I recently came across an interesting study which compared market volatility thus far in 2011 to that of prior years: “…of the 191 trading days so far this year, 29% of those days have seen the DJIA move at least 1% either up or down, closing price to closing price within a single day. Additionally, 10% of the trading days so far this year have seen a movement of at least 2% in a single day. Using a proprietary weighting of single day changes in the DJIA, 2011 does not even make it to the top 10. This year’s rank of 30 likely comes as a surprise…All of this to say that although August and September were undeniably volatile, thus far 2011’s volatility is far from legendary.”* I have attached a supporting chart with the data.
Along with the volatility, we experienced a market draw-down in the third quarter which was driven by emotion and headlines, not hard economic data. And, while few prominent economists are forecasting an outright recession, rampant bearishness continues to permeate the markets. Interestingly, of five economic indicators used by Bank of America, only two are forecasting a recession probability at over 50%; both are “driven by emotion and headline versus hard economic data”.** On the other hand, market data does show that we are at extremely over-sold levels and corporate ‘insider’ selling is drying up. While it is possible that there is still more selling to happen, a lot of the supply (sellers) has/have come into the market and there is a lot of cash sitting in accounts yielding nothing - which equates to significant pent-up buying power (demand). I will let you know when this demand starts coming into the market and what offensive ‘plays’ to run.
For those who missed it, I shared the following ‘for what it’s worth’ in the market update dated September 23rd:..
The dividend yield on the S&P 500 now exceeds the yield on the 10-year Treasury notes. Sam Stovall, Chief Investment Strategist from Standard & Poor's, cites in his "Stovall's Sector Watch" from The Outlook that this doesn't happen very often. In fact, since 1953, there have only been 20 occurrences when the S&P 500 yielded more than T-Notes. He goes on to say, that the following 12 months, after this occurrence, the S&P 500 rose by an average of +20%.
*DWA October 5, 2011
**Barron’s October 3, 2011
Securities and Investment Advisory services offered through NBC Securities, Inc., Member FINRA and SIPC. Investment products 1) are not FDIC insured, 2) not guaranteed by any bank and 3) may lose value including a possible loss of principal invested. NBC Securities does not provide legal or tax advice. Recipients should consult with their own legal or tax professional prior to making any decision with a legal or tax consequence. This is not an offer to sell or buy any securities products, nor should it be construed as investment advice or investment recommendations.
Monday, October 10, 2011
Tuesday, September 27, 2011
Forecasting or Pandering?
The Wall Street Journal’s recent article on forecasting (an article on forecasting), speaks to how inaccurate forecasters and forecasts typically are. When I read it, the following quote hit home:
“Sometimes forecasting isn't even about the future, some researchers say. The true goals of some predictions, says Kesten Green, a forecasting researcher at Monash University in Melbourne, Australia, include lighting a fire under the sales force or alarming the public into some sort of action.”
This holds true in the public policy arena and in the financial markets. It often appears that the forecasts are crafted to get attention, get elected, promote a product or strategy, sell a book, or all of the above! When the forecaster’s goal is "hey, listen to me," it's understandable why some forecasts are so extreme. The more in tune with public sentiment and the more outlandish the forecast is - the more attention it will likely garner. Remember, these ‘bed partners’ have similar goals; forecasters want attention and media outlets want eyeballs. Is this goal best achieved with a demure and soft-spoken guest or with one adamantly postulating an alarming scenario?
Consider this: With public confidence in the financial market very low right now, is the book touting Dow 36,000 or Dow 6,000 going to sell better? Is this forecasting or pandering?
It is possible to articulate a case for whatever you want others to believe, particularly if you selectively choose data and interpret it liberally. That doesn't make it correct. While it is sometimes interesting to contemplate what might happen, no one really knows. Worrying about what might happen, keeps individuals and corporations from acting in the here and now.
I think the market is so incredibly complex that it is not possible to make accurate forecasts. As a result, I rely on an adaptive process that modifies portfolio holdings as conditions evolve. This way the portfolio is based on what is actually happening, as opposed to what may or may not happen in the future.
This does not mean that I do not have opinions. I just don’t manage your portfolios based on my opinions because the market does not care what Michael Guilsher thinks should happen…
Securities and Investment Advisory services offered through NBC Securities, Inc., member FINRA and SIPC. Investment products 1) are not FDIC insured, 2) not guaranteed by any bank and 3) may lose value including a possible loss of principal invested. NBC Securities, does not provide legal or tax advice. Recipients should consult with their own legal or tax professional prior to making any decision with a legal or tax consequence.
This is not an offer to sell or buy any securities products, nor should it be construed as investment advice or investment recommendations.
“Sometimes forecasting isn't even about the future, some researchers say. The true goals of some predictions, says Kesten Green, a forecasting researcher at Monash University in Melbourne, Australia, include lighting a fire under the sales force or alarming the public into some sort of action.”
This holds true in the public policy arena and in the financial markets. It often appears that the forecasts are crafted to get attention, get elected, promote a product or strategy, sell a book, or all of the above! When the forecaster’s goal is "hey, listen to me," it's understandable why some forecasts are so extreme. The more in tune with public sentiment and the more outlandish the forecast is - the more attention it will likely garner. Remember, these ‘bed partners’ have similar goals; forecasters want attention and media outlets want eyeballs. Is this goal best achieved with a demure and soft-spoken guest or with one adamantly postulating an alarming scenario?
Consider this: With public confidence in the financial market very low right now, is the book touting Dow 36,000 or Dow 6,000 going to sell better? Is this forecasting or pandering?
It is possible to articulate a case for whatever you want others to believe, particularly if you selectively choose data and interpret it liberally. That doesn't make it correct. While it is sometimes interesting to contemplate what might happen, no one really knows. Worrying about what might happen, keeps individuals and corporations from acting in the here and now.
I think the market is so incredibly complex that it is not possible to make accurate forecasts. As a result, I rely on an adaptive process that modifies portfolio holdings as conditions evolve. This way the portfolio is based on what is actually happening, as opposed to what may or may not happen in the future.
This does not mean that I do not have opinions. I just don’t manage your portfolios based on my opinions because the market does not care what Michael Guilsher thinks should happen…
Securities and Investment Advisory services offered through NBC Securities, Inc., member FINRA and SIPC. Investment products 1) are not FDIC insured, 2) not guaranteed by any bank and 3) may lose value including a possible loss of principal invested. NBC Securities, does not provide legal or tax advice. Recipients should consult with their own legal or tax professional prior to making any decision with a legal or tax consequence.
This is not an offer to sell or buy any securities products, nor should it be construed as investment advice or investment recommendations.
Friday, September 23, 2011
Maintaining Objectivity
The Arab Spring preceded the European summer which in turn preceded the fed’s latest ‘twist’. The differences between these events are clear but the net result is similar - market volatility. For whatever reason, when we experience a day with volatility & declining markets the mind quickly flashes back to the days, a few years ago, when banks were being bailed-out at a fraction of their former values and Lehman Bros. was suddenly referred to in the past-tense. Sure, there are negatives with regard to the slowing of the US economy however I must objectively point out the positives (and negatives) regarding the current environment:
In the positive camp:
Interest rates are at historically low levels
Implications: low rates allow corporations & individuals to borrow very inexpensively to fund expansions & home purchases or remodeling projects
There is a lot of cash on the ‘side-lines’
Implications: This provides the ability & means to ‘buy on pullbacks’
80% of US corp. earnings for Q2 were above expectations & earnings were up approx 20%
Implications: US corporations are in very good shape
Emerging economies, as an aggregate, have about 2 billion people ‘coming on line’ who want to “live the good life”
Implications: potential for significant new demand for consumer goods & services
In the negative camp:
Unemployment is remaining high
Causes: ‘generous’ & extended unemployment benefits, workers lacking adequate skills & technological improvements usurping employees on production lines
Implications: negativity surrounding consumers’ ability to spend
Uncertainty regarding government policies
Implications: costs associated with Obamacare & other potential legislation weighs heavily on corporate hiring decisions
2008 is still fresh in the minds of investors
Implications: a proclivity to react emotionally
In the ‘for what it is worth’ camp:
The dividend yield on the S&P 500 now exceeds the yield on the 10-year Treasury notes. Sam Stovall, Chief Investment Strategist from Standard & Poor's, cites in his "Stovall's Sector Watch" from The Outlook that this doesn't happen very often. In fact, since 1953, there have only been 20 occurrences when the S&P 500 yielded more than T-Notes. He goes on to say, that the following 12 months, after this occurrence, the S&P 500 rose by an average of +20%.
