Commentary for the week ending 6-27-14

Please note: there will be no market commentary next week due to the 4th of July holiday.  Thanks, and have a nice long weekend.

The stock market turned in a negative week, though it remains near record highs.  Through the Friday close, the Dow fell 0.6%, the S&P was lower by 0.1%, but the Nasdaq gained 0.7%.  Gold turned in another positive week, rising 0.2%.  Oil took a turn lower, losing 1.0% to $105.74 per barrel.  The international Brent, used for much of our gas here in the east, fell to $113.18 per barrel. 

Source: Yahoo Finance

The activity was a little different on Wall Street this week as stocks saw pressure to the downside nearly every day.  However, the moves in stocks were mostly modest.   

Geopolitical events like the fighting in Iraq and Ukraine were largely ignored again this week.  A report of Syrian warplanes entering the fight and killing at least 50 insurgents seemed to have pressured markets lower on Tuesday.  Beyond this event, the fighting remained on the back burner, with oil prices even declining on the week. 

The other item having a big impact on the markets this week was comments from a regional Fed president.  Jim Bullard, of the St. Louis bank, commented on a Thursday morning TV program that the Fed was closer to achieving its goals than investors may realize.  Stocks sold off strongly after the comments, for it meant a reduction in stimulus earlier than anticipated. 

While the comments were a wake-up call, there is still a debate within the Fed itself on the length of the stimulus program, so it’s not clear how long stimulus will be with us.  While a regional Fed president may say one thing, the head of the Fed has emphasized their commitment to keeping stimulus around for a long time.  This makes it more likely stimulus will be around for longer than Bullard’s comments indicate.    

The big economic data of the week was the revision to first quarter GDP.  Originally standing at 0.1% on an annualized basis, the number was first revised to -1.0%, and this week revised even lower to -2.9%.  It is the weakest economic growth in five years and is the worst non-recession period growth in 57 years.  Oddly enough, the bad news had no impact on the market, likely due to it being a report on the first quarter and we’re nearly complete with the second. 

Poor weather took much of the blame for the poor economy, but poor weather alone cannot have such a large effect on this data point.  It shows the economy is far weaker than many expected.  Growth seems to be picking up this quarter, but it must pick up sharply to meet economists’ expectations for the year. 

One of the items that helped in the previous revisions was health care spending, which showed a gain of 9.1%.  However, this health spending was revised to a loss of 1.4%.  Such a large revision is odd, but perhaps sets up the next quarter to show an unusually large gain. 

Inflation was a big topic this week, too, as another report showed inflation rising sharply.  The report released this week was the PCE deflator, which hit two-year highs.  This report measures inflation slightly differently than the reports released the last two weeks, but it tells a similar story.  Inflation is rising and hurts consumption, but it is one of the goals of the Fed. 

As for other economic data this week, the results were mixed.  Housing showed improvement, largely due to the lower recent interest rates.  Consumer confidence also showed strength.  On the other hand, personal income and spending both increased, but slightly lower than expectations.  The increase in spending was actually due to higher inflation, where if adjusted for inflation, spending would have decreased. 


Next Week

With next week marking the end of the month and quarter, we’ll begin to get economic data for that period rolling in.  In the holiday-shortened week, we’ll see info on housing, the strength of the manufacturing and service sectors, and most importantly, employment.  It could be a busy week. 


Investment Strategy

Our investment strategy remains unchanged.  Stocks are on the expensive side, so it is not surprising to see some pressure to the downside.  We don’t believe the downside risks are enough to sell at this point, though we do have serious concerns for the longer run. 

While we aren’t selling the broader index at this time, we are not interested in buying it, either.  Instead, we look for undervalued individual names to put new money in.  We check the company’s fundamentals to tell us if it is worth buying, while technical analysis, or the charts, will tell us if it is a good time to buy. 

As for bonds, prices rose this week (so bond yields fell), but they remain volatile.  Prices have been in this range for some time now, so they haven’t really established a trend either way.  With prices so high, there is the possibility of prices falling in the future.  A position to profit in this scenario (a short position, where your profit increases if prices fall) acts as a nice hedge in that case.  Floating rate bonds are also gaining popularity for this same reason, but they tend to be riskier, so caution is warranted. 

