary of the activity this week (Source link and similar WSJ article.  Also, Hilsenrath is not an FOMC member, but seen by many as a spokesman for the Fed in his writings for the Wall Street Journal).  

With the Fed chief’s remarks causing the market to drop, then subsequent “clarifications” of those comments by the other Fed members, it makes us realize the stimulus will not end any time soon.  Frankly, it could be many, many years – if ever. 

The market thus far has been fueled higher by the stimulus (historically low interest rates and massive amounts of money printing).  It is only natural that the market will pull back when that stimulus is removed.  But as we saw this week, the Fed will never let the market go lower.  They will always be chasing their tail, printing more and more money to keep markets afloat. 

Obviously the stimulus was designed to “stimulate” the economy.  Data this week showed that it just isn’t working.  The final revision to first quarter GDP was released this week.  Earlier estimates saw growth running at 2.5 and 2.4% year-over-year.  However, the final number was revised down to 1.8%, a terribly low number.  It is even worse considering the massive amounts of money printed to stimulate the economy.

Another frustration with this number was the way it was received.  Commentators brushed the number off, saying it doesn’t matter since the first quarter was so long ago.  This is true, but we lived under the false impression growth was much higher for months.  The poor number deserves to be recognized.  

As for other economic data this week, it was full of contradictions.  Business activity in the Texas region increased, though was lower in the Chicago region.  Durable goods sales rose 3.8% over the last month, though were only higher by 0.7% when excluding aircraft orders. 

Also, housing data showed a solid rise in prices over the past year while home sales ticked to a five year high.  However, mortgage applications have fallen seven of the last eight weeks, having dropped 30% over that period.  It shows that higher rates are having an impact on mortgages, but also reaffirms that the bulk of housing sales are to investors and not necessarily to individual homeowners. 


Next Week

There will be a lot of economic data coming next week, but with the holiday on Thursday, we aren’t sure how active markets will be.  We will see reports on the strength of the manufacturing and service sectors, construction, factory orders, and the important unemployment report will come on Friday. 

It’s likely we’ll hear more from the central bankers, too, as they continue to convince markets an end to stimulus is not near. 


Investment Strategy

These times are frustrating for money managers who have traditionally interpreted economic conditions and market forces for direction on the market.  These skills are practically useless as the market direction hinges on remarks from economic central planners. 

As we saw this week, any pullback in the market will be met with more stimulus (or at least rhetoric) from the Fed to push it back higher.  Still, the risk is too high to put new money into broader indexes at this point.  We prefer finding undervalued individual names, though most stocks are still on the expensive side.  We are wary of stocks with a strong connection to interest rates.  Our horizon is shorter, too, so we can keep one foot out the door in case the market turns abruptly. 

Gold continues to perform poorly.  While demand for physical gold is still very strong, gold as an investment has shown signs of weakness.  It may be getting to the point where the sell-off is a bit overdone, so buying opportunities may be near, but caution is still warranted.

We like other commodities for the long term, especially due to weaker currencies around the globe.  A slowdown in global growth seems to be weighing on commodity prices here, so buying on the dips may work with a longer time horizon. 

As for bonds, this area continues to receive much attention as yields keep rising (so prices are falling).  A short position (bet on the decline in prices) has done very well here but only time will tell if a new trend is beginning.   

TIPs have performed poorly recently, but are an important hedge as we still expect inflation to increase down the road.  Municipal bonds are in the same boat, but will work for the right client.  We keep a longer term focus with these investments. 

Finally, in international stocks, we are still not interested in developed markets and not totally sold on emerging, either. 

Please note, 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.

Commentary for the week ending 6-21-13

It was a rough week on Wall Street.  For the week, the Dow plunged 1.8%, the S&P was off 2.1%, and the Nasdaq lost 1.9%.  The bond sector was again a big story as government bonds had their worst week in a decade, with yields hitting their highest level in two years (so bond prices fell to the lowest level two years).  Gold also dropped to its lowest price in two years with a loss of 6.9% this week.  Like most other commodities, oil fell 4.5% to $93.69 per barrel.  The international oil benchmark, Brent, fell to $101.  
 

