Daily Archives: October 8, 2013

Heads Up!

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Investors are nervous.  This is a natural reaction to the negativity
broadcast by the news media.  It is
important to isolate the two news topics and evaluate each one:  (1) the DEBT CEILING, and (2) THE U.S.
GOVERNMENT “SHUTDOWN.”

Moody’s Investors Service sees very little chance of a U.S. debt
default later this month, the rating agency’s president and chief operating
officer said on Tuesday. “We have a “AAA” rating and
“stable” outlook (for the United States), which reflects our view
that a default is an extremely unlikely event”, Michel Madelain, President,  told a conference in Tel Aviv. “The shutdown
does not really affect the government’s creditworthiness.”   He
said the agency believes the U.S. government will take every possible step to
continue to pay interest and principal on its debt even if the debt limit is
not raised. (Source:  Reuters)


RECOMMENDATION:  Avoid
reacting to an event that is labeled as extremely unlikely.  Maintain your long term asset
allocation. 


As to the SHUTDOWN, the
duration of the shutdown does matter, if history is any guide, according to
Richard Salsman, chief market strategist at InterMarket Forecasting. Shorter
shutdowns are innocuous, but longer ones are bearish, he says. There have been 17 previous shutdowns since 1976,
ranging from one day to 21, with an average of six. The S&P 500 has fallen
by a mean 0.8% in past shutdowns, but for those lasting 10 days or more, a
decline happened 80% of the time and averaged 2.6%, he says. One month after
the longer shutdowns ended, stocks were still down slightly, compared with a
1.7% average rise after the shorter shutdowns ended. (Source:  Barrons Online).


RECOMMENDATION: 
Avoid the temptation to time the market. 
Maintain your long term asset allocation.  Be prepared to add cash to your investment portfolio
if a drop occurs from a prolonged shutdown. 

The “Heat Map”

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Most of the time, the U.S. stock market
looks to 3 factors to support its upward trend – let’s grade each of the
factors:

CONSUMER
SPENDING:  I grade this factor a C (neutral).



THE
FED AND ITS POLICIES:  I continue to grade this factor an A+ (extremely favorable) because the
FED cannot do much more than it is doing to support the stock market and asset
prices.  And, the FED announced (9/18/2013)
it intends to continue the highly accommodative policy to stimulate the
economy. 

BUSINESS
PROFITABILITY:  I graded this factor an A (very favorable).  NOTE:  3rd
Quarter profit reporting season starts this upcoming week.  We will watch the results carefully. 


NOTE: 
the above grades are unchanged from last week.

The Numbers

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

LAST
WEEK -Here is a look the cause of the volatility created this week by
hedge funds, institutions, and those we call “traders.”

Returns through 10-4-2013

1-week

Y-T-D

1-Year

3-Years

5-Years

10-Years

Bonds- BarCap Aggregate Index

  -.1

-2.0

-1.7

  2.8

 5.3

4.7

US Stocks-Standard & Poor’s 500

  0.0

20.5

18.3

16.6

11.4

7.3

Foreign Stocks- MS EAFE Developed Countries

  -.7

 12.5

16.8

  3.8

 4.8

4.5

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.

“Your Financial Choices”

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“Your Financial Choices”   The show airs on WDIY
Wednesday evenings, from 6-7 p.m. The show is hosted by Valley National’s
Laurie Siebert CPA, CFP, AEP.  This week Laurie
will discuss: “Financial Planning
Week and the Financial Planning Association’s network of resources”

Financial
Planning Week is a celebration to help individuals discover the value of
financial planning and make smart financial decisions to achieve life goals and
dreams.  Laurie will take your calls on
this topic and other inquiries this week.  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 and Phillipsburg area; and, it is
broadcast on FM 93.7 in the Fogelsville and 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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I had the
opportunity to take a golf oriented vacation last week to a special place in
Oregon called Bandon Dunes in the same group of 8 guys that travelled to
Dublin, Ireland last year.  Even though I
kept an eye on the political events in Washington, the trip was all about the
golf. 

Here is a sample of the eye candy
that accompanied our play (not my pics but they represent what I experienced):
https://www.google.com/search?q=bandon+dunes+golf+pictures&es_sm=93&tbm=isch&tbo=u&source=univ&sa=X&ei=yA1UUoe6JLi14APM2IGwDg&ved=0CD4QsAQ&biw=1218&bih=939&dpr=1

The Markets This Week

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Stocks rode the D.C. seesaw last week as the broad
market fell, rose, and ultimately finished flat on the week amid daily, if not
hourly, conflicting comments from senior political leaders. Large-company share
prices, however, dropped more than 1% for the week.

With
the third-quarter-earnings reports season not beginning until this week,
investors remain fixated on the partisan battle over the federal budget and the
government’s need to raise its debt-ceiling authority. As of Friday, the
partial government shutdown was in its fourth day.


The
market’s rebound on Friday demonstrated how closely investors were watching
Washington, as stock prices rallied on media reports suggesting that Speaker of
the House John Boehner was perhaps more flexible than previously thought in
working to increase the U.S. debt limit before the estimated Oct. 17 deadline.
Technically, in the event that deadline isn’t met, the federal government
probably wouldn’t run out of money until the end of the month.


The
Dow Jones Industrial Average lost 186 points, or 1.2%, to 15,072.58, a second
consecutive weekly drop. But the S&P 500 index finished essentially
unchanged at 1690.50. The Nasdaq Composite index bucked the trend, rising 0.7%,
or 26 points, to 3807.75.


“It
was a manic-depressive market,” says Paul Nolte, a portfolio manager with
Dearborn Partners. There’s hope of a handshake on the debt ceiling, but the
competing sound bites from Democrats and Republicans aren’t helping, he says.


With
shares off just about 2% from highs, the market hasn’t reacted much to the
stalemate, he adds, and certainly less painfully than the 10%-plus slide back in
August 2011. That’s when Standard & Poor’s downgraded U.S. debt amid the
wrangling over lifting the ceiling. As things stand, the debt ceiling is more
pressing than the budget (Source: 
Barrons Online).