TIPs have done well on the recent higher inflation data.  We think they remain an important hedge against future inflation.  Some municipal bonds look attractive for the right client, but not as good as they did several months ago.  We like buying individual, insured names for these bonds, avoiding muni index bonds if possible. We keep a longer term focus with these investments. 

Gold is another hedge for the portfolio, showing another nice gain this week.  However, it has been around this level for many months now, doing very little.

We like other commodities for the long term, especially due to weaker currencies around the globe.  This is a longer-term play, so buying on the dips may work with a longer time horizon. 

Finally, in international stocks, we see weakness around the globe and favor neither the developed or emerging markets. 

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.

Commentay for the week ending 6-20-14

Stocks continue their march to new record highs.  For the week, the Dow rose 1.0%, the S&P gained 1.4%, and the Nasdaq was higher by 1.3%.  Gold saw its best day in nine months on Thursday and best week in four months for a 3.3% gain.  Oil surprisingly saw little change on the week, rising just 0.3% to $107 per barrel.  The international Brent oil saw more of the action, rising to nine-month highs of $114.68 per barrel. 

Source: Yahoo Finance

Stocks continued their slow and steady rise despite the lingering geopolitical events.  The situation unfolding in Iraq had little impact on the market this week, despite conditions on the ground deteriorating.  Oil production and exports have been relatively unaffected, though, which is obviously reassuring to the markets.  That doesn’t mean all is well, but was enough to help the markets this week.   

News from the Fed this week was the only item that had much impact on the markets.

Early in the week and before the Fed meeting, the CPI inflation report showed prices rising the most in a year last month, keeping the inflation level above 2%.  Worth noting, they break the inflation number out into segments and the one for meat, poultry, fish, and eggs hit its most expensive level in history.  The inflation story is significant. 

This inflation report was important because a 2% increase is the level targeted by the Fed.  It means we have met the Fed’s target, which lead many investors to believe the Fed would pull back further from their stimulus policies. 

With that new inflation information, investors were anxious to see if the Fed would make any changes in their policy meeting this week.  It turned out they told us little we didn’t expect.  They would continue to pull back on their bond buying, where they created money out of thin air to buy government and mortgage bonds.  They would also keep interest rates low for a considerable time. 

The Fed did lower its expectation for economic growth this year, but oddly at the same time took an upbeat stance on the economy.  It’s worth noting they have never been correct on their economic projections, where the economy has always performed below their expectations.  

What really moved markets, though, was when asked if the higher inflation would impact their policies.  Fed chief Janet Yellen dismissed the higher prices as noise and confirmed their commitment to keeping interest rates low for a long time.  Stocks jumped on the news as investors see the Fed continuing to provide a backdrop for stocks to go higher.  

This dismissal of higher inflation is worrisome to us, especially by calling it noise.  It’s not noise to the people paying the highest prices ever at the grocery store, which means less spending elsewhere and slower economic growth. 

It also dismisses another of their goals.  Several months ago we surpassed the Fed’s other target of 6.5% unemployment (we currently stand at 6.3%).  The achievement was ignored and then removed as a goal.  This shows their stated objectives are meaningless, for what is the purpose of setting a target if it will not be adhered to?

As for other economic info this week, the data came in on the positive side.  Economic activity in the northeast showed improvement while industrial production also ticked higher.  


Next Week

While troubles in Iraq and Ukraine are likely to continue next week, it will probably have little impact on our markets again like it did this week.  There will be a few economic reports worth watching, including a revision to first quarter GDP, info on manufacturing, housing, durable goods, and personal income and spending.  None are likely to have a significant impact on the market, so it may again be a fairly quiet week. 


Investment Strategy
Again, no change here.  Investors see no reason to worry with the Fed showing its commitment to higher markets.  The VIX index, or fear gauge, now stands at seven year lows, so everyone is on board.  When everyone believes the market will do one thing, it tends to do the opposite, so that is reason for caution. 

Stocks are on the expensive side, so we aren’t doing any buying of the broader index at this point.  We aren’t selling now either, though.  For new money, we’d prefer to find undervalued individual names instead of the broader market indexes.  A look at a company’s fundamentals tells us if it’s a good one to buy, while technical analysis (the charts) will tell us if it is a good time to buy. 

