Monthly Archives: December 2012

Weekly Market Commentary 12/17/2012

Weekly Commentary

December 17, 2012

Special Note: The horrible tragedy at Sandy Hook Elementary School tugs at the heart of all of us. In the midst of a joyous season, we have another example of the fragility of life. We pray for the innocent victims and their families and hope they may find some measure of comfort and healing in their time of great pain.

The Markets

There they go again.

Doing its part to keep the economy afloat, the Federal Reserve announced last week, “that it would enter 2013 with a plan to purchase $85 billion a month of mortgage-backed securities and Treasury securities, part of a continuing attempt to drive down long-term interest rates to encourage borrowing, spending, and investing,” according to The Wall Street Journal.

In other words, the money printing not only continues, but expands.

Prior to the financial crisis, the Federal Reserve’s balance sheet stood at about $900 billion. Now, after previous rounds of securities purchases, it weighs in at about $2.9 trillion. With last week’s announcement, it’s on track to reach about $4 trillion by December 2013. And, based on the Fed’s guidance last week, it could hit $6 trillion before the Fed rests.

There are two schools of thought on the wisdom of this balance sheet expansion policy. One school says it will lead to massive inflation and destroy the value of the dollar. The other school says it’s necessary to keep the economy stimulated while giving fiscal policymakers time to fix the structural issues with the economy.

For its part, the Fed says it can manage its balance sheet without causing unwanted inflation.

So far, inflation is calm, the financial markets have stabilized, and the unemployment rate has dropped steadily over the past two years. By those measures, the Fed’s policy has been reasonably effective. Yet, as The Wall Street Journal points out, “Many critics of the central bank believe it has already gone too far in its quest to boost economic growth, and say it might be exposing the financial system to new risks of inflation or a financial bubble by pumping so much money into banks.”

We are concerned about the potential long-term consequences of the Fed’s unprecedented money-printing actions and we’ll continue to keep a close eye for any sign of the market “rejecting” it.

Data as of 12/14/12

1-Week

Y-T-D

1-Year

3-Year

5-Year

10-Year

Standard & Poor’s 500 (Domestic Stocks)

-0.3%

12.4%

16.7%

8.3%

-0.8%

4.5%

DJ Global ex US (Foreign Stocks)

1.3

12.3

15.7

1.3

-5.3

7.4

10-year Treasury Note (Yield Only)

1.7

N/A

1.9

3.6

4.2

4.1

Gold (per ounce)

-0.3

7.7

5.8

14.7

16.5

17.7

DJ-UBS Commodity Index

-0.7

-0.1

2.9

1.5

-4.9

2.4

DJ Equity All REIT TR Index

-0.6

16.2

23.8

17.6

5.1

11.5

Notes: S&P 500, DJ Global ex US, Gold, DJ-UBS Commodity Index returns exclude reinvested dividends (gold does not pay a dividend) and the three-, five-, and 10-year returns are annualized; the DJ Equity All REIT TR Index does include reinvested dividends and the three-, five-, and 10-year returns are annualized; and the 10-year Treasury Note is simply the yield at the close of the day on each of the historical time periods.

Sources: Yahoo! Finance, djindexes.com, London Bullion Market Association.

Past performance is no guarantee of future results.  Indices are unmanaged and cannot be invested into directly.  N/A means not applicable. 

THE BEST PERFORMING STOCKS BETWEEN ELECTION DAY 2008 AND ELECTION DAY 2012 in the S&P 500 index are quite a varied group. It’s interesting to see what companies performed well during this time because it encompassed a good chunk of the Great Recession and the stock market recovery that ensued. Without naming names, here are the industries represented by the top 12 performing stocks, according to a list from MarketWatch:

1)      Leisure

2)      Grocery Stores

3)      Auto Dealers

4)      Leisure

5)      Lodging

6)      Computer Systems

7)      Restaurants

8)      Auto Manufacturers

9)      Footwear and Accessories

10)  Software

11)  Residential Construction

12)  Data Storage

The cumulative return during the 4-year period for these companies ranged from 373 percent for company #12 to 1,107 percent for company #1. By contrast, the S&P 500 index rose 47 percent during the period, according to data from Yahoo! Finance.

Notice that only one industry – leisure – is represented by two different companies on the list. This suggests the top performers were indeed a diversified group.

Are you ready for a quiz? See if you can name three companies on the list given the following hints:

Company #1 on the list: Their spokesperson has gone “where no man has gone before.”

Company #2 on the list: It’s sometimes referred to as “whole paycheck.”

Company #6 on the list: Their commercial, which aired only once on TV in 1984, was rated the 12th best ad campaign of the 20th century by Advertising Age.