Source: Yahoo Finance

The week started on a positive note as stocks rose to within 0.6% of all-time highs.  Remarks from the Fed president, however, sparked a dramatic sell-off that wiped out two months of gains in stocks.  By the end of the week, practically every asset class lost ground. 

The volatility of the market has also been a story.  Every trading day but one this month saw swings of more than 100 points, a remarkable statistic. 

What happened to make the market sell-off so strongly?  Our central bank, the Fed, held a much anticipated policy meeting.  Fed chief Ben Bernanke saw encouraging improvements in the economy while noting “downside risks have diminished.”  The improving economy means in a pullback in their $85 billion monthly bond buying (money printing) possibly occurring later this year and end next year.  This did not sit well with the markets. 

The idea of a “taper” is not anything new, as it has been speculated for several weeks.  However, this was the first time the chairman really spelled it out with a clear timetable. 

Bernanke likely knew his remarks would cause a negative reaction in the market and stressed that this doesn’t mean the end of stimulus.  He made it a point to mention that taking your foot off the gas doesn’t mean putting your foot on the brake.  They will (attempt to) hold interest rates at these historic lows for many years to come, another form of stimulus. 

We have seen what happens to the market when the bond buying (money printing) stimulus is removed.  There have been several of these programs over the years and when the printing was in effect or expected, stocks rose.  When it ended, markets dropped.  It is highly likely this will play out again.

We aren’t sure this tapering will occur as soon as many think.  In order for the stimulus to be withdrawn, economic conditions have to move towards the Fed’s goalposts.  The employment situation needs to improve and inflation needs to increase.  Current conditions are not close to these goals and show little progress in reaching them. 

Unfortunately this is what the market has been reduced to – moving on the whims of central planners.  It is clear the market is addicted to this stimulus, too.  It has created a very unhealthy market.  

Adding to the weakness this week was news out of China.  Growth is slowing and new political leaders don’t seem as eager to embark on the stimulus programs of their predecessors.  Lending standards had been incredibly lose until this point, but it looks like lending will be tighter going forward.  China has been a leading growth engine in the world and any weakness would weigh on global markets. 

As for economic data this week, the news leaned to the positive side.  Economic activity in the northeast region came in above expectations, as well as housing data.  Inflation at the consumer level showed only a slight tick higher over the previous month. 

Going forward, any negative economic data will be good news for the stock market, and vice versa.  An addict market, dependent on stimulus to move higher, does not want that stimulus taken away.  Therefore, the weaker the economy, the more likely is stimulus to remain.  This has been the scenario to a small degree for the last several weeks but after this week, it will become even more so. 


Next Week

Next week will likely be volatile again, not just due to the Fed’s recent comments, but also due to the end of the quarter.  There will be a few economic reports, but nothing likely to have much impact on the market.  We’ll get info on durable goods, consumer confidence, housing, and personal income and spending. 


Investment Strategy

This sell-off hit everything.  Stocks, bonds, commodities – all were lower.  With this pullback, we still wouldn’t buy into any of these broader sectors at this point.  Finding undervalued individual names seems to be a better play, though everything still seems rather expensive.  We are also wary of stocks with a strong connection to interest rates.  We like to have a shorter-term horizon, too, so we can keep one foot out the door in case the market turns abruptly. 

Gold got crushed this week.  While demand for physical gold is still very strong, gold as an investment has shown signs of weakness.  We like it for the long run as a good hedge, but caution is still warranted.

We like other commodities for the long term, especially due to weaker currencies around the globe.  A slowdown in global growth seems to be weighing on commodity prices here, so buying on the dips may work with a longer time horizon. 

As for bonds, this area garnered much attention again this week as yields keep rising (so prices are falling).  A short position (bet on the decline in prices) has done very well here but only time will tell if a new trend is beginning.   

We also think TIPs are important as we still expect inflation to increase.  Municipal bonds provide a nice way to reduce taxes, though new itemization laws may reduce their benefits in some cases.  Both of these sectors have been hit particularly hard, but we keep a longer term focus with these investments. 

Finally, in international stocks, we are less enthusiastic on developed markets, but not totally sold on emerging, either. 

