“Don’t use the past as an excuse to miss out on your future.”
– Alan Cohen
Monthly Archives: October 2011
Personal Notes
It’s that time of the year again to cover the patio furniture (if you live in Pennsylvania or points north). My wife Jo Anne and I spent a good portion of Sunday doing just that plus getting the house prepared for the bad winter we are forecasted to endure. For my part, I am hoping for just 2 sizeable snowfalls – the day before buck season and the day before Christmas.
Special Alert About Refinancing
Mortgage and loan rates may not be this low again for 50 years. Any borrower who owes any type of loan or credit balance should take a look at its terms and maturity. Then compare to what is available. We can help you several ways.
Mortgage and home equity loan rates have dropped dramatically. It makes financial sense to compare and refinance now. Valley National can assist you by: (1) crunching numbers and advise you which route to take to reduce your borrowing costs and (2) give you contact information for one or more of the following sources of financing (Valley National has developed a “deep bench” of financial institutions – all of which are independent of Valley National and its advisors). In other words we have no “axe to grind” and receive no compensation from any of them:
1) A Lehigh Valley based Mortgage BANKER with a track record of great service for conventional first mortgages.
2) A nationally recognized bank with quick underwriting – great for standard and typical first mortgages.
3) A Lehigh Valley bank who underwrites and HOLDS first mortgages.
4) Another Lehigh Valley bank who underwrites and HOLDS fixed rated Home Equity loans with 10 year amortization – and very low up-front costs.
5) A large lending institution for jumbo loans over $500,000 and commercial loan needs.
The Markets This Week
Stocks soared 6% last week on relatively low trading volumes, as continued short-covering helped the market put together two consecutive up weeks for the first time since early July.
Though the rally is young yet, already some participants doubt its longevity, given that much of the activity appears to be computer-driven momentum-buying and short-covering, not some Niagara of traditional buy orders. Moreover, while third-quarter earnings reports came in as expected, the sovereign-debt situation in Europe could deteriorate in a heartbeat. Consequently, many institutions remain on the sidelines, traders say.
Nevertheless, no one will reject a rally after the past 10 weeks of troubles. The Dow Jones Industrial Average closed at 11,644.49, up 5% from the previous Friday. The Nasdaq Composite finished at 2668, ahead some 8% on the week,
The fact that the market moved so much on less-than-strong volume and on little in the way of real positive news gives rise to skepticism, traders say. Christopher Zook, chief investment officer of CAZ Investments in Houston, concurs: “It’s not like the European situation has been solved. It’s feeling like a bear trap.”
For the week, the economic news was mildly positive. Friday, the Commerce Department said September retail sales rose 1.1%, above consensus, with auto sales strong. However, the Thomson Reuters/University of Michigan’s preliminary October read on the consumer-sentiment index fell to 57.5 from 59.4 in September, below expectations.
One interesting snippet comes from Jeff Smisek, CEO of the largest U.S. airline, United Continental Holdings (ticker: UAL). He said Wednesday that he didn’t see signs of an imminent recession in bookings and business travel. Airlines are the economy’s litmus paper, so that speaks volumes, at least about the next few months.
In the way of earnings, less than two score of the Standard & Poor’s 500 index firms have reported third-quarter numbers so far, and they generally met expectations, with Google (GOOG) showing strong earnings and JPMorgan Chase (JPM) not.
The S&P 500 did move above its 50-day moving average, and “the tone of the tape” has improved, according to Mike Hurley, a portfolio manager of the Highland Trend Following Fund. Still, financial stocks continue to struggle, and that remains a long-term concern for the durability of this rally, he adds.
YOU DON’T NEED TO LOOK AT NEWS footage of the Wall Street protests to know that banks are among the most hated of sectors. In the U.S., the S&P 500 financials index is the worst performer of the year, down 21%. The Stoxx European banks index is only the second-worst in Europe, but it is down a heftier 30% in local currencies. Yet, for those willing to consider financial institutions with a low profile, there are big, well-run, conservatively managed banks that can give investors a quality entree into a despised sector (Source: Barrons Online).
The Numbers
Last week, U.S. Stocks and Foreign Stocks increased. Bonds decreased. During the last 12 months, BONDS outperformed STOCKS
Returns through 10-14-2011 | 1-week | Y-T-D | 1-Year | 3-Years | 5-Years | 10-Years |
Bonds- BarCap Aggregate Index | -.2 | 5.8 | 4.0 | 8.4 | 6.5 | 5.6 |
US Stocks-Standard & Poor’s 500 | 6.0 | -1.1 | 6.5 | 2.6 | -5.6 | .8 |
Foreign Stocks- MS EAFE Developed Countries | 4.5 | -11.8 | -10.8 | 2.1 | -5.2 | 2.6 |
ACTION PLAN – REPEATED IN EIGHT CONSECUTIVE EDITIONS SINCE 8/22/2011 FOR EMPHASIS
The FED and other Central Banks have not yet followed through with coordinated efforts to support their economies and restore confidence. Meanwhile, last week’s economic reports indicate the economy has slowed more than economists expected. These reports coupled with last week’s drop in the stock market, will diminish American’s confidence even further. And, as I reported in The Weekly Commentary weekly during each of the past seven weeks, a continued crisis in confidence will probably result in further economic slowdown, and maybe a full-fledged recession. I believe the probability of a recession has grown dramatically.