Stumped? See below for the answers. Let us know how many you got right!

Weekly Focus – Think About It…

“(Holiday) gift suggestions:

To your enemy, forgiveness.

To an opponent, tolerance.

To a friend, your heart.

To a customer, service.

To all, charity.

To every child, a good example.

To yourself, respect.”

–Oren Arnold, novelist, journalist, and humorist

Answers to quiz:

Company #1 is Priceline.com

Company #2 is Whole Foods Market

Company #6 is Apple

Best regards,

Margie Shard, CFP®

President & Wealth Advisor

P.S.  Please feel free to forward this commentary to family, friends, or colleagues. If you would like us to add them to the list, please reply to this e-mail with their e-mail address and we will ask for their permission to be added.

Securities offered through LPL Financial Member FINRA/SIPC.

* This newsletter was prepared by Peak Advisor Alliance. Peak Advisor Alliance is not affiliated with the named broker/dealer.                    

* The Standard & Poor’s 500 (S&P 500) is an unmanaged group of securities considered to be representative of the stock market in general.

* The DJ Global ex US is an unmanaged group of non-U.S. securities designed to reflect the performance of the global equity securities that have readily available prices. 

* The 10-year Treasury Note represents debt owed by the United States Treasury to the public. Since the U.S. Government is seen as a risk-free borrower, investors use the 10-year Treasury Note as a benchmark for the long-term bond market.

* Gold represents the London afternoon gold price fix as reported by the London Bullion Market Association.

* The DJ Commodity Index is designed to be a highly liquid and diversified benchmark for the commodity futures market. The Index is composed of futures contracts on 19 physical commodities and was launched on July 14, 1998.

* The DJ Equity All REIT TR Index measures the total return performance of the equity subcategory of the Real Estate Investment Trust (REIT) industry as calculated by Dow Jones. 

* Yahoo! Finance is the source for any reference to the performance of an index between two specific periods.

* Opinions expressed are subject to change without notice and are not intended as investment advice or to predict future performance.

* Past performance does not guarantee future results.

* You cannot invest directly in an index.

* Consult your financial professional before making any investment decision.

* To unsubscribe from the Weekly Market Commentary please reply to this e-mail with    “Unsubscribe” in the subject line, or write us at 1537 N. Leroy St., Ste D Fenton Michigan 48430

Sources:

http://online.wsj.com/article/SB10001424127887323981504578175362999853652.html?mod=ITP_pageone_0

http://www.federalreserve.gov/releases/h41/current/h41.htm

http://www.bloomberg.com/news/2012-12-13/bernanke-wields-new-tools-to-reduce-unemployment-rate.html

http://www.foxbusiness.com/economy/2012/12/13/federal-reserve-zombie-economy/

http://blogs.marketwatch.com/thetell/2012/11/05/10-best-stocks-since-the-last-presidential-election/

http://finance.yahoo.com/q/hp?s=^GSPC&a=10&b=1&c=2008&d=10&e=14&f=2012&g=d&z=66&y=0

http://thinkexist.com/quotation/christmas_gift_suggestions-to_your_enemy/217714.html

Weekly Market Commentary 12/10/12

Weekly Commentary

December 10, 2012

The Markets

Another week is history and we’re another week closer to the “fiscal cliff.”

You can’t turn on the TV or surf the internet without some reference to the fiscal cliff. But, consider this. Remember all the fuss about Y2K back in 1999? Everybody was worried about planes dropping from the sky at midnight, ATMs freezing up, and the power grid shutting down on January 1. Well, the clock struck midnight and, poof, like Cinderella’s glass slippers, nothing changed.

Perhaps it was all the preparation ahead of Y2K that ensured it would be a non-event. In fact, one could argue that all the upgrading of equipment and intense preparation that went into the buildup toward Y2K helped propel the economy and fan the tech bubble that culminated at the turn of the century. Then, as you may know, it was right after Y2K that the stock market went over its own cliff and fell into a bear market.

Now, here’s where it gets interesting. While the overall stock market has been weak during the 13 years since Y2K, corporate earnings continued to rise. As a result, the Shiller PE10 ratio, a measure of valuation of the overall stock market, has dropped from 44 at the end of 1999 to 22 at the end of September of this year. In other words, the overall stock market is a lot less “expensive” than it was 13 years ago.

This could mean a couple things:

1. If we go over the fiscal cliff, the stock market may not fall as much as it did after Y2K because the overall market valuation level is much lower now.