Please note, 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.

Commentary for the week ending 6-14-13

Stocks saw another volatile week.  Through the close Friday, the Dow fell 1.2%, the S&P dropped 1.0%, and the Nasdaq was lower by 1.3%.  Bonds were a big story this week as yields on government bonds hit the highest level in a year (so bond prices were at the lowest level in a year).  Gold is holding steady around its current levels, returning only 0.3% this week.  Oil reached its highest price in nine months as it climbed 1.9% to $98 per barrel.  The other major type of oil, Brent, rose to $106.   

Source: Yahoo Finance

It wasn’t a very pretty week for stocks.  The week opened with three straight down days, the first three-day losing streak all year.  That streak then ended with the second biggest gain in stocks all year (measured by the S&P), only to reverse course and move lower again on Friday. 

Obviously the markets remain volatile.  Of the ten trading days so far this month, nine have seen moves of 100 points or more in the Dow (that would be intraday moves, not necessarily the open and closing difference).

There wasn’t much news behind the activity this week.  The concern of a “taper” in the stimulus program by the Fed still appears to have the most influence on the market. 

We know the Fed pays close attention to the stock market, having cited its rise as one of their goals of the stimulus.  In their view, a rise in the market contributes to the wealth effect (where people feel richer so they spend more.  It’s a very suspect manipulation of the economy, but we digress), so they want the market higher.   

After the three lower days for stocks, the Wall Street Journal put out an article on the Fed, trying to calm any fears of a pullback in stimulus (LINK).   These articles have become the fodder for many jokes, since they tend to appear when markets are down.  The Fed knows the market will react positively to the news and many see it as a direct form of market manipulation.  It also shows us the Fed will try its hardest to never let the market move lower. 

Japan also played a role in our markets this week, which has been the case the last several weeks.  There has been a strong correlation between our stock market and the exchange rate between the dollar to the Japanese yen.  When the dollar weakens against the yen, our stocks move lower, and vice versa.  We saw this trend play out again this week. 

Their stock market has been extremely volatile, too, and continued to lose ground this week.  They are off more than 20% from the recent highs.  The move has surprised many, since their markets are not behaving the way many expected in light of the radical stimulus program. 

As for economic data this week, there were several surprisingly good economic reports.  Retail sales solidly beat expectations while weekly jobless claims reached their best level since early May. 

On the other hand, industrial production remained flat, coming in below expectations.  Inflation at the producer level was much higher than expected due to higher energy costs.  Consumer confidence ticked lower.  And lastly, the U.S. budget deficit widened last month, with May seeing the fourth highest monthly spending in history and largest May spending ever. 

This shows that despite the sequester, the government continues to spend massive amounts of money (with the exception of the military sector).  It reminds us of the recent situation in Europe, where governments bemoaned the austerity (lower government spending) imposed on their countries.  But when looking at actual data, spending at the local level may have gone down here and there, but overall federal government spending kept rising. 


Next Week

Investors will be closely watching the Fed next week as they hold a policy meeting.  The markets are already jittery and we are likely to see even more activity as the Fed gives more clues on the future of stimulus.  Sadly this is the current state of the market, where the direction is no longer dependent on fundamentals, but the whims of policymakers. 

There will also be several economic reports to watch.  We will get info on inflation at the consumer level, manufacturing in the northeast, housing data, and leading economic indicators. 


Investment Strategy

We’ve shown the nearby chart several times recently to illustrate the trend in the markets for the last seven months.  As you can see, we are currently hugging the very bottom end of that range (the lower blue line).  It will be important to see where markets go from here – stocks could bounce higher and continue the trend.  Or they could break lower outside the trend, which would possibly indicate a new downward trend forming. 

Either way, the attention will remain on the Fed and its stimulus plans.  As we saw this week with the WSJ article, the Fed will try its hardest to keep stock prices up.  But as we saw with Japan and their stimulus, it is very possible to lose control of that stimulus and see markets reverse course. 

One other item we are keeping an eye on, bond yields continue to move higher and prices are falling.  This isn’t just government bonds, but corporates, as well.  High yield bonds (or junk bonds, which are bonds of riskier companies that pay a higher interest rate) are seen by many as a leading indicator, and their decline signals caution for the broader stock market.