The stock markets have already dropped in anticipation of the economic slowdown. There is a possibility the forecasted downturn is now fully factored into stock prices. If true, this would not be the time to sell. On the other hand, the economic downturn could be long-lasting and severe. It is very difficult to predict its severity. There is no exact, 100% sure-fire way to time recessions or markets. Due to the lack of clarity in my crystal ball, I recommend the following, depending upon which category fits your unique circumstance:
1. Aggressive investors, moderately aggressive investors, and investors who do not intend to touch their investments for 10 years or longer – continue to hold the current allocation of core investments, and wait to gather more information, and carefully watch central bank activities especially from FED Chairman Bernanke later this week.
2. Investors who need to withdraw from the investment portfolio – “park” any amounts you expect to withdraw within the next 5 years in a short/intermediate term bond fund.
3. Conservative, moderately conservative, preservation minded investors and investors who with start withdrawing from their portfolio in 5 to 10 years– reduce exposure of the more volatile stock and stock mutual fund holdings in your portfolio.
The Outlook – Is There Any Hope?
Yes. The FOURTH QUARTER (the months of October, November and December) is often good for stock investors. How frequently? 16 out of the last 20 years. And, last year, the stock market’s advance in the FOURTH QUARTER was spectacular – up 10.7%. In other words, a good surprise.
But, it’s no guarantee that the stock market in 2011 FOURTH QUARTER will be up. Only 4 years ago the S&P 500 hit its highest level ever of 1,565 before starting its 17 month long plunge to 660.
NOTE: The performance statistics are that of the Standard & Poor’s 500 Index which is an unmanaged index of 500 U.S. stocks. This index is widely considered to be representative of the total U.S. stock market. An investor cannot purchase this index as an investment although surrogates exist that possess similar perform characteristics.
“Your Financial Choices” on WDIY 88.1 FM
The show airs from 6-7 PM Wednesdays on 88.1 FM and online at www.wdiy.org
The show is hosted by Valley National’s Laurie Siebert CPA, CFP. This week Laurie welcomes a very special guest Dean Wegner. Dean is an author and a Personal Finance Expert of WeTV’s acclaimed series “Downsized”. We will discuss his latest book, “Life After Foreclosure”
This show will be broadcast at the regular time. WDIY is broadcast on FM 88.1 for reception in most of the Lehigh Valley; and, it is broadcast on FM 93.9 in the Easton/Phillipsburg area; and, it is broadcast on FM 93.7 in the Fogelsville/Macungie area – or listen to it online from anywhere on the internet. For more information visit check the show’s website www.yourfinancialchoices.com
Personal Notes
This last weekend I visited my brother Jim and his wife Colleen in Brush Valley, Pa (9 miles east of Indiana). They hosted family and friends for an old-fashioned Apple Cider fest. It was great cider from apples they bought from the Amish who live around the hill from them. The hill, by the way, was in flames – the vivid flaming leaves of autumn.
The brilliance of the leaves increases as one travels west on the Turnpike. I noticed the biggest change when I emerged from the Tuscarora tunnel. Mostly green on the east side to brilliant color on the west side. Pennsylvania is an amazing place.
Economic Reports Last Week
Last week the number of POSITIVE developments easily exceeded NEGATIVE developments, and the stock markets increased as a result.
Positives:
1) Sept Payrolls surprise to upside but monthly ytd avg is still only 119k
2) ISM mfr’g up 1 pt from Aug and better than expected
3) ISM services hangs in a touch above estimate
4) Initial Jobless Claims rise to 401k but 9k less than thought
5) Sept retail comps above forecasts as were vehicle sales
6) Canada adds jobs in Sept 4x expectations
7) ECB as expected adds loan facilities as lender of last resort and only resort for some, euro basis swap falls below 100 bps to 2 week low and euribor/ois spread down to 5 week low
8) EU finally focusing on further Greek debt haircut and bank recap but execution and Germany and French participation extent in question
9) BoE embarks on another round of QE to help economy
10) China mfr’g in Sept up from Aug, Services PMI up by 1.7 pts to 59.3 and HSBC non state weighted services index also up
11) Japan’s Q3 Tankan mfr’g # rises to +2 from -9, although as expected
Negatives:
1) Bank of England turns printing press power back on even with CPI running north of 4%. When will this cost of money price fixing and currency debasement experiment end?
2) Dexia, Belgium’s largest bank with tentacles in many places, on financial precipice
3) Fitch downgrade of Spain’s credit rating puts them below both S&P and Moody’s. Italian downgrades by Moody’s and Fitch have them in line to notch higher vs S&P respectively (Source: The Big Picture).