2. Investor psychology and Federal Reserve policy are still wildcards. How investors and the Fed respond to whatever happens with the fiscal cliff could have a significant impact on the markets – good or bad.

No matter what happens with the cliff talks, we’re keenly focused on the situation and we’ll make adjustments to your portfolio as appropriate.

Data as of 12/7/12

1-Week

Y-T-D

1-Year

3-Year

5-Year

10-Year

Standard & Poor’s 500 (Domestic Stocks)

0.1%

12.8%

12.5%

8.7%

-1.2%

4.8%

DJ Global ex US (Foreign Stocks)

0.9

10.8

7.6

0.7

-6.2

7.4

10-year Treasury Note (Yield Only)

1.6

N/A

2.0

3.5

4.1

4.1

Gold (per ounce)

-1.4

8.1

-2.0

14.2

16.5

18.0

DJ-UBS Commodity Index

-0.9

0.6

-2.1

1.7

-4.5

3.0

DJ Equity All REIT TR Index

1.4

17.0

21.3

18.8

3.6

11.6

Notes: S&P 500, DJ Global ex US, Gold, DJ-UBS Commodity Index returns exclude reinvested dividends (gold does not pay a dividend) and the three-, five-, and 10-year returns are annualized; the DJ Equity All REIT TR Index does include reinvested dividends and the three-, five-, and 10-year returns are annualized; and the 10-year Treasury Note is simply the yield at the close of the day on each of the historical time periods.

Sources: Yahoo! Finance, djindexes.com, London Bullion Market Association.

Past performance is no guarantee of future results.  Indices are unmanaged and cannot be invested into directly.  N/A means not applicable.

THE OLD SAYING “THERE’S SAFETY IN NUMBERS,” may work in some settings, but not necessarily in the financial markets. Doing what everybody else is doing in the markets might make you feel more comfortable, but it’s not a way to get ahead. Famed investor Howard Marks pointed this out in his recent book titled, The Most Important Thing: Uncommon Sense for the Thoughtful Investor.

Marks said, “Unconventionality is required for superior investment results, especially in asset allocation.” Further, he said, “You can’t do the same things others do and expect to outperform. Unconventionality shouldn’t be a goal in itself, but rather a way of thinking.”

To frame this way of thinking, Marks developed the following matrix:

 

Conventional Behavior

Unconventional Behavior

Favorable Outcomes

Average good results

Above-average results

Unfavorable Outcomes

Average bad results

Below-average results

Source: Howard Marks

The matrix says conventional behavior will get you average results – either good or bad. By contrast, it’s only through unconventional behavior that we can be in position to achieve above-average results. But, do you see the rub here?

At times, unconventional behavior may lead to below-average results and, since you’re not part of the “safety in numbers” crowd, you could stick out in an uncomfortable way.

As it relates to managing investments, striving for a mix between conventional and unconventional behavior seems like a good strategy. You don’t want to always go against the crowd because the crowd is often right. But, there are times when it makes sense to take a stand, perhaps a more conservative stand than the crowd, and be a little unconventional.

If our portfolio is at times a bit unconventional, it’s because we’re trying to look out for your best interests.

Weekly Focus – Think About It…

“If everyone is thinking alike then somebody isn’t thinking.” 

– George S. Patton, U.S. military leader

Best regards,

Margie Shard, CFP®

President & Wealth Advisor

P.S.  Please feel free to forward this commentary to family, friends, or colleagues. If you would like us to add them to the list, please reply to this e-mail with their e-mail address and we will ask for their permission to be added.

Securities offered through LPL Financial Member FINRA/SIPC.

* This newsletter was prepared by Peak Advisor Alliance. Peak Advisor Alliance is not affiliated with the named broker/dealer.                     

* The Standard & Poor’s 500 (S&P 500) is an unmanaged group of securities considered to be representative of the stock market in general.

* The DJ Global ex US is an unmanaged group of non-U.S. securities designed to reflect the performance of the global equity securities that have readily available prices. 

* The 10-year Treasury Note represents debt owed by the United States Treasury to the public. Since the U.S. Government is seen as a risk-free borrower, investors use the 10-year Treasury Note as a benchmark for the long-term bond market.

* Gold represents the London afternoon gold price fix as reported by the London Bullion Market Association.

* The DJ Commodity Index is designed to be a highly liquid and diversified benchmark for the commodity futures market. The Index is composed of futures contracts on 19 physical commodities and was launched on July 14, 1998.

* The DJ Equity All REIT TR Index measures the total return performance of the equity subcategory of the Real Estate Investment Trust (REIT) industry as calculated by Dow Jones.

* Yahoo! Finance is the source for any reference to the performance of an index between two specific periods.