As for where we are investing now, we still don’t like investing in the broader market at these high levels.  Finding undervalued individual stocks seems to be a better play at this time, though they are increasingly hard to find.  A variety of sectors are trading at oversold (cheap) levels, but we are wary of stocks with a stronger connection to interest rates.  We like to have a shorter-term horizon, too, so we can keep one foot out the door in case the market turns abruptly. 

Gold keeps hanging around its current level, never really gaining any traction one way or the other.  While demand for physical gold is still very strong, gold as an investment has shown signs of weakness.  We like it for the long run as a good hedge, but caution is still warranted.

We like other commodities for the long term, especially due to weaker currencies around the globe.  A slowdown in global growth seems to be weighing on commodity prices here, so buying on the dips may work with a longer time horizon. 

As for bonds, this area garnered much attention again this week as yields keep rising (so prices are falling).  A short position (bet on the decline in prices) has done well here but only time will tell if a new trend is beginning.   

We also think TIPs are important as we still expect inflation to increase.  Municipal bonds provide a nice way to reduce taxes, though new itemization laws may reduce their benefits in some cases.  Both of these sectors have been hit hard recently, but we keep a longer term focus with these investments. 

Finally, in international stocks, we are less enthusiastic on developed markets, but not totally sold on emerging, either. 

Please note, 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.

Commentary for the week ending 6-7-13

A rise in the markets Friday pushed stocks into the green for the week.  Through the close, the Dow gained 0.9%, the S&P climbed 0.8%, and the Nasdaq returned 0.4%.  Opposite of stocks, gold dropped on Friday, resulting in a 0.7% loss for the week.  Oil moved steadily higher all week, closing with a gain of 4.4% to $96 per barrel.  The international and other major type of oil, Brent, moved higher to $104.80. 

Source: Yahoo Finance

Well, we knew it would happen.  Like a baseball announcer declaring a no-hitter in progress and subsequently jinxing it, last week we mentioned the 20-straight higher Tuesdays in the market pattern.  Predictably that trend ended this week as markets became increasingly jittery. 

Similar to the past few weeks, the focus remains on the actions of the Fed and its stimulus.  Increasingly, investors are worried that they will start pulling back in the coming months.  We don’t see the Fed tapering any time soon since the criteria laid out by the Fed for a pullback has not been met.  The employment picture is lackluster and inflation is running below their target.  Regardless, the fears have weighed on the market and turned bad news on the economy into good news for the market.

Japan has also become a concern for the markets.  Well, the country itself isn’t exactly a concern, but the behavior of their market in light of a massive new stimulus is concerning.  This was something we touched on last week and the troubles have continued into this week.

The Japanese stock market continues to fall after seeing a tremendous rise in the prior months.  In fact, their stock market pulled back 20% this week from the highs of two weeks ago.  Additionally, their interest rates continue to rise. 

This scenario is not what economists expected.  Japan appears to be losing control of their stimulus, which investors worry can happen here. 

Switching back to our markets, we kicked off the week with a bad manufacturing report, as it fell to the weakest level in four years.  Remember, bad news has become good news, so markets rose on the negative report.

The rest of the week saw mixed economic data, though the market steadily declined until late Thursday.  Reports on the strength of the service sector were positive, while the trade deficit widened on growing imports.  Also, the Fed reported a modest growth in the economy with the release of their Beige Book (which gives an anecdotal account of economic conditions).  

This most important data came on Friday with the release of the employment report.  Over the past month, 175,000 jobs were added (though a solid majority was low-paying jobs) and the official unemployment rate stands at 7.6%.  The gain in jobs was right in line with the average over the past year, so to investors it showed that the employment picture wasn’t changing much.  This reassured the market that a pullback in stimulus was not imminent and stocks rose.

Worth noting, Canada also reported their employment figures on Friday (LINK).  The increase in jobs was six times the estimate with a gain of 95,000, the highest since 2002.  That may not sound like much, but considering the size of the country, that would be like adding over 1,000,000 jobs here. 

