Monthly Archives: May 2012

The Economy

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Housing remains weak, but improving. The Census Bureau reported that new home sales increased again in April, and that there were 117,000 new homes sold during the first four months of 2012. This compares to only 101,000 sold for the comparable period last year. This level of sales is historically very weak – and 2012 will probably be the 3rd worst year on record after 2011 and 2010 – but the increase in sales is important for both jobs and economic growth.  Source:  Calculated Risk

The Look Ahead

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Corporate dividends, no matter what the tax rate, will be an important part of an investor’s return on investment.  U.S. corporations are flush with cash and can afford to raise dividend payments handsomely.  Historically, corporate dividends have been a large part of stock market returns.  During the 50 year period from 1962 to 2011, corporate dividends have produced almost 40% of total stock market return.  

“Your Financial Choices” on WDIY 88.1 FM

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Tune in Wednesday evenings from 6-7! gThis week Laurie will discuss the following subject matter:

“Different Ways to Pass Assets on to Loved Ones”

Laurie will take your calls on these subjects and other financial planning topics at 610-758-8810.  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, including how to listen to the show online, check the show’s website www.yourfinancialchoices.com and visit www.wdiy.org.  

Personal Notes

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My daughter Jennifer’s wedding to Nicholas Ward is blessed.  I know it because Saturday afternoon’s outdoor wedding was threatened by a giant thunderstorm cell that miraculously split in two prior to impacting.  One half hit Easton, the other half, Allentown.  So, the judge presided over the beautiful vows and finished just in time.  The second storm cell hit 5 minutes after the closing ceremony.  Now the happy couple is on their honeymoon in the Turks & Caicos.

Next week, I will be travelling in Ireland on a golf vacation and will not be publishing The Weekly Commentary.  However, I will stay in touch, and I will perform some research on the Irish economy by interviewing the local Dubliners at the 19th hole.

The Markets This Week

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Summer’s coming, and last week’s rising market was a welcome respite after three weeks of declining stock prices. But investors probably shouldn’t get too comfortable.

Though Wednesday’s reversal was technically impressive—the Dow was down almost 200 points early in the day before recovering to finish higher—serious damage has been done to market psychology since the first quarter ended. 

Investors are on edge, worried day to day about world issues like European sovereign debt and Chinese growth, says Doreen Mogavero, CEO of Mogavero & Co. Traders are closing each day with neutral positions, she adds.

That’s not the sign of a market about to move sustainably higher. Moreover, when U.S. stocks rallied in the afternoons last week, the buying influx wasn’t particularly strong, and didn’t inspire confidence, Mogavero notes. Market participants are very divided, she adds. 

Not only was trading volume low—we’re used to that—but the rebounds often came mainly in the afternoon when European markets were closed and conveniently in the absence of bad news from the troubled continent.

“Markets are being held hostage to a deteriorating situation in Europe…waiting for any sign of a policy move that will support equities,” observes Quincy Krosby, Prudential Financial’s chief market strategist. Stocks will struggle until the policy moves come, she adds.

As has been happening in most rallies this year, small stocks outpaced the big. The Dow rose 0.7%, or 86 points, to 13,454.83 last week, but it’s been down on 15 of the past 18 trading days. And the Nasdaq Composite gained 59 points, or 2.1%, to 2837.53. The Russell 2000 small-cap index added 19, or 2.6%, to 766.41.

Even if the European Union again rescues Greece, it’s hard to imagine a magic bullet in any scenario. Back home, financials remain the sector that worries investors. The first quarter saw a tremendous rally when the group rose. That upward impetus has disappeared, a savvy trader notes (Source:  Barrons Online).

The Numbers

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Last week, Bonds and Foreign Stocks decreased and U.S. Stocks
increased.  During the last 12 months, BONDS outperformed STOCKS.   

Returns
through 5-25-2012

1-week

Y-T-D

1-Year

3-Years

5-Years

10-Years

Bonds-
BarCap  Aggregate Index

    
-.2

   
 1.8

  
6.9

  
7.0

  
6.6

   
5.7

US
Stocks-Standard & Poor’s 500

    
1.8

    
5.7

  
2.0

  16.5

  – .6

   
4.0

Foreign
Stocks- MS EAFE Developed Countries

    
-.5

  
-4.4

-19.3

   
1.4

 -9.6

   
1.3

Source:
Morningstar Workstation. Past performance is no guarantee of future
results.  Indices are unmanaged and cannot be invested into
directly.  Three, five and ten year returns are annualized excluding
dividends.

Personal Notes

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I am on a diet to take some weight off my right hip and knee which have been giving me some pain after walking more than a dozen holes of golf.  I am suspicious that the cause of my discomfort is arthritis building up in the joints where I took many hits while playing defensive tackle in high school and college.  I reckon the loss of weight will help alleviate the pain.  But, I do not know how many pounds I have to lose.  I have dropped 19 pounds and the pain is still there; but, now I can walk 12 holes without discomfort, up from 9 when I started at the beginning of April.  The diet plan?  Weight Watchers.  I find Weight Watchers to be easy because I love veggies and fruit.  By the way, have you seen this season’s strawberries and blueberries?  They are awesome in size and taste.  I can’t wait for the peaches!

Economic Reports Last Week

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Below is a succinct list of last week’s events:

Positives:

1) Initial Jobless Claims total 367k, below 370k for 2nd week after previous 3 weeks above 380k.
2) University of Michigan confidence in May rises 1.4 pts to best since Jan ’08, one yr inflation expectations fall to lowest since Dec ’10.
3) Gasoline prices fall another $.06 on the week to $3.73, the lowest since late Feb according to AAA.
4) Jobs Openings and Labor Turnover Survey data reveal most amount of job openings since July ’08.
5) US exports rise to record high in March but so do imports mostly due to petro.
6) National Federation Independent Business’ small business optimism index up 2 pts to highest since Dec ’07.
7) For those looking to buy a home or refinance, average 30 yr mortgage rate falls to new low at 3.78% according to Bankrate.com.

8) US Producer Price Index unexpectedly falls .2% m/o/m and y/o/y gain of 1.9% below 2% for 1st time since Oct ’09 (core rate though remains elevated), April Import Prices fall more than expected.
9) Factory Orders in Germany in March surprise to upside, somewhat dated data and likely to change but points to resilience of its economy.
10) Chinese CPI falls to 3.4% y/o/y gain in April from 3.6% and Producer Price Index outright falls for 2nd straight month.
11) Job gains in Australia and Canada well above expectations.

Negatives:

1) In response to chaos in Greece, newly issued Greek bonds fall to new lows, Greek stocks fall 11% on the week to lowest since 1992. 
2) Spain’s 10 yr yield rises back to 6%, 5 yr CDS up at record high, IBEX (Spain’s stock market) index trades to lowest since ’03 but bounces off it.
3) Spain wants its banks to write off another 30billion euros but market wanted 50billion.
4) In China, retail sales, Industrial Production, money supply, bank loans, imports and exports all rise less than expected confirming further the slowdown.
5) India Industrial Production in March falls 3.5% vs expectations of a gain of 1.7%  Source:  The Big Picture