* Opinions expressed are subject to change without notice and are not intended as investment advice or to predict future performance.

* Past performance does not guarantee future results.

*You cannot invest directly in an index.

* Consult your financial professional before making any investment decision.

* To unsubscribe from the Weekly Market Commentary please reply to this e-mail with    “Unsubscribe” in the subject line, or write us at 1537 N. Leroy St., Ste D, Fenton, Michigan 48430.

Sources:

1)      http://buzz.money.cnn.com/2012/11/15/the-fiscal-cliff-2013s-y2k-bug/

2)      http://finance.yahoo.com/q/hp?s=^GSPC&a=11&b=3&c=1999&d=00&e=7&f=2000&g=d

3)      http://www.econ.yale.edu/~shiller/data.htm (see Microsoft Excel file)

4)      http://www.google.com/url?sa=t&rct=j&q=&esrc=s&source=web&cd=1&ved=0CDAQFjAA&url=http%3A%2F%2Fwww.oaktreecapital.com%2FMemoTree%2F2006_09_07_Dare%2520to%2520Be%2520Great.pdf&ei=hMC_UO6SN-m40QGVmYHYCQ&usg=AFQjCNGME8FkAd9X5O-Lc64A1zV6UMXkPg&cad=rja

5)      http://www.alifeofblue.com/25-unconventional-quotes/

Weekly Market Commentary 12/03/2012

Weekly Commentary

December 3, 2012

 

The Markets

After all the huffing and puffing of the election, the fiscal cliff, and the Dancing With the Stars season finale, the U.S. stock market ended the month of November within 0.3 percent of where it started, according to The Wall Street Journal.

Although the return for the month was basically flat, a chart of the daily returns looked more like a healthy man’s EKG. From the closing high of the month to the closing low, the S&P 500 dropped 5.3 percent. Then, from that closing low to the last trading day of the month, the index rose 4.6 percent, according to data from Yahoo! Finance.

Overseas, the markets jumped around, too:

  • In Europe, the Stoxx Europe 600 index rose 2.0 percent on the month – its sixth monthly gain in a row.
  • In China, the Shanghai Composite index fell 4.3 percent in November and is now down about 10 percent for the year.
  • In Japan, the Nikkei Stock Average jumped 5.8 percent on the month to close at a seven-month high.

Source: The Wall Street Journal

What’s happening in Japan is rather interesting. The country will hold an election later this month to elect a Prime Minister. The leading candidate, Shinzo Abe, recently said the Bank of Japan should pursue a policy of unlimited bond purchases and zero-to-negative interest rates in order to rev up the moribund Japanese economy (sounds like the U.S.!). Abe’s easy money policy rhetoric helped lead to a roughly 10 percent drop in the value of the Japanese yen against a basket of developed market currencies between June and November 19 of this year and helped propel last month’s 5.8 percent rise in the Japanese stock market, according to Bloomberg and The Wall Street Journal.

As last month’s results show, we live in an interconnected world with many moving parts. Even something as simple as a Japanese Prime Minister candidate promoting an easy money policy can move markets dramatically.

Data as of 11/30/12

1-Week

Y-T-D

1-Year

3-Year

5-Year

10-Year

Standard & Poor’s 500 (Domestic Stocks)

0.5%

12.6%

13.6%

8.9%

-0.9%

4.2%

DJ Global ex US (Foreign Stocks)

1.1

9.8

8.3

1.1

-6.2

6.9

10-year Treasury Note (Yield Only)

1.6

N/A

2.1

3.2

4.0

4.2

Gold (per ounce)

-0.5

9.6

-1.1

13.7

17.1

18.5

DJ-UBS Commodity Index

-0.9

1.5

-2.3

1.5

-4.2

3.0

DJ Equity All REIT TR Index

0.3

15.4

20.7

19.3

3.8

11.3

Notes: S&P 500, DJ Global ex US, Gold, DJ-UBS Commodity Index returns exclude reinvested dividends (gold does not pay a dividend) and the three-, five-, and 10-year returns are annualized; the DJ Equity All REIT TR Index does include reinvested dividends and the three-, five-, and 10-year returns are annualized; and the 10-year Treasury Note is simply the yield at the close of the day on each of the historical time periods.

Sources: Yahoo! Finance, djindexes.com, London Bullion Market Association.

Past performance is no guarantee of future results.  Indices are unmanaged and cannot be invested into directly.  N/A means not applicable.

ARE STOCK MARKET RETURNS CLOSELY RELATED TO the overall level of growth in the economy? Logically, it makes sense to think as the economy grows, so will stock prices, and vice versa. Let’s test that hypothesis using historical data.