This is important since they have not embarked on the radical stimulus measures we have.  We, too, should be creating many more jobs than we are at this stage in an economic recovery.  Instead, we’ve printed money to cover up structural problems while Canada is proof these actions are not needed.     


Next Week

It looks like things will quiet down a bit next week in terms of data being released.  We will get info on retail sales, the budget deficit, industrial production, and inflation at the producer level.  They likely won’t have much impact on the market, but remember, if reports are too positive, it may add a downward pressure to the market and vice versa. 


Investment Strategy
The activity in the markets this week showed us the central banks are still in charge of the markets, and will be for some time to come.  Stocks rise when it looks like stimulus will be around and sell off when talks of a taper grow. 

Bonds also saw big moves this week as prices dropped (so yields rose) sharply.  In the most recent week, investors pulled money from bond funds at the fastest rate in five years.  This could foreshadow a downward move in stocks and is a trend worth watching.  

 The technical side (a focus on the charts) is also playing a strong role in the direction of the market.  Markets continue to trade in the same tight range it has over the past seven months.  We touched the bottom end of that range this week but promptly bounced back higher, showing us the trend is likely to continue.  If we were to have moved lower outside the range, it could signal a new downward trend in the market. 

Even with that upward trend in place, we still don’t like investing in the broader market at these high levels.  Finding undervalued individual stocks seems to be a better play at this time, though they are increasingly hard to find.  A variety of sectors are trading at oversold (cheap) levels, but we are wary of stocks with a stronger connection to interest rates.  We like to have a shorter-term horizon, too, so we can keep one foot out the door in case the market turns abruptly. 

Gold keeps hanging around its current level, never really gaining any traction one way or the other.  While demand for physical gold is still very strong, gold as an investment has shown signs of weakness.  We like it for the long run as a good hedge, but caution is still warranted.

We like other commodities for the long term, especially due to weaker currencies around the globe.  A slowdown in global growth seems to be weighing on commodity prices here, so buying on the dips may work with a longer time horizon. 

As for bonds, this area garnered much attention this week.  Yields are rising sharply (so prices are falling).  A short position (bet on the decline in prices) has done well here but only time will tell if a new trend is beginning.   

We also think TIPs are important as we still expect inflation to increase.  Municipal bonds provide a nice way to reduce taxes, though new itemization laws may reduce their benefits in some cases. 

Finally, in international stocks, we are less enthusiastic on developed markets, but not totally sold on emerging, either. 

Please note, 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.

Commentary for the week ending 5-31-13

Stocks closed lower for the second straight week, a feat we haven’t seen since early February.  Through the Friday close, the Dow dropped 1.2%, the S&P was lower by 1.1%, and the Nasdaq fell just 0.1%.  Gold saw a solid move to the upside midweek, but a drop Friday resulted in just a 0.4% gain on the week.  Oil moved lower to $92 per barrel, a nice drop of 2.3% on the week.  The other major type of oil, Brent, fell to just above $100. 

Source: Yahoo Finance (a higher Monday open skewed our chart this week)

There wasn’t much in the way of news this week, especially with the holiday Monday, but there was plenty of volatility in the markets.  An ominous looking drop in the market occurred late Friday, but that appears to be due to a rebalancing in the MSCI indexes.  A rebound Monday would confirm this. 

An interesting stat worth noting, the Dow has now been up each of the last 20 straight Tuesdays.  In fact, these Tuesday gains alone are responsible for roughly two-thirds of the gains in the market so far this year.  Of course, now that we mention this trend, odds are it will no longer occur.   

We’re beginning to see a change in attitude in the market.  Stocks and bonds had been steadily rising over the past six months (for bonds, that means yields have been falling), but cracks are forming.  Bond yields have risen abruptly, raising red flags for investors.  Government Treasury bonds have reached the highest levels in more than a year and mortgage rates are also sharply higher.

Worries are creeping back into the market that either the Fed will taper its stimulus, or it may lose control of it entirely.  This has sectors related to interest rates getting hit hardest.  Rising bond yields means less demand for dividend paying stocks, causing them to underperform the market.  REITs (real estate investment trusts) are in the same boat.     