Bottom line:
No one can predict what will happen. I am operating with a ‘set of tools’ that are unbiased and non-emotional. When the markets are volatile I take a step back and remind myself to be objective – asking "what is?" rather than "what if...?" Said another way, we will adjust to what the market is telling us.
Securities and Investment Advisory services offered through NBC Securities, Inc., Member FINRA and SIPC. Investment products 1) are not FDIC insured, 2) not guaranteed by any bank and 3) may lose value including a possible loss of principal invested. NBC Securities does not provide legal or tax advice. Recipients should consult with their own legal or tax professional prior to making any decision with a legal or tax consequence. This is not an offer to sell or buy any securities products, nor should it be construed as investment advice or investment recommendations.
In the positive camp:
Interest rates are at historically low levels
Implications: low rates allow corporations & individuals to borrow very inexpensively to fund expansions & home purchases or remodeling projects
There is a lot of cash on the ‘side-lines’
Implications: This provides the ability & means to ‘buy on pullbacks’
80% of US corp. earnings for Q2 were above expectations & earnings were up approx 20%
Implications: US corporations are in very good shape
Emerging economies, as an aggregate, have about 2 billion people ‘coming on line’ who want to “live the good life”
Implications: potential for significant new demand for consumer goods & services
In the negative camp:
Unemployment is remaining high
Causes: ‘generous’ & extended unemployment benefits, workers lacking adequate skills & technological improvements usurping employees on production lines
Implications: negativity surrounding consumers’ ability to spend
Uncertainty regarding government policies
Implications: costs associated with Obamacare & other potential legislation weighs heavily on corporate hiring decisions
2008 is still fresh in the minds of investors
Implications: a proclivity to react emotionally
In the ‘for what it is worth’ camp:
The dividend yield on the S&P 500 now exceeds the yield on the 10-year Treasury notes. Sam Stovall, Chief Investment Strategist from Standard & Poor's, cites in his "Stovall's Sector Watch" from The Outlook that this doesn't happen very often. In fact, since 1953, there have only been 20 occurrences when the S&P 500 yielded more than T-Notes. He goes on to say, that the following 12 months, after this occurrence, the S&P 500 rose by an average of +20%.
Bottom line:
No one can predict what will happen. I am operating with a ‘set of tools’ that are unbiased and non-emotional. When the markets are volatile I take a step back and remind myself to be objective – asking "what is?" rather than "what if...?" Said another way, we will adjust to what the market is telling us.
Securities and Investment Advisory services offered through NBC Securities, Inc., Member FINRA and SIPC. Investment products 1) are not FDIC insured, 2) not guaranteed by any bank and 3) may lose value including a possible loss of principal invested. NBC Securities does not provide legal or tax advice. Recipients should consult with their own legal or tax professional prior to making any decision with a legal or tax consequence. This is not an offer to sell or buy any securities products, nor should it be construed as investment advice or investment recommendations.
Wednesday, September 7, 2011
More of the Same
The last couple of weeks have been trying, to put it simply. Daily fluctuations, talking heads screeching about the next recession and lack of cooperation in Washington are enough to test even the most patient of us.
From my perch on the seventh floor I can see up 20th Street to UAB, but I also can look at the market without emotion or bias, and with the ability to draw upon three decades of experience deciphering market trends.
This is what I am observing: despite the volatility, on each pull-back the market does not fall as far as before and when it lurched forward, it moved ahead of the previous high.
What does this mean?
• The market has pulled back to where it traded last summer
• It is ‘building a base’, this is healthy and a normal part of what the market ‘does’
• It has not violated the long-term trend-line
• Supply (sellers) are getting ‘weaker’ as they are unable to push the market lower
• Demand (buyers) are getting ‘stronger’ as they have been able to push the market higher.
That is where we are - still.
From my perch on the seventh floor I can see up 20th Street to UAB, but I also can look at the market without emotion or bias, and with the ability to draw upon three decades of experience deciphering market trends.
This is what I am observing: despite the volatility, on each pull-back the market does not fall as far as before and when it lurched forward, it moved ahead of the previous high.
What does this mean?
• The market has pulled back to where it traded last summer
• It is ‘building a base’, this is healthy and a normal part of what the market ‘does’
• It has not violated the long-term trend-line
• Supply (sellers) are getting ‘weaker’ as they are unable to push the market lower
• Demand (buyers) are getting ‘stronger’ as they have been able to push the market higher.
That is where we are - still.
Friday, August 12, 2011
Crisis of Confidence
There is no question that the market correction of -17% makes the market, at the very least, oversold. There is no telling how long the market will remain in oversold territory or how much farther it may move in that direction, but we do know that historically speaking, when the market reaches these types of extremes there are most often attractive buying opportunities that follow. I am ready to pursue these with you when the time is right. That said, let’s discuss the US economic ‘big picture’:
The US is in the 8th consecutive quarter of rising GDP
US consumption is $500 billion higher than the 2008 peak
The recent economic soft-patch was primarily caused by the world’s 3rd largest
economy (Japan) going off line
80% of US companies reporting Q2 earnings exceeded projections
US Q2 earnings were up nearly 20%
We are a long way from being in the position of Greece or Italy
Even unemployment has declined slightly but will likely linger at higher than normal levels. Not to belabor the point, employment lags the recovery because of three key factors: generous US unemployment benefits, inadequate worker skill sets and corporate productivity gains thru technology. A client who sells to manufacturers has witnessed these gains first-hand – production lines have gained efficiencies by dropping to rejection rates of 1-2% from as much as 20% previously, a Gypsum board manufacturer increased production line speed from 250 feet/minute, to 575 ft/min and a carpet manufacturer whose lines were running @ 150 ft/min is now running them @ 1,100 - 1,200 with capabilities of 1,500 ft/min – significant productivity gains with fewer employees and without the associated over-head expenses.
Let’s also put the US debt issue in perspective; it’s not great but it’s not that bad either:
The US has $150 trillion in assets
debt totaling $14.5 trillion
and generates $15 trillion in income from these assets
In 2008 we had a financial crisis today we have a crisis of confidence. Remember the last time you narrowly avoided an accident while driving, how jittery you felt afterwards? The severity of the recent pull-back can largely be attributed to knee-jerk reactions fueled by jitters left over from the 2008 decline, I witnessed it first-hand with several long-time clients.
I strive to remain objective, but I see no evidence (currently) that the economy is folding however, we do need to get the US on a long-term sustainable fiscal course.
Securities and Investment Advisory services offered through NBC Securities, Inc., Member FINRA and SIPC. Investment products 1) are not FDIC insured, 2) not guaranteed by any bank and 3) may lose value including a possible loss of principal invested. NBC Securities does not provide legal or tax advice. Recipients should consult with their own legal or tax professional prior to making any decision with a legal or tax consequence. This is not an offer to sell or buy any securities products, nor should it be construed as investment advice or investment recommendations.