The following table compares the return in the stock market during three different time periods to economic growth during those periods. Two of these periods were weak times for the market and one was strong. They are compared to real growth in the economy (i.e., after removing inflation) and to nominal growth in the economy (i.e., with inflation included).

Period

S&P 500 Annualized Return

Real GDP Growth

Nominal GDP Growth

Market Cycle

1966 – 1981

1.7%

3.0%

9.6%

Weak Period

1982 – 1999

14.6%

3.3%

6.3%

Strong Period

2000 – 2008

-6.2%

2.3%

4.8%

Weak Period

Sources: Bureau of Economic Analysis, Yahoo! Finance

Note: S&P 500 returns exclude reinvested dividends

 

Here are some conclusions from the table:

  1. Economic growth – after removing the effect of inflation – has remained remarkably stable at 2.3 percent to 3.3 percent during extended strong and weak market periods dating back to 1966.
  2. Stock prices can rise or fall dramatically during extended periods of time regardless of what’s happening to underlying economic growth.
  3. The high inflation period from 1966 to 1981 – as shown by nominal GDP growing 9.6 percent versus real GDP growing 3.0 percent – did not help stock prices as the S&P 500 index only rose 1.7 percent on average per year excluding reinvested dividends.
  4. A combination of strong stock market returns from 1982 to 1999 (which raised market valuation to an extremely high level) and somewhat slower economic growth helped cause stock market returns from 2000 to 2008 to be quite negative.
  5. The change in the rate of inflation or disinflation can have a major impact on stock market returns.

This table is a great example of why it’s so important to do research. The logical thought that stock price movements mirror changes in economic growth is not supported by data going back to 1966.

Just like you can’t judge a book by its cover, you can’t always evaluate the stock market by taking logical ideas at face value.

Weekly Focus – Think About It…

“Reason itself is fallible, and this fallibility must find a place in our logic.”

–Nicola Abbagnano, Italian existential philosopher

Best regards, 

Margie Shard, CFP ®

President & Wealth Advisor

P.S.  Please feel free to forward this commentary to family, friends, or colleagues. If you would like us to add them to the list, please reply to this e-mail with their e-mail address and we will ask for their permission to be added.

Securities offered through LPL Financial Member FINRA/SIPC.

* This newsletter was prepared by Peak Advisor Alliance. Peak Advisor Alliance is not affiliated with the named broker/dealer.       

* The Standard & Poor’s 500 (S&P 500) is an unmanaged group of securities considered to be representative of the stock market in general.

* The DJ Global ex US is an unmanaged group of non-U.S. securities designed to reflect the performance of the global equity securities that have readily available prices. 

* The 10-year Treasury Note represents debt owed by the United States Treasury to the public. Since the U.S. Government is seen as a risk-free borrower, investors use the 10-year Treasury Note as a benchmark for the long-term bond market.

* Gold represents the London afternoon gold price fix as reported by the London Bullion Market Association.

* The DJ Commodity Index is designed to be a highly liquid and diversified benchmark for the commodity futures market. The Index is composed of futures contracts on 19 physical commodities and was launched on July 14, 1998.

* The DJ Equity All REIT TR Index measures the total return performance of the equity subcategory of the Real Estate Investment Trust (REIT) industry as calculated by Dow Jones.

* Yahoo! Finance is the source for any reference to the performance of an index between two specific periods.

* Opinions expressed are subject to change without notice and are not intended as investment advice or to predict future performance.

* Past performance does not guarantee future results.

* You cannot invest directly in an index.

* Consult your financial professional before making any investment decision.

* To unsubscribe from the Weekly Market Commentary please click here, or write us at 1537 N. Leroy St., Ste D Fenton, Michigan 48430.

Sources:

http://online.wsj.com/article/SB10001424127887323751104578150682557613180.html?mod=WSJ_hp_LEFTWhatsNewsCollection

http://finance.yahoo.com/q/hp?s=^GSPC&a=11&b=29&c=1965&d=10&e=30&f=2012&g=d

http://online.wsj.com/article/SB10001424127887323751104578149883185693450.html?KEYWORDS=japan

http://origin-www.bloomberg.com/news/2012-11-18/yen-bears-see-vindication-in-new-boj-under-abe-watch-currencies.html

http://www.bea.gov/iTable/iTable.cfm?ReqID=9&step=1

http://finance.yahoo.com/q/hp?s=^GSPC&a=11&b=29&c=1965&d=10&e=30&f=2012&g=m

http://www.brainyquote.com/quotes/quotes/n/nicolaabba311936.html