This situation has played out in Japan, as well.  Their markets have been closely watched since the announcement of their radical new stimulus.  Stocks had risen sharply since the stimulus first began, but have reversed course just as sharply in the last two weeks. 

More importantly (at least to wonky market watchers), their bond yields have risen dramatically (so prices have fallen) since the start of the stimulus.  Similar to our stimulus program, it should have pushed yields lower.  That is one of the goals.  But they have lost control of interest rates, which has many worried the same can happen here.  This is important to watch. 

There were several economic reports this week that were better than expected, leading investors to believe an improving economic picture would mean a reduction in stimulus was nearing.   

A positive housing report kicked off those Fed taper worries.  Over the first quarter, housing prices rose at the strongest pace almost seven years.  Many have begun to worry that a new bubble is forming.  A big difference this time is the increase in housing is due largely to investors, with about 40% of sales being for cash (perhaps the bubble is forming in investable assets?).  Mortgage applications have actually been falling, as a report late this week indicated.

Other economic data this week was mixed.  We’re not sure why, but consumer confidence stands at a six-year high and manufacturing in the Chicago region showed a surprising increase. 

On the other hand, economic activity in the mid-Atlantic region contracted, first quarter GDP was revised lower to 2.4% from 2.5%, the weekly unemployment report ticked higher, and personal income and spending were flat and negative, respectively.  This was the first cut in spending in a year.  


Next Week

Next week looks to be fairly busy.  We will get info on the manufacturing and service sectors over the past month, the trade deficit, construction data, factory orders, and the employment data on Friday.  We look to be entering that period where good news is bad news for the market since it would mean a reduction in market-fueling stimulus.  Therefore, a good employment report may be met with a sell-off, and vice-versa.   


Investment Strategy

Above we discussed how a worry of a reduction in the Fed’s stimulus is causing investors to worry, but we don’t see a tapering any time soon. 

The criteria laid out by the Fed for a pullback in stimulus has not been met.  While we disagree with the criteria and program in general, the employment picture is still poor and inflation is running below their target.  Frankly, we believe the inflation picture will continue to deteriorate. 

The early stimulus saw commodity prices to rise dramatically, which resulted in higher costs for us.  Any regular shopper can attest to this.  It is natural for this bubble to begin to deflate (and spare us some pain in the wallet), something the Fed doesn’t wish to see.  But prices have to come down, and want to.  This alone will keep the Fed printing money.  We only need to look to Japan and the decades of stimulus to see how long this can drag out.    

Will the lack of any imminent tapering send markets higher?  Possibly.  But we still don’t like investing in the broader market at these high levels.  Finding undervalued individual stocks seems to be a better play at this time, though they are increasingly hard to find.  We like to have a shorter-term horizon, too, so we can keep one foot out the door in case the market turns abruptly. 

Several sectors have been hit hard over the last couple weeks.  This includes heavy dividend payers like utilities and REITs, plus others like energy, mining, and property and casualty insurers.  Many stocks in the utility and insurance sectors look like they have turned the corner to head higher (at least in the short term).  As for the other sectors, we still have our reservations. 

Outside of those sectors, we still like higher-quality and dividend paying stocks, though they have become increasingly volatile.  Companies with operations overseas have seen better earnings than those who do not.  We also like smaller and mid-sized stocks that don’t have a strong correlation to the broader market.

Gold looked stable again this week, but its short-term prospects look poor.  While demand for physical gold is still very strong, gold as an investment has shown signs of weakness.  We like it for the long run as a good hedge, but caution is still warranted.   

We like other commodities for the long term, especially due to weaker currencies around the globe.  A slowdown in global growth seems to be weighing on commodity prices here, so buying on the dips may work with a longer time horizon. 

As for bonds, this area garnered much attention this week.  Yields are rising sharply (so prices are falling).  A short position (bet on the decline in prices) has done well here but only time will tell if a new trend is beginning.   

We also think TIPs are important as we still expect inflation to increase.  Municipal bonds provide a nice way to reduce taxes, though new itemization laws may reduce their benefits in some cases. 

Finally, in international stocks, we are less enthusiastic on developed markets, but not totally sold on emerging, either. 

Please note, 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.