The bond market remains volatile.  Prices remain stuck in a range, showing no real indication of moving higher or lower.  We take a longer view with this sector and there are worries that with prices so high, they are likely to fall in the future.  A bet on this scenario (a short position, which bets that prices will fall and yields rise) acts as a good hedge in that case.  Floating rate bonds are also gaining popularity for this same reason, but they tend to be riskier, so caution is warranted. 

TIPs have done well on the recent higher inflation data.  We think they remain an important hedge against future inflation.  Some municipal bonds look attractive for the right client, but not as good as they did several months ago.  We like buying individual, insured names for these bonds, avoiding muni index bonds if possible. We keep a longer term focus with these investments. 

Gold is another hedge for the portfolio, showing a nice gain this week.  However, it has been around this level for many months now, doing very little.

We like other commodities for the long term, especially due to weaker currencies around the globe.  This is a longer-term play, so buying on the dips may work with a longer time horizon. 

Finally, in international stocks, we see weakness around the globe and favor neither the developed or emerging markets. 

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 6-13-14

Stocks turned in their first negative week in a month.  Through the Friday close, the Dow fell 0.9%, the S&P was lower by 0.7%, and the Nasdaq lost 0.3%.  Gold saw a nice gain of 1.7%.  Oil was the big story of the week, hitting nine month highs of nearly $107 per barrel on a 4.1% increase.  The international Brent oil rose to $112.44 per barrel. 

Source: Yahoo Finance

The week was very light on economic data and news from the central banks.  It helped the week start on a quiet note, but unrest in Iraq stirred up the market, sending stocks lower and oil prices sharply higher. 

By now you’ve heard about the Islamic terrorists who quickly took control of large, important cities in Iraq, so we won’t waste time with the details.  At the time of this writing, they were advancing on Baghdad with momentum on their side.  The collapse of this important city would complicate matters even further.  It doesn’t appear the U.S. will intervene in any meaningful way, so the outlook is pessimistic. 

On a quick personal note, my brother spent more than two years in the country with the U.S. Army.  It is heartbreaking to see the gains they fought so dearly for lost so easily when it was easily avoidable.  It is an extremely demoralizing situation for our troops.

Geopolitical instability is always a cause for concern with the markets.  Iraq is particularly important due to their oil production, so it had even more of an impact than the recent issues with Russia and Ukraine.  While the amount of oil they produce is significant – they are the world’s seventh largest oil producer – their current production isn’t extremely large.  The U.S. doesn’t use much of their oil at this time. 

The importance comes from their proven supplies, which is fifth highest in the world.  They have been slowly ramping up production since the war and were on a promising trajectory.  That future output is now in jeopardy after the events of this week, which sent oil prices sharply higher as a result. 

As oil and gas prices rose, it increased fears of an economic slowdown.  We heard this concern expressed repeatedly this week.  While it’s true, it strikes us as funny.  Higher oil prices not only increase the cost of gas, but nearly everything.  Higher prices means inflation, which is exactly what the Fed and central banks are hoping for. 

When faced with a real-world example like this, it clearly illustrates the problem of higher inflation.  Higher prices hurt economies, they don’t help it.  However, we are certain this will not prompt any changes in Fed policy.  

As for economic data released this week, the news was largely negative.  Retail sales rose 0.3% over the last month, much less than expected.  When excluding transportation and gas from that calculation, growth was flat.  Also, we learned inflation at the producer level ticked lower last month.  We see any hint of lower prices as a positive, but it was looked at as a negative by central banks who are aiming to boost inflation. 

Finally, an interesting situation arose this week with Spain.  Their bonds traded at a lower yield than the U.S., which means investors saw them as more creditworthy than us.  In fact, they traded at their lowest level since 1789.  Yes, they haven’t been better in 225 years, which is amazing when you think about it.  This has us very worried that a bond bubble is growing. 

The apparent creditworthiness of Spain comes despite their poor economic situation.  They have little economic growth, massive amounts of debt, and nearly 25% unemployment.  We can be reassured that their GDP will be increasing soon, though.  We recently discussed changes many countries made to boost their GDP, or economic growth, by including dubious items like drugs and prostitution in their calculations.  Spain will be adopting those items in their GDP calculation, too, which will give the appearance of economic growth.  It is troubling to see statistics manipulated so much and become so misleading.   