The US is in the 8th consecutive quarter of rising GDP
US consumption is $500 billion higher than the 2008 peak
The recent economic soft-patch was primarily caused by the world’s 3rd largest
economy (Japan) going off line
80% of US companies reporting Q2 earnings exceeded projections
US Q2 earnings were up nearly 20%
We are a long way from being in the position of Greece or Italy
Even unemployment has declined slightly but will likely linger at higher than normal levels. Not to belabor the point, employment lags the recovery because of three key factors: generous US unemployment benefits, inadequate worker skill sets and corporate productivity gains thru technology. A client who sells to manufacturers has witnessed these gains first-hand – production lines have gained efficiencies by dropping to rejection rates of 1-2% from as much as 20% previously, a Gypsum board manufacturer increased production line speed from 250 feet/minute, to 575 ft/min and a carpet manufacturer whose lines were running @ 150 ft/min is now running them @ 1,100 - 1,200 with capabilities of 1,500 ft/min – significant productivity gains with fewer employees and without the associated over-head expenses.
Let’s also put the US debt issue in perspective; it’s not great but it’s not that bad either:
The US has $150 trillion in assets
debt totaling $14.5 trillion
and generates $15 trillion in income from these assets
In 2008 we had a financial crisis today we have a crisis of confidence. Remember the last time you narrowly avoided an accident while driving, how jittery you felt afterwards? The severity of the recent pull-back can largely be attributed to knee-jerk reactions fueled by jitters left over from the 2008 decline, I witnessed it first-hand with several long-time clients.
I strive to remain objective, but I see no evidence (currently) that the economy is folding however, we do need to get the US on a long-term sustainable fiscal course.
Securities and Investment Advisory services offered through NBC Securities, Inc., Member FINRA and SIPC. Investment products 1) are not FDIC insured, 2) not guaranteed by any bank and 3) may lose value including a possible loss of principal invested. NBC Securities does not provide legal or tax advice. Recipients should consult with their own legal or tax professional prior to making any decision with a legal or tax consequence. This is not an offer to sell or buy any securities products, nor should it be construed as investment advice or investment recommendations.
Thursday, August 4, 2011
This IS different than 2008
Phones have been ringing; nearly everyone is concerned on some level about a repeat of the 2008 meltdown. However, the current environment is very different from the 2008 timeframe. Back then, the decline was liquidation driven as leveraged investors, forced to de-leverage, needed to raise cash fast. Because of the financial sector’s malaise, sellers could raise cash the quickest and get the best prices by selling the ‘better’ assets on their books, this inability to sell the ‘junk’, made the decline worse as it penalized holders of quality investments almost as much as holders of low-quality securities.
Today, there are no forced liquidations and 80% of US companies reporting second quarter earnings have exceeded earnings forecasts. In fact, S&P 500 earnings growth for the second quarter is now estimated at +20.4%. US corporations are in great shape. Despite this, unemployment is still high and will likely remain high for several reasons; unemployment benefits discourage would be applicants, worker skill sets are inadequate and corporations are making do with fewer employees.
In this extremely low yield environment there is no competition for the stock market. Investing in equities serves as a hedge against inflation and captures productivity growth. Dividend paying stocks provide the best of both worlds; appreciation potential and income potential. This pull back has created some compelling values as the S&P 500 is now 100% over sold.
As always, I am here to answer your questions & address your concerns.
Securities and Investment Advisory services offered through NBC Securities, Inc., Member FINRA and SIPC. Investment products 1) are not FDIC insured, 2) not guaranteed by any bank and 3) may lose value including a possible loss of principal invested. NBC Securities does not provide legal or tax advice. Recipients should consult with their own legal or tax professional prior to making any decision with a legal or tax consequence. This is not an offer to sell or buy any securities products, nor should it be construed as investment advice or investment recommendations.
Today, there are no forced liquidations and 80% of US companies reporting second quarter earnings have exceeded earnings forecasts. In fact, S&P 500 earnings growth for the second quarter is now estimated at +20.4%. US corporations are in great shape. Despite this, unemployment is still high and will likely remain high for several reasons; unemployment benefits discourage would be applicants, worker skill sets are inadequate and corporations are making do with fewer employees.
In this extremely low yield environment there is no competition for the stock market. Investing in equities serves as a hedge against inflation and captures productivity growth. Dividend paying stocks provide the best of both worlds; appreciation potential and income potential. This pull back has created some compelling values as the S&P 500 is now 100% over sold.
As always, I am here to answer your questions & address your concerns.
Securities and Investment Advisory services offered through NBC Securities, Inc., Member FINRA and SIPC. Investment products 1) are not FDIC insured, 2) not guaranteed by any bank and 3) may lose value including a possible loss of principal invested. NBC Securities does not provide legal or tax advice. Recipients should consult with their own legal or tax professional prior to making any decision with a legal or tax consequence. This is not an offer to sell or buy any securities products, nor should it be construed as investment advice or investment recommendations.
Tuesday, June 21, 2011
National Debt
Clients have been asking very timely questions about the spiraling problem of US government debt – and how that can impact the decisions we make as far as investing is concerned. It is because of situations like this that I apply ‘emotionless’ & ‘soulless’ analytical tools to determine if, and then where, to invest.
Since we cannot control what our illustrious leaders are doing, allow me to pose several questions:
• Are all the same old real world things – like creative destruction, supply and demand, innovation, and trial and error – still happening like they always have?
• Has the US experienced difficult financial times in the past?
• Did the US survive & did people make money during those times?
• Who benefitted – planners or worriers? Which one do you choose to be?
The Boy Scout’s motto is “Be Prepared”, my analytical tools keep me prepared.
When do you want to get started on your financial planning?
I offer modular financial planning in the following areas:
-Net worth & cash flow
-Accumulation
-Retirement planning
-Education funding
-Survivor
-Estate & tax planning
For a complimentary review, call or email me for a questionnaire.
Securities and Investment Advisory services offered through NBC Securities, Inc., Member FINRA and SIPC. Investment products 1) are not FDIC insured, 2) not guaranteed by any bank and 3) may lose value including a possible loss of principal invested. NBC Securities does not provide legal or tax advice. Recipients should consult with their own legal or tax professional prior to making any decision with a legal or tax consequence. This is not an offer to sell or buy any securities products, nor should it be construed as investment advice or investment recommendations.
Since we cannot control what our illustrious leaders are doing, allow me to pose several questions:
• Are all the same old real world things – like creative destruction, supply and demand, innovation, and trial and error – still happening like they always have?
• Has the US experienced difficult financial times in the past?
• Did the US survive & did people make money during those times?
• Who benefitted – planners or worriers? Which one do you choose to be?
The Boy Scout’s motto is “Be Prepared”, my analytical tools keep me prepared.
When do you want to get started on your financial planning?
I offer modular financial planning in the following areas:
-Net worth & cash flow
-Accumulation
-Retirement planning
-Education funding
-Survivor
-Estate & tax planning
For a complimentary review, call or email me for a questionnaire.
Securities and Investment Advisory services offered through NBC Securities, Inc., Member FINRA and SIPC. Investment products 1) are not FDIC insured, 2) not guaranteed by any bank and 3) may lose value including a possible loss of principal invested. NBC Securities does not provide legal or tax advice. Recipients should consult with their own legal or tax professional prior to making any decision with a legal or tax consequence. This is not an offer to sell or buy any securities products, nor should it be construed as investment advice or investment recommendations.