Next Week

The focus will remain on events unfolding in Iraq over the next several days.  If conditions worsen, we’re likely to see the market weaken.  Like we saw with Ukraine, though, stabilization will likely reassure the markets and oil prices will decline. 

The Fed will also be in the news as they hold another of their periodic meetings.  We’re not expecting any changes in their policies, but they are expected to lower their economic projections. 

We’ll also get economic data with the release of inflation at the consumer level, industrial production, housing, and leading economic indicators. 


Investment Strategy

No change here, even with the events of this week.  Stocks were on the expensive side to begin with, so the jitters from Iraq had little trouble sending stocks lower.  While it depends on the conditions on the ground, any improvement will likely see stocks head higher. 

While we aren’t adding new money to the broader market here, we are not selling yet, either.  For new money, we’d prefer to find undervalued individual names instead of the broader market indexes.  A look at a company’s fundamentals tells us if it’s a good one to buy, while technical analysis (the charts) will tell us if it is a good time to buy. 

The bond market remains volatile.  Prices fell this week, though they had risen considerably in the weeks leading up to now.  We take a longer view with this sector and there are worries prices could fall further in the future.  A bet on this scenario (a short position, which bets that prices will fall and yields rise) acts as a good hedge in that case.  Floating rate bonds are also gaining popularity for this same reason, but they tend to be riskier, so caution is warranted. 

TIPs have done well on the recent higher inflation data.  We think they remain an important hedge against future inflation.  Some municipal bonds look attractive for the right client, but not as good as they did several months ago.  We like buying individual, insured names for these bonds, avoiding muni index bonds if possible. We keep a longer term focus with these investments. 

Gold is another hedge for the portfolio, but it has been stuck in this range for months and done very little.

We like other commodities for the long term, especially due to weaker currencies around the globe.  This is a longer-term play, so buying on the dips may work with a longer time horizon. 

Finally, in international stocks, we see weakness around the globe and favor neither the developed or emerging markets. 

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 6-6-14

It was another record week as stocks continued their push into record territory.  For the week, the Dow gained 1.2%, the S&P rose 1.3%, and the Nasdaq climbed 1.9%.  Bond yields reversed course this week as prices fell and yields rose.  Gold turned in a gain after showing weakness earlier in the week, rising 0.5%.  Oil moved slightly lower, falling just five cents to $102.66 per barrel.  The international Brent oil moved down to $108.85 per barrel. 

Source: Yahoo Finance

The market continues to slowly churn higher on light trading volume, though it notches a new record with each close higher.  Economic data was heavy and mostly positive this week, however investors were more interested in news on stimulus from the European Central Bank. 

Central bankers around the globe have worried over the low levels of reported inflation in their countries.  European bankers in particular cite “very low inflation” as the cause of the poor economic recovery.  They see low food and energy prices as a problem and vowed to take action to boost inflation levels and spur economic growth. 

This week, investors got to see what the ECB would do for stimulus to boost inflation.  Their announcement included lower interest rates and possible bond buying as stimulus.  Since interest rates were so low to begin with, some will be negative.  Yes, negative interest rates. 

The way these rates work, sometimes banks need to park extra cash at the central bank, who then pays interest to the bank parking the cash.  The interest paid is referred to as the deposit rate.  To encourage banks to lend out that money and not park it at the central bank, a negative deposit rate would penalize banks by charging them a fee for holding on to money.  This is the rationale for putting rates negative. 

While this was a big step, it was largely expected and lead to a lukewarm response from the market.   

These central banks continue to worry about low inflation and blame it for the lack of economic growth.  They fail to consider other factors like poor government policies.  We see this as the main factor in the lackluster economic growth, not because lending rates are too high (they’ve been at record lows for years).  Until these policies are fixed, real economic growth will not occur.  This is why the monumental amounts of stimulus over the last five years produced little in the way of results.

In fact, we think these stimulus policies are doing more harm than good.  We only need to look at Japan, who has been doing stimulus in one form or another for almost two decades to try to overcome deflation and a stagnant economy.  After failing to produce results, it recently kicked the stimulus into high gear.  This has indeed led to higher spending by the Japanese people, which is widely celebrated. 

However, it has created the highest misery index in over 30 years (this compares the level of inflation and employment).  Food and energy inflation is through the roof with food prices rising the fastest in 23 years.  Employment and wage increases have not occurred.  The stimulus has merely increased the cost of surviving.  Higher food and energy prices are not beneficial, as we mentioned earlier.  They are damaging.  Central bankers see this as progress, but we certainly do not. 

Getting back to the news of the week, the other big story came on Friday with the monthly employment report.  The U.S. added 217,000 jobs last month, right around expectations.  This was a decent number, but not exactly the “snap-back” many had expected after the cold winter was used as an excuse for weak hiring earlier in the year.  Still, it was in line with expectations so it had little effect on the market. 
  
Other economic data on the week was mostly positive.  Both the service and manufacturing sectors saw growth, factory orders rose slightly, and the Fed’s Beige Book saw growth in all 12 of their regions, as opposed to only eight the previous month.  On the other hand, the trade deficit widened as imports rose and exports fell. 

Finally, a bit of news from our Fed.  This week they expressed some worries over the complacency in the market.  Some regional presidents see investors taking too much risk and fear it could lead to a bubble.  Unfortunately, this is from the Fed’s doing as they have forced investors to take more and more risk to achieve returns.  It is a genuine concern, though, as it could spell problems down the road. 


Next Week
Next week looks fairly quiet for market moving data.  We’ll get a report on retail sales, plus inflation at the producer level.  That’s about it.  There will be several regional Fed presidents making speeches, so it may be interesting to hear what they have to say about the stimulus program after the decent jobs report this week. 


Investment Strategy

Still no change here.  We continue to have worries for the longer run, but the shorter run still looks to have some upside, though only little.  The market is approaching overbought (expensive) levels as investors are growing excessively optimistic.  Markets tend to reverse when everyone is on the same side of the trade, so this is reason for caution.

While we aren’t adding new money to the broader market here, we are not selling yet, either.  For new money, we’d prefer to find undervalued individual names instead of the broader market indexes.  A look at a company’s fundamentals tells us if it’s a good one to buy, while technical analysis (the charts) will tell us if it is a good time to buy. 

The bond market remains volatile.  Prices fell this week, though they had risen considerably in the weeks leading up to now.  We take a longer view with this sector and there are worries prices could fall further in the future.  A bet on this scenario (a short position, which bets that prices will fall and yields rise) acts as a good hedge in that case.  Floating rate bonds are also gaining popularity for this same reason, but they tend to be riskier, so caution is warranted. 

TIPs have done well on the recent higher inflation data.  We think they remain an important hedge against future inflation.  Some municipal bonds look attractive for the right client, but not as good as they did several months ago.  We like buying individual, insured names for these bonds, avoiding muni index bonds if possible. We keep a longer term focus with these investments. 

Gold is another hedge for the portfolio, but it has been stuck in this range for months and done very little.

We like other commodities for the long term, especially due to weaker currencies around the globe.  This is a longer-term play, so buying on the dips may work with a longer time horizon. 

Finally, in international stocks, we see weakness around the globe and favor neither the developed or emerging markets. 

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 5-30-14

The stock market rose again this week on more light trading volume.  Through the Friday close, the Dow was higher by 0.7%, the S&P gained 1.2%, and the Nasdaq returned a decent 1.4%.  Yields on government bonds hit 11-month lows as prices continue to rise.  Gold had its worst week in eight months, falling 3.6%.  Oil finally had a negative week, losing 1.6% to $102.71 per barrel.  The international Brent oil fell to $109.49 per barrel. 

Source: Yahoo Finance (the chart was skewed this week by Monday’s holiday)

The week was another quiet one, with the short week and start of summer likely taking its toll on trading volume.  Economic data releases were largely negative, but stocks continued to rise anyway, again hitting new highs. 

The big story was the GDP report, which showed the strength of our economy.  A few weeks ago we got our first look at GDP, which came in at a flat 0.1% growth.  With more data now available, this week that GDP number was revised sharply lower to -1%.  This shows our economy contracted in the first quarter, the first contraction in three years. 

Keep in mind, this contraction comes despite the hundreds of billions of dollars spent on stimulus and trillions more created out of thin air.  Yet we remain stuck in the worst economic recovery since WWII.  One might look at the lack of results and conclude that a different approach is needed.  However, we’re continuing down this path of government intervention in the markets, which as we’ve seen, isn’t likely to work any better than it already has. 