Tuesday, June 7, 2011
Market Flash Back?
Whenever we experience a day with volatility & declining markets the mind quickly flashes back to the days, a few years ago, when banks were being bailed-out at a fraction of their former values and Lehman Bros. was suddenly referred to in the past-tense. Sure, there are negatives with regard to the slowing of the US economy however, I must objectively point out the positives that persist, and among them are the continued strong relative strength of the US equity asset class; it remains ranked #1 while commodities are #2, international is #3, foreign currencies are #4, fixed income is #5 & cash brings up the rear at #6.
We have experienced an exhale from the recent highs in indices such as the S&P 500, but we have not seen a change of trend. It is important to remain objective in the face of days such as these, particularly since recent memories encourage emotion-based decision making over objectivity.
In summary: 75% of stocks in the NYSE are currently above their bullish support lines, and the weakness has certainly not been evenly spread; the Banking sector, for instance, has roughly 50% of its components in negative trends and the Savings & Loan sector is even higher. Meanwhile Gas Utilities still shows 86% above trend, while Chemicals and Oil Service also have percentages in the mid-70s.
Yes, while volatility tests our nerves & resolve and the ‘talking heads’ banter about the current ‘hot topics’, we steadfastly apply a non-emotional and disciplined approach to managing your assets. Looking ahead, some of the recent headwinds, the spike in gasoline prices and disruptions caused by the Japanese earthquake and US tornadoes are likely to fade in the second half of the year.
Securities and Investment Advisory services offered through NBC Securities, Inc., Member FINRA and SIPC. Investment products 1) are not FDIC insured, 2) not guaranteed by any bank and 3) may lose value including a possible loss of principal invested. NBC Securities does not provide legal or tax advice. Recipients should consult with their own legal or tax professional prior to making any decision with a legal or tax consequence. This is not an offer to sell or buy any securities products, nor should it be construed as investment advice or investment recommendations.
We have experienced an exhale from the recent highs in indices such as the S&P 500, but we have not seen a change of trend. It is important to remain objective in the face of days such as these, particularly since recent memories encourage emotion-based decision making over objectivity.
In summary: 75% of stocks in the NYSE are currently above their bullish support lines, and the weakness has certainly not been evenly spread; the Banking sector, for instance, has roughly 50% of its components in negative trends and the Savings & Loan sector is even higher. Meanwhile Gas Utilities still shows 86% above trend, while Chemicals and Oil Service also have percentages in the mid-70s.
Yes, while volatility tests our nerves & resolve and the ‘talking heads’ banter about the current ‘hot topics’, we steadfastly apply a non-emotional and disciplined approach to managing your assets. Looking ahead, some of the recent headwinds, the spike in gasoline prices and disruptions caused by the Japanese earthquake and US tornadoes are likely to fade in the second half of the year.
Securities and Investment Advisory services offered through NBC Securities, Inc., Member FINRA and SIPC. Investment products 1) are not FDIC insured, 2) not guaranteed by any bank and 3) may lose value including a possible loss of principal invested. NBC Securities does not provide legal or tax advice. Recipients should consult with their own legal or tax professional prior to making any decision with a legal or tax consequence. This is not an offer to sell or buy any securities products, nor should it be construed as investment advice or investment recommendations.
Wednesday, May 11, 2011
Is Inflation Coming?
Look at your grocery bill – it's already here!
Headlines from Wednesday, May 4, 2011:
“Services ISM (Institute for Supply Management’s Non-Manufacturing, or Service, survey) Plummets: …Concerns about Fuel and Commodity Costs…”
Headlines from Tuesday, May 10, 2011:
“April Import Price Index was reported up 2.2%, following a revised 2.6% increase in March (previously +2.7%). Notably, the core of the action was in petroleum and food prices...”
The Fed continues to insist that inflation is non-existent. The problem as I see it is that when calculating inflation, the fed does not include food or oil, as these two “costs” are “too volatile” or, said another way “short-term changes in food and oil prices don't predict long-term changes in food and oil prices”. Further compounding the error is the 40% of the CPI* that is accounted for by real estate values.
*CPI (consumer price index) (def):
“The CPI represents changes in prices of all goods and services purchased for consumption by urban households. User fees (such as water and sewer service) and sales and excise taxes paid by the consumer are also included. This index value has been calculated every year since 1913.”
Securities and Investment Advisory services offered through NBC Securities, Inc., Member FINRA and SIPC. Investment products 1) are not FDIC insured, 2) not guaranteed by any bank and 3) may lose value including a possible loss of principal invested. NBC Securities does not provide legal or tax advice. Recipients should consult with their own legal or tax professional prior to making any decision with a legal or tax consequence. This is not an offer to sell or buy any securities products, nor should it be construed as investment advice or investment recommendations.
Headlines from Wednesday, May 4, 2011:
“Services ISM (Institute for Supply Management’s Non-Manufacturing, or Service, survey) Plummets: …Concerns about Fuel and Commodity Costs…”
Headlines from Tuesday, May 10, 2011:
“April Import Price Index was reported up 2.2%, following a revised 2.6% increase in March (previously +2.7%). Notably, the core of the action was in petroleum and food prices...”
The Fed continues to insist that inflation is non-existent. The problem as I see it is that when calculating inflation, the fed does not include food or oil, as these two “costs” are “too volatile” or, said another way “short-term changes in food and oil prices don't predict long-term changes in food and oil prices”. Further compounding the error is the 40% of the CPI* that is accounted for by real estate values.
*CPI (consumer price index) (def):
“The CPI represents changes in prices of all goods and services purchased for consumption by urban households. User fees (such as water and sewer service) and sales and excise taxes paid by the consumer are also included. This index value has been calculated every year since 1913.”
Securities and Investment Advisory services offered through NBC Securities, Inc., Member FINRA and SIPC. Investment products 1) are not FDIC insured, 2) not guaranteed by any bank and 3) may lose value including a possible loss of principal invested. NBC Securities does not provide legal or tax advice. Recipients should consult with their own legal or tax professional prior to making any decision with a legal or tax consequence. This is not an offer to sell or buy any securities products, nor should it be construed as investment advice or investment recommendations.
Monday, April 4, 2011
Emotional Humans
Recently on Jeopardy, there was a contest between Watson (a super computer) and former champions Brad Rutter (won over $3 million) and Ken Jennings (74 consecutive wins). However, 10 racks of IBM servers, 15 terabytes of memory and 200 million pages of programmed information were too formidable an opponent for the humans.
After the contest, Brad Rutter wrote an interesting commentary on the Wall Street Journal blog entitled, "Why I Lost to Watson." He said one pivotal reason he and Ken lost was because they are human:
“Jeopardy is an emotional game. The better you can weather the storm without getting too overconfident or discouraged, the better you are likely to do. Watson’s emotions obviously will never affect its performance. Its only focus is the one clue in front of it, and the more you can get into that Zen-like state, the better. While cockiness can be a player’s undoing, a certain confidence is essential to success.”
“Tell a human contestant, 'You’ll be playing against the two guys who have won the most money in Jeopardy history on national television for a top prize of a million dollars,' and most would immediately start mentally spending the third-place prize. I attribute most of my success on the show to my attitude: someone’s going to win this, why shouldn’t it be me? As a soulless hunk of circuits instead of a living, breathing human, Watson already had a big leg up over any human coming into this challenge."
There is a lot for investors to learn from Brad's observations; emotions are our worst enemy when investing. And, as an advisor, I have to not only deal with my emotions but your emotions as well. Emotions have their place (so my wife tells me), but the investment world is not a place where being emotional has proven to be beneficial.
It is all too easy to get caught up in the moment; unrest in the Middle East, rising gasoline prices, Japanese quake, tsunami & possible nuclear disaster. What does all of this have to do with the stock market? Maybe nothing, maybe a lot - time will tell. I evaluate the markets using an unemotional and systematic approach and as long as the market is continuing to support higher prices and demand is in control of the investments we own, we will continue to play offense.
Securities and Investment Advisory services offered through NBC Securities, Inc., member FINRA and SIPC. Investment products 1) are not FDIC insured, 2) not guaranteed by any bank and 3) may lose value including a possible loss of principal invested. NBC Securities, does not provide legal or tax advice. Recipients should consult with their own legal or tax professional prior to making any decision with a legal or tax consequence.
This is not an offer to sell or buy any securities products, nor should it be construed as investment advice or investment recommendations.
After the contest, Brad Rutter wrote an interesting commentary on the Wall Street Journal blog entitled, "Why I Lost to Watson." He said one pivotal reason he and Ken lost was because they are human:
“Jeopardy is an emotional game. The better you can weather the storm without getting too overconfident or discouraged, the better you are likely to do. Watson’s emotions obviously will never affect its performance. Its only focus is the one clue in front of it, and the more you can get into that Zen-like state, the better. While cockiness can be a player’s undoing, a certain confidence is essential to success.”
“Tell a human contestant, 'You’ll be playing against the two guys who have won the most money in Jeopardy history on national television for a top prize of a million dollars,' and most would immediately start mentally spending the third-place prize. I attribute most of my success on the show to my attitude: someone’s going to win this, why shouldn’t it be me? As a soulless hunk of circuits instead of a living, breathing human, Watson already had a big leg up over any human coming into this challenge."
There is a lot for investors to learn from Brad's observations; emotions are our worst enemy when investing. And, as an advisor, I have to not only deal with my emotions but your emotions as well. Emotions have their place (so my wife tells me), but the investment world is not a place where being emotional has proven to be beneficial.
It is all too easy to get caught up in the moment; unrest in the Middle East, rising gasoline prices, Japanese quake, tsunami & possible nuclear disaster. What does all of this have to do with the stock market? Maybe nothing, maybe a lot - time will tell. I evaluate the markets using an unemotional and systematic approach and as long as the market is continuing to support higher prices and demand is in control of the investments we own, we will continue to play offense.
Securities and Investment Advisory services offered through NBC Securities, Inc., member FINRA and SIPC. Investment products 1) are not FDIC insured, 2) not guaranteed by any bank and 3) may lose value including a possible loss of principal invested. NBC Securities, does not provide legal or tax advice. Recipients should consult with their own legal or tax professional prior to making any decision with a legal or tax consequence.
This is not an offer to sell or buy any securities products, nor should it be construed as investment advice or investment recommendations.
Wednesday, March 23, 2011
Inflation Hitting your Wallet?
Excluding food and energy, the CPI rose 0.2% to a year-over-year rate of 1.1% in February, so say the stats published by the US government. My family buys a lot of food & gas! But I digress. By manipulating what is included in the calculation, our government has gone to great lengths to convince us that inflation is virtually non-existent. However, just in case the price of "things" you regularly purchase, like gas, does end up increasing…you can do something about it.
Let's say you drive 10,000 miles per year and your vehicle gets 15 mpg. Let’s also assume that gas prices are $3/gallon. This means you will need to stockpile $2,000 worth of gas to get you through the next 12 months. Since zoning laws frown upon the idea of installing gas tanks in our backyards, how can we hedge against the risk of further increases in gasoline prices?
It is no secret that I am a fan of ETFs (exchange traded funds) because of their low cost and transparency. In addition to many other commodities, there is an ETF for gas – UGA. If we were to invest $2000 in shares of UGA (approx. 40 shares), we could effectively hedge the price of gas for one year! If gas prices move toward $4 - $5 per gallon the appreciation of UGA will help offset your costs.
If your spouse and teenagers also drive 10,000 miles per year, you will want to adjust the calculation to reflect that. Also, depending upon the type of account you use, the long-term capital gains rate of 15% would reduce the effect of the hedge. Something to consider as we pay our Spring break bills and look forward to summer vacations…
Cost breakdown of a gallon of gas:
Crude Oil: 67%
Taxes (Avg.): 13%
Refining Costs: 11%
Marketing/Transport: 9%
Source: US Dept. of Energy
Securities and Investment Advisory services offered through NBC Securities, Inc., member FINRA and SIPC. Investment products 1) are not FDIC insured, 2) not guaranteed by any bank and 3) may lose value including a possible loss of principal invested. NBC Securities, does not provide legal or tax advice. Recipients should consult with their own legal or tax professional prior to making any decision with a legal or tax consequence.
This is not an offer to sell or buy any securities products, nor should it be construed as investment advice or investment recommendations.
Let's say you drive 10,000 miles per year and your vehicle gets 15 mpg. Let’s also assume that gas prices are $3/gallon. This means you will need to stockpile $2,000 worth of gas to get you through the next 12 months. Since zoning laws frown upon the idea of installing gas tanks in our backyards, how can we hedge against the risk of further increases in gasoline prices?
It is no secret that I am a fan of ETFs (exchange traded funds) because of their low cost and transparency. In addition to many other commodities, there is an ETF for gas – UGA. If we were to invest $2000 in shares of UGA (approx. 40 shares), we could effectively hedge the price of gas for one year! If gas prices move toward $4 - $5 per gallon the appreciation of UGA will help offset your costs.
If your spouse and teenagers also drive 10,000 miles per year, you will want to adjust the calculation to reflect that. Also, depending upon the type of account you use, the long-term capital gains rate of 15% would reduce the effect of the hedge. Something to consider as we pay our Spring break bills and look forward to summer vacations…
Cost breakdown of a gallon of gas:
Crude Oil: 67%
Taxes (Avg.): 13%
Refining Costs: 11%
Marketing/Transport: 9%
Source: US Dept. of Energy
Securities and Investment Advisory services offered through NBC Securities, Inc., member FINRA and SIPC. Investment products 1) are not FDIC insured, 2) not guaranteed by any bank and 3) may lose value including a possible loss of principal invested. NBC Securities, does not provide legal or tax advice. Recipients should consult with their own legal or tax professional prior to making any decision with a legal or tax consequence.
This is not an offer to sell or buy any securities products, nor should it be construed as investment advice or investment recommendations.
Wednesday, March 9, 2011
Implications of Age Differences Across the World
One of the many challenges facing the global economy is the implications of aging populations in developed countries and young growing populations in emerging countries. Several emerging markets are experiencing a manifestation of this today as much of the political unrest has been ignited by youth movements. The impetus may vary but at the core of most of the recent unrest is unemployment, inequalities perpetuated by a minority ruling party and rising food prices, or some combination of all the above.
Meanwhile, developed countries faced with aging populations, are facing smaller work forces, shrinking tax bases and strained social security systems. We are seeing the effects of this at work in Wisconsin…
This century, it's going to be more important than ever to understand the dynamics of age distributions in populations and how this will affect key socioeconomic issues across global markets. The CIA World Factbook: Median Age, provides the median age of most countries. Within the developed countries, the average median age is 40.83. Interestingly, we American’s are doing a good job replacing ourselves as we have a median age of 36.8; the lowest median age out of the top ten countries in the ACWI (MSCI All Country World Index). The two countries with the highest median ages, are two of the most industrialized; Germany at 44.3 and Japan at 44.6. In fact, Japan’s median age is well above any of its neighbors within the Asia-Pacific region. Within emerging markets, the average median age is 30.92. South Korea and Russia have the highest median ages – in the upper thirties while Brazil has a median age of 28.9. The lowest median age in the top ten emerging markets is South Africa at 24.7. In fact, low median ages are quite prevalent in Africa with Uganda at 15 and Egypt at 24.