With the poor economic report, why were stocks up?  It means the Fed is less likely to remove its stimulus programs in the near future so interest rates will remain low for longer.  This condition that has been very beneficial to the stock market so far, therefore, stocks rose on the bad news. 

Stocks weren’t the only asset class to rise as bonds rose too.  Bonds have been a big story in recent weeks as their yields continue to hit new lows (so prices have hit highs).  The slow economic growth has been one factor behind the moves as worried investors park their money in relatively safe investments. 

The other factor is stimulus policies from the European Central Bank.  The ECB will hold a policy meeting next week where investors expect an announcement of some sort of stimulus program.  It is expected to drive down interest rates, so investors have been getting a jump on the announcement by pushing yields lower on their own.  European bond yields are around the lowest level in the history of the Euro, which spilled over to our market and pushed our yields down, too. 

To wrap up this section, we’ll return to the topic of GDP.  Almost a year ago, changes were made to the GDP calculation by adding in new items not previously counted (LINK).  This had the effect of making the number look bigger than it otherwise would have (of course, they wouldn’t make a change unless the number looked bigger).

Several other countries adopted this idea, too, since every country wants their GDP to look bigger.  It also makes their debt situation look better, since it is often measured by a debt-to-GDP ratio.  If GDP is higher, their debt situation doesn’t look as bad. 

Several weeks ago, Italy jumped the shark by adding rather dubious items to their GDP calculation: hookers and drugs.  We’re not kidding.  Since people pay money for these items, Italy reasoned they should be included in GDP calculations.  Of course, this boosted their GDP and “improved” their economic picture.  How’s this for a headline: Cocaine Sales to Boost Italian GDP in Boon for Budget. Link.

We figured that was a one-off.  No other country would be so bold as to add items like these.  Yet this week, Britain announced they would do the same, officially including prostitution and drug sales in their GDP (LINK).  They even went so far as to describe the process of calculating these figures since they are all based on assumptions because, shockingly, prostitutes and drug dealers don’t report their income to the government. 

Going forward, we need to be careful about relying on GDP figures too strongly.  They are becoming more and more inaccurate as countries adopt questionable items to give an appearance of economic growth.  We tend to question the reliability of government numbers to begin with but it is now crossing an absurd level, which is a little frightening.   


Next Week

While the last few weeks have been very quiet with the amount of trading volume, that could change next week as there are several important events that are likely to bring traders back in.

First, we’ve been talking a lot about the moves in the bond market recently, much of which were in anticipation of stimulus from Europe.  We’ll find out if that is the case this week as the European Central Bank meets to discuss their economic policy.  Stimulus or not, we are likely to see a big reaction in the market, either way. 

Back here in the U.S., we’ll get an important economic report on Friday with the employment report for May.  Expectations are high for this number, so it is possible to see some disappointment here.  The week will also have economic reports on the strength of the manufacturing and service sectors, plus factory orders and the trade balance. 


Investment Strategy

No change here.  While we have our worries for the longer term, we think there is still room for the markets to move higher in the short run.  Stocks are expensive here, so we aren’t doing any buying, but aren’t doing any selling, either.  For new money, we’d prefer to find undervalued individual names instead of the broader market indexes.  A look at a company’s fundamentals tells us if it’s a good one to buy, while technical analysis (the charts) will tell us if it is a good time to buy. 

The bond market remains volatile and will likely see more volatility this week.  We’ll take a longer view with this sector and while they’ve performed well recently, there is a concern the run may come to an end soon.  A bet that rates will rise (a short position, which bets that prices will fall) acts as a good hedge in that case.  Floating rate bonds are also gaining popularity for this same reason, but they tend to be riskier, so caution is warranted. 

TIPs have done well on the recent higher inflation data.  We think they remain an important hedge against future inflation.  Some municipal bonds look attractive for the right client, but not as good as they did several months ago.  We like buying individual, insured names for these bonds, avoiding muni index bonds if possible. We keep a longer term focus with these investments. 

Gold is another hedge for the portfolio, but it has been stuck in this range for months and done very little.

We like other commodities for the long term, especially due to weaker currencies around the globe.  This is a longer-term play, so buying on the dips may work with a longer time horizon. 

Finally, in international stocks, we see weakness around the globe and favor neither the developed or emerging markets. 

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.