Most economists believe that China and India are the two main challengers for economic supremacy in the 21st century, yet there are major differences in their demographic makeup; China currently has a median age of 35.2 while India has a median age of 25.9.
What does all this mean for the future? Lower median ages point towards larger future working-age populations and the likelihood of increasing demand for raw materials and agricultural products within emerging markets. On the other hand, a larger youthful population could lead to unrest, similar to what is happening in the Middle East and Northern Africa in recent weeks. So, to ensure some degree of stability it is incumbent on developing countries to provide at a minimum, the perception of equality, and to also enable their citizen’s to pursue meaningful and productive employment so that they can maintain purchasing power in an economic environment with rising prices due to increased demand.
Bottom line, farming may once again be a lucrative way to make a living!
Securities and Investment Advisory services offered through NBC Securities, Inc., member FINRA and SIPC. Investment products 1) are not FDIC insured, 2) not guaranteed by any bank and 3) may lose value including a possible loss of principal invested. NBC Securities, does not provide legal or tax advice. Recipients should consult with their own legal or tax professional prior to making any decision with a legal or tax consequence.
This is not an offer to sell or buy any securities products, nor should it be construed as investment advice or investment recommendations.
Meanwhile, developed countries faced with aging populations, are facing smaller work forces, shrinking tax bases and strained social security systems. We are seeing the effects of this at work in Wisconsin…
This century, it's going to be more important than ever to understand the dynamics of age distributions in populations and how this will affect key socioeconomic issues across global markets. The CIA World Factbook: Median Age, provides the median age of most countries. Within the developed countries, the average median age is 40.83. Interestingly, we American’s are doing a good job replacing ourselves as we have a median age of 36.8; the lowest median age out of the top ten countries in the ACWI (MSCI All Country World Index). The two countries with the highest median ages, are two of the most industrialized; Germany at 44.3 and Japan at 44.6. In fact, Japan’s median age is well above any of its neighbors within the Asia-Pacific region. Within emerging markets, the average median age is 30.92. South Korea and Russia have the highest median ages – in the upper thirties while Brazil has a median age of 28.9. The lowest median age in the top ten emerging markets is South Africa at 24.7. In fact, low median ages are quite prevalent in Africa with Uganda at 15 and Egypt at 24.
Most economists believe that China and India are the two main challengers for economic supremacy in the 21st century, yet there are major differences in their demographic makeup; China currently has a median age of 35.2 while India has a median age of 25.9.
What does all this mean for the future? Lower median ages point towards larger future working-age populations and the likelihood of increasing demand for raw materials and agricultural products within emerging markets. On the other hand, a larger youthful population could lead to unrest, similar to what is happening in the Middle East and Northern Africa in recent weeks. So, to ensure some degree of stability it is incumbent on developing countries to provide at a minimum, the perception of equality, and to also enable their citizen’s to pursue meaningful and productive employment so that they can maintain purchasing power in an economic environment with rising prices due to increased demand.
Bottom line, farming may once again be a lucrative way to make a living!
Securities and Investment Advisory services offered through NBC Securities, Inc., member FINRA and SIPC. Investment products 1) are not FDIC insured, 2) not guaranteed by any bank and 3) may lose value including a possible loss of principal invested. NBC Securities, does not provide legal or tax advice. Recipients should consult with their own legal or tax professional prior to making any decision with a legal or tax consequence.
This is not an offer to sell or buy any securities products, nor should it be construed as investment advice or investment recommendations.
Friday, February 11, 2011
Commodity prices are heading up
Egypt is experiencing mass demonstrations with protestors calling for a regime change and improved employment opportunities, i.e. a better quality of life. The results of this development within the most populous Arab country are as yet unknown, but the turmoil has concerned Egypt’s neighbors and trickled over into commodity markets.
What is to blame – Hosni Mubarak’s authoritarian regime or some other factor? Since I am a “Financial Advisor” I will stick with what I know. The dollar is the most important currency in the world and the Federal Reserve controls the value of the dollar by setting interest rates and controlling money supply. When the Fed prints too many dollars, price inflation results and often shows up in commodity prices first. When loose monetary policy lifts energy commodities, oil exporters typically benefit. Egypt is an oil producer and refiner, so rising energy prices should be slightly positive for their economy.
Likewise, when loose monetary policy lifts food commodities, food growers and exporters typically benefit. Egypt is a food importer; according to the Egyptian Agricultural Minister, the country imports 40% of its food. So, rising food prices are negative for the nation’s economy.
In the second-half of 2010, the Goldman Sachs Agricultural Index climbed 66%, the steepest increase for any 6-month period since 1974. Recently, there have been several instances where third world governments lifted subsidies on food & fuel and then, because of mass protests and discontent they, at least partially, re-instated the subsidies. In other words, the impact of a declining dollar and rising food prices has been detrimental to the average standard of living in Egypt and, in many other parts of the third world, where you can add rising energy costs to the mix.
Not helping this global situation is the fact that by 2010 the percentage of US corn production devoted to the production of ethanol was 39.4%, or nearly five billion bushels out of total U.S. production of 12.45 billion bushels, add to that the droughts last summer in Russia and Australia and then the floods and typhoon - again in Australia.
Portfolios under my advisement have maintained exposure to metal commodities for several months and recently (pre-Egypt) added broad agricultural commodity exposure. Agricultural commodities stand to benefit from a plethora of dollars, rising global demand and misguided policies.
Confidentiality Notice: The information in this e-mail message, including any attachments thereto, is intended to be confidential and is for the use of the individual or entity named above. If the reader of this message is not the intended recipient, you are hereby notified that retention, dissemination, distribution, or copying of this message is strictly prohibited. If you receive this message in error, please notify the sender and delete the material immediately. Thank you.
Securities and Investment Advisory services offered through NBC Securities, Inc., Member FINRA and SIPC. Investment products 1) are not FDIC insured, 2) not guaranteed by any bank and 3) may lose value including a possible loss of principal invested. NBC Securities does not provide legal or tax advice. Recipients should consult with their own legal or tax professional prior to making any decision with a legal or tax consequence.
This is not an offer to sell or buy any securities products, nor should it be construed as investment advice or investment recommendations.
What is to blame – Hosni Mubarak’s authoritarian regime or some other factor? Since I am a “Financial Advisor” I will stick with what I know. The dollar is the most important currency in the world and the Federal Reserve controls the value of the dollar by setting interest rates and controlling money supply. When the Fed prints too many dollars, price inflation results and often shows up in commodity prices first. When loose monetary policy lifts energy commodities, oil exporters typically benefit. Egypt is an oil producer and refiner, so rising energy prices should be slightly positive for their economy.
Likewise, when loose monetary policy lifts food commodities, food growers and exporters typically benefit. Egypt is a food importer; according to the Egyptian Agricultural Minister, the country imports 40% of its food. So, rising food prices are negative for the nation’s economy.
In the second-half of 2010, the Goldman Sachs Agricultural Index climbed 66%, the steepest increase for any 6-month period since 1974. Recently, there have been several instances where third world governments lifted subsidies on food & fuel and then, because of mass protests and discontent they, at least partially, re-instated the subsidies. In other words, the impact of a declining dollar and rising food prices has been detrimental to the average standard of living in Egypt and, in many other parts of the third world, where you can add rising energy costs to the mix.
Not helping this global situation is the fact that by 2010 the percentage of US corn production devoted to the production of ethanol was 39.4%, or nearly five billion bushels out of total U.S. production of 12.45 billion bushels, add to that the droughts last summer in Russia and Australia and then the floods and typhoon - again in Australia.
Portfolios under my advisement have maintained exposure to metal commodities for several months and recently (pre-Egypt) added broad agricultural commodity exposure. Agricultural commodities stand to benefit from a plethora of dollars, rising global demand and misguided policies.
Confidentiality Notice: The information in this e-mail message, including any attachments thereto, is intended to be confidential and is for the use of the individual or entity named above. If the reader of this message is not the intended recipient, you are hereby notified that retention, dissemination, distribution, or copying of this message is strictly prohibited. If you receive this message in error, please notify the sender and delete the material immediately. Thank you.
Securities and Investment Advisory services offered through NBC Securities, Inc., Member FINRA and SIPC. Investment products 1) are not FDIC insured, 2) not guaranteed by any bank and 3) may lose value including a possible loss of principal invested. NBC Securities does not provide legal or tax advice. Recipients should consult with their own legal or tax professional prior to making any decision with a legal or tax consequence.
This is not an offer to sell or buy any securities products, nor should it be construed as investment advice or investment recommendations.
Wednesday, February 2, 2011
Rip van Winkle
Had you laid down to take an extended nap 2 1/2 years ago and recently woken, you would have noticed very little change on the surface of the stock market. The DJIA hit a high of 12,000 in June of 2008 and just the other day managed, for the first time since, to exceed that benchmark. Since June 2008 however, we experienced a wild ride with the Dow falling 45% only to turn around and gain 85%.
I have fielded several inquiries regarding the market’s round-trip and how it does or does not translate into portfolio performance. Let’s use C (Citigroup) as an example: C hit a (recent) high of $23 in October 2008 and then plummeted to $1 by March 2009 – sustaining a loss of over 90%!
Now, for those with the intestinal fortitude to buy C at $1, there were, in hindsight, rewards to be reaped as C is now trading close to $5 – a 500% return…However, those that rode it down from $23 are still sitting on a loss of 85%. Not to speak of the poor souls who paid $57 a share in December 2006…
The disciplined approach to investing that I bring to the table strives to exit the market, a sector or security, in the very early stages of a decline. Assuming success in this endeavor, this action will preclude us from owning a security at ‘the bottom’. After a decline, when demand is returning, we strive to invest in sectors that are exhibiting positive strength versus the broad market. We select sectors as opposed to individual companies because of an important study by Benjamin F. King, titled “The Latent Statistical Structure of Securities Price Changes”, which concluded that “Market and sector forces typically cause 80% of the price movement in a stock while company fundamentals usually account for less than 20% of a stock’s price movement.” Investing in sectors as opposed to individual companies helps shelter us from unfortunate situations like Exxon-Valdez & BP’s oil well.
On an uplifting note, 19 out of the 30 Dow members recently closed above their June '08 levels. On a more somber note, 6 of the worst performing stocks are still sitting on double digit losses. Home Depot, Inc. (HD) was the best of the best as it rose approximately 45% since June 2008 however, one can easily argue that a lot of HD’s outperformance was due to the fact that Building stocks had already declined substantially from the April 2006 high; the DWA Building Sector had already declined over -45% by June ‘08.
Bottom line, the DJIA recently hit 12,000 again after 2 1/2 years and during the aforementioned time period, net of dividends, the DJIA returned 1.4%, the S&P 500 lost 2.33% and EFA (Europe, Far East & Asia) lost 14.45%.
Securities and Investment Advisory services offered through NBC Securities, Inc., member FINRA and SIPC. Investment products 1) are not FDIC insured, 2) not guaranteed by any bank and 3) may lose value including a possible loss of principal invested. NBC Securities, does not provide legal or tax advice. Recipients should consult with their own legal or tax professional prior to making any decision with a legal or tax consequence.
This is not an offer to sell or buy any securities products, nor should it be construed as investment advice or investment recommendations.
I have fielded several inquiries regarding the market’s round-trip and how it does or does not translate into portfolio performance. Let’s use C (Citigroup) as an example: C hit a (recent) high of $23 in October 2008 and then plummeted to $1 by March 2009 – sustaining a loss of over 90%!
Now, for those with the intestinal fortitude to buy C at $1, there were, in hindsight, rewards to be reaped as C is now trading close to $5 – a 500% return…However, those that rode it down from $23 are still sitting on a loss of 85%. Not to speak of the poor souls who paid $57 a share in December 2006…
The disciplined approach to investing that I bring to the table strives to exit the market, a sector or security, in the very early stages of a decline. Assuming success in this endeavor, this action will preclude us from owning a security at ‘the bottom’. After a decline, when demand is returning, we strive to invest in sectors that are exhibiting positive strength versus the broad market. We select sectors as opposed to individual companies because of an important study by Benjamin F. King, titled “The Latent Statistical Structure of Securities Price Changes”, which concluded that “Market and sector forces typically cause 80% of the price movement in a stock while company fundamentals usually account for less than 20% of a stock’s price movement.” Investing in sectors as opposed to individual companies helps shelter us from unfortunate situations like Exxon-Valdez & BP’s oil well.
On an uplifting note, 19 out of the 30 Dow members recently closed above their June '08 levels. On a more somber note, 6 of the worst performing stocks are still sitting on double digit losses. Home Depot, Inc. (HD) was the best of the best as it rose approximately 45% since June 2008 however, one can easily argue that a lot of HD’s outperformance was due to the fact that Building stocks had already declined substantially from the April 2006 high; the DWA Building Sector had already declined over -45% by June ‘08.
Bottom line, the DJIA recently hit 12,000 again after 2 1/2 years and during the aforementioned time period, net of dividends, the DJIA returned 1.4%, the S&P 500 lost 2.33% and EFA (Europe, Far East & Asia) lost 14.45%.
Securities and Investment Advisory services offered through NBC Securities, Inc., member FINRA and SIPC. Investment products 1) are not FDIC insured, 2) not guaranteed by any bank and 3) may lose value including a possible loss of principal invested. NBC Securities, does not provide legal or tax advice. Recipients should consult with their own legal or tax professional prior to making any decision with a legal or tax consequence.
This is not an offer to sell or buy any securities products, nor should it be construed as investment advice or investment recommendations.
Thursday, January 20, 2011
Obsolescence
Several years ago my wife and I considered a Portuguese Water Dog (PWD) for a family pet. Unfortunately, a breeder informed us that Catherine (then, age 3) was too young to be able to effectively discipline the dog. Even though we did not get a PWD, I uncovered some very interesting information while researching the breed. Years ago, PWDs were paid the equivalent of a man’s wages for the work that they performed. Since a PWD can swim underwater they were utilized aboard ships to retrieve ‘overboard’ items, round up broken nets and swim messages between ships. Unfortunately, the breed became obsolete and was almost lost after technology (electronics) was introduced aboard vessels.
I write to tell you this not because we considered a PWD before Obama but as an intro to an observation regarding technology, obsolescence and US manufacturing.
US manufacturing has been declining in terms of its share of overall US employment since the late 1970s. During the past decade, the number of workers employed by manufacturing has fallen from 17.3 million in 1999 to 11.7 million last year, according to the Labor Department. However, according to the US-China Business Council “the US share of global manufacturing is just over 22% - the same as it was in 1995.” In fact, according to the Bureau of Labor Statistics, “the US led the world with its 7.7% gain in manufacturing productivity in 2008-2009.”
What has declined in not manufacturing output - but manufacturing employment. The primary reason behind this is major gains in productivity; productivity advances achieved primarily through the use of technology. US companies that have survived as competitive global manufacturers have shifted from low-skill manufacturing jobs to those requiring higher skill sets, employing those with the knowledge to handle new technologies.
To reverse this decline in manufacturing employment Obama has vowed to "do every single thing we can to hasten our economic recovery and get our people back to work." and last year signed "The Manufacturing Enhancement Act of 2010 (to) create jobs, help American companies compete, and strengthen manufacturing as a key driver of our economic recovery.” Despite a number of initiatives the administration has undertaken, the job market remains sluggish. In fact, the unemployment rate has stayed flat at a near record high of 9.5 percent. Is unfair foreign competition to blame? Or is there more to the story?
One can well argue that unemployment benefits incent people not to look for work, but we will save this for another discussion.
Unfortunately the gains in manufacturing productivity have been lost on the current administration. Instead of trying to create low paying manufacturing jobs, the focus in my opinion, needs to be on educating workers and soon-to-be workers so they can handle the higher skilled jobs upon graduation, and not on competing with low wage countries for low paying manufacturing jobs. We are pursuing policies which will make some of our work force obsolete sooner or later, just like the PWD years ago.
Securities and Investment Advisory services offered through NBC Securities, Inc., member FINRA and SIPC. Investment products 1) are not FDIC insured, 2) not guaranteed by any bank and 3) may lose value including a possible loss of principal invested. NBC Securities, does not provide legal or tax advice. Recipients should consult with their own legal or tax professional prior to making any decision with a legal or tax consequence.
This is not an offer to sell or buy any securities products, nor should it be construed as investment advice or investment recommendations.
I write to tell you this not because we considered a PWD before Obama but as an intro to an observation regarding technology, obsolescence and US manufacturing.
US manufacturing has been declining in terms of its share of overall US employment since the late 1970s. During the past decade, the number of workers employed by manufacturing has fallen from 17.3 million in 1999 to 11.7 million last year, according to the Labor Department. However, according to the US-China Business Council “the US share of global manufacturing is just over 22% - the same as it was in 1995.” In fact, according to the Bureau of Labor Statistics, “the US led the world with its 7.7% gain in manufacturing productivity in 2008-2009.”
What has declined in not manufacturing output - but manufacturing employment. The primary reason behind this is major gains in productivity; productivity advances achieved primarily through the use of technology. US companies that have survived as competitive global manufacturers have shifted from low-skill manufacturing jobs to those requiring higher skill sets, employing those with the knowledge to handle new technologies.
To reverse this decline in manufacturing employment Obama has vowed to "do every single thing we can to hasten our economic recovery and get our people back to work." and last year signed "The Manufacturing Enhancement Act of 2010 (to) create jobs, help American companies compete, and strengthen manufacturing as a key driver of our economic recovery.” Despite a number of initiatives the administration has undertaken, the job market remains sluggish. In fact, the unemployment rate has stayed flat at a near record high of 9.5 percent. Is unfair foreign competition to blame? Or is there more to the story?
One can well argue that unemployment benefits incent people not to look for work, but we will save this for another discussion.
Unfortunately the gains in manufacturing productivity have been lost on the current administration. Instead of trying to create low paying manufacturing jobs, the focus in my opinion, needs to be on educating workers and soon-to-be workers so they can handle the higher skilled jobs upon graduation, and not on competing with low wage countries for low paying manufacturing jobs. We are pursuing policies which will make some of our work force obsolete sooner or later, just like the PWD years ago.
Securities and Investment Advisory services offered through NBC Securities, Inc., member FINRA and SIPC. Investment products 1) are not FDIC insured, 2) not guaranteed by any bank and 3) may lose value including a possible loss of principal invested. NBC Securities, does not provide legal or tax advice. Recipients should consult with their own legal or tax professional prior to making any decision with a legal or tax consequence.
This is not an offer to sell or buy any securities products, nor should it be construed as investment advice or investment recommendations.
Thursday, January 6, 2011
Year-End Reflections
A wave of sovereign debt dilemmas, an earth quake in Chile, a Gulf oil rig explosion, a "flash" crash, a Gold rally, sovereign debt aftershocks, a mid-term election and then another debt debacle in Europe; the year of 2010 is behind us, thank goodness. If we were looking at a snapshot of the market taken at the beginning of the year, and another taken today, we would be hard pressed to find many significant changes. 3 out of every 4 stocks listed on the NYSE entered 2010 in a positive trend, and about as many will exit the year trending higher. Within the 40US economic sectors, 5 of the top 10 sectors at the beginning of the year are among the top 10 as we exit the year. 6 of the bottom 10 sectors entering 2010 are among the bottom 10 exiting 2010 as well. Had we not lived through 2010 we might come to the conclusion that very little change actually came to pass during the past 12 months. By comparison to 2008 & 2009 the past year could arguably be described as mild. It has been one of those years where when the dust settles, all the major domestic equity indexes will have had positive returns, with double-digit returns for the equity markets.
Despite all that has occurred on the surface of the market the words "what is, is" comes to mind as the leadership within the market has a very similar complexion to that of a year ago. The primary market indicator remains positive, albeit in overbought territory. Despite an exhale in the market since a peak in early November, trends remain positive. Certainly these things can change, and at some point they certainly will, but for now we see a market that remains generally strong longer-term but far less overbought near-term than we were just a few weeks ago.
Both domestic and international equities remain emphasized. Large caps have been out-of-favor relative to mid and small caps for the duration of 2010. Masking this a year in which knowing where to be in the market was more valuable than knowing whether to be in the market. 2008 was obviously an example of knowing whether to be in (or out of) the market, as equities were out of favor for the duration of the year. The International market leadership still points to the emerging markets. Weakness in the broad fixed income asset class continues as interest rates rise and demand falls. The 10 year yield index (TNX) has risen from 2.30% to 3.45%. Commodities continue to remain resilient overall.
Securities and Investment Advisory services offered through NBC Securities, Inc., member FINRA and SIPC. Investment products 1) are not FDIC insured, 2) not guaranteed by any bank and 3) may lose value including a possible loss of principal invested. NBC Securities, does not provide legal or tax advice. Recipients should consult with their own legal or tax professional prior to making any decision with a legal or tax consequence.
This is not an offer to sell or buy any securities products, nor should it be construed as investment advice or investment recommendations.
Despite all that has occurred on the surface of the market the words "what is, is" comes to mind as the leadership within the market has a very similar complexion to that of a year ago. The primary market indicator remains positive, albeit in overbought territory. Despite an exhale in the market since a peak in early November, trends remain positive. Certainly these things can change, and at some point they certainly will, but for now we see a market that remains generally strong longer-term but far less overbought near-term than we were just a few weeks ago.
Both domestic and international equities remain emphasized. Large caps have been out-of-favor relative to mid and small caps for the duration of 2010. Masking this a year in which knowing where to be in the market was more valuable than knowing whether to be in the market. 2008 was obviously an example of knowing whether to be in (or out of) the market, as equities were out of favor for the duration of the year. The International market leadership still points to the emerging markets. Weakness in the broad fixed income asset class continues as interest rates rise and demand falls. The 10 year yield index (TNX) has risen from 2.30% to 3.45%. Commodities continue to remain resilient overall.
Securities and Investment Advisory services offered through NBC Securities, Inc., member FINRA and SIPC. Investment products 1) are not FDIC insured, 2) not guaranteed by any bank and 3) may lose value including a possible loss of principal invested. NBC Securities, does not provide legal or tax advice. Recipients should consult with their own legal or tax professional prior to making any decision with a legal or tax consequence.
This is not an offer to sell or buy any securities products, nor should it be construed as investment advice or investment recommendations.
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