Last week, US Stocks and Foreign Stocks decreased. Bonds increased. During the last 12 months, U.S. STOCKS outperformed BONDS.
Returns through 7-15-2011 | 1-week | Y-T-D | 1-Year | 3-Years | 5-Years | 10-Years |
Bonds- BarCap Aggregate Index | .3 | 3.7 | 4.5 | 6.6 | 6.6 | 5.7 |
US Stocks-Standard & Poor’s 500 | -2.3 | 2.7 | 16.0 | .8 | -1.8 | .9 |
Foreign Stocks- MS EAFE Developed Countries | -2.7 | .2 | 14.6 | – 3.6 | -1.0 | 3.1 |
It gives me great pleasure to announce that Valley National Financial Advisors has once again been voted “Best Financial Planner” by the readers of Lehigh Valley Magazine in the annual “Best Of The Valley” contest. This is the second year in a row that Valley National has received this recognition, for which we are truly and deeply honored. Valley National Financial Advisors first opened its doors in 1985, and since then we have had the privilege of serving clients in the Lehigh Valley and beyond. Those clients are the most important part of the Valley National family. On behalf of all of us at the Bethlehem, Phillipsburg, Johnstown and Manhattan offices – I offer everyone my sincerest of thanks. Your support and your dedication to us is the reason we love what we do. Our team looks forward to continuing this exceptional service for many, many years to come.
Thank you for your vote of confidence and support in helping Valley National Financial Advisors achieve this important professional milestone.
We are halfway through the year, and what a ride it has been. Today I will share my thoughts on what the next six months could look like, and endeavor to keep it short and simple. 
We Should Be OK, Except…
The economy should be in Muddle Through range (around 2% growth), absent any shocks. For instance, last Thursday, we had the June ISM number, which was stronger than most analysts expected, at 55.3. Of the 18 industries surveyed, only 12 reported growth.
But Muddle Through is not going to allow us to really cut into the unemployment problem. We need at least 3% growth and most economists think we need to see 3.5% to result in some real strong jobs numbers for several months in a row. That just doesn’t seem to be in the cards.
What I mean by Muddle Through not being enough to really cut into unemployment is that GDP seems to be slowing rather than picking up. The correlation between employment and growth is not encouraging. And if you look at the NFIB (National Federation of Independent Businesses) data, small businesses are not really back in the hiring game, and that is where the action needs to happen. We will see a new survey this week, but I doubt we will see a major jump in expectations.
Several months ago, I wrote a rather lengthy article in The Weekly Commentary about why unemployment would be a problem until at least the middle of the decade. When you lose 8 million jobs, with about 2-3 million of those jobs permanently gone, it is tough to dig out of the hole. We can’t look to housing construction to be the driving force that it once was for another 3-4 years, and commercial construction is falling.
I was talking to a friend recently who is an officer in a local bank. He pointed out that while the government wants banks to lend, the regulators (including the Fed) are critical of banks which make real estate development loans without very large equity components. All too frequently, banks want 50% loan-to-value of very-reduced valuations. This is not the environment that makes real estate moguls want to part with their cash. Nor does it bode well for construction jobs.
The Economic Cycle Research Institute points out that their leading index is simply signaling a weakening economy but does not signal a recession. But, the recent trend is disconcertingly downward and must be watched (Source, in part: The Big Picture).
“If you can’t excel with talent, triumph with effort.”
– Dave Weinbaum
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The show airs on WDIY Wednesday evenings, from 6-7 p.m. The show is hosted by Valley National’s Laurie Siebert CPA, CFP®. This week, Laurie will discuss:
“Contemporary Issues in Financial Planning.”
Laurie will take your calls on this subject and other financial planning topics at 610-758-8810. 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
OK! I am coming out of the closet. I have kept a closely guarded secret for over 15 years: I AM A PITTSBURGH PIRATE FAN!! I am thrilled to see their recent success. For those who do not follow baseball closely – the Pirates have been the worst team in Major League Baseball during the last 18 years. What a terrible losing streak ending with a total meltdown last year when they finished with the worst record in all of baseball. This year, a new manager, a new philosophy AND pitching gives this team a chance. I am not the only one saying this: the last 4 home games have been complete sellouts (The first time ever for the 11 year old PNC Park). Not bad for a team with a total team payroll that is a fraction of the Yankees or the Phillies. Pittsburgh has the fever and it’s not even football season.
Hoping that the slowing U.S. economy will reaccelerate this fall, the U.S. stock market bounced back from its recent correction with a rousing 5.6% rally last week to register its best week in two years.
The buying spree was egged on by improving—though hardly inspiring—economic cues. Greece’s parliament approved an austerity plan and persuaded German banks to permit a rollover of its debt, which prevented Europe’s volatile mess from worsening, for now. Reality also began to outshine our shrinking expectations: An index measuring Midwest manufacturing activity rebounded to 61.1 in June from 56.6 in May, while Nike (ticker: NKE) padded its market cap by $5 billion, or 13%, last week after it surprised investors with stronger-than-expected quarterly sales and profits.
Most of all, the surge pointed to the market’s pent-up buying impulse. Before last week, stocks had absorbed seven losses in eight weeks, yet Wall Street rarely wavered from its consensus view of this economic soft patch as a passing—and ultimately buyable—phase. From their late-April peak, stocks took more than six weeks to decline 7.2%, but just a third of that time to bounce back almost 6% since mid-June.
It helps, of course, that the drag from Japan’s disaster will eventually pass, and that oil has eased 17% from its 2011 high. Corn futures corrected 10% Thursday after the Agriculture Department reported especially exuberant crop planting in June. These might help slow inflation and ease the strain on consumers, all while the U.S. central bank remains supportive and China nears the end of its credit-tightening campaign.
But after last week’s rally, the posse of stocks straining above their 50-day averages has swiftly swollen to nearly 60% from 16% just two weeks ago. Greece has momentarily reduced its interest burden, but not the heft of its outstanding loans, and worries linger about Portugal, Ireland, Italy and Spain. The European Central Bank also is expected to raise interest rates this week, which risks choking off the continent’s already frail recovery.
On Friday, stocks kicked off July with a 1.4% gain as investors cheered a rebound of the ISM manufacturing index to 55.3 in June following a sharp decline to 53.5 in May. But more than half the increase was due to rising inventories, new orders barely ticked up to 51.6 from 51, and export orders shrank enough to raise the unwelcome specter of China’s waning appetite.
The Dow Jones Industrial Average ended the week up 648 to 12,583, and the 5.4% gain was its biggest since July 2009. The Dow Jones Transportation Average climbed to an all-time high, adding 6.4% last week to stretch its three-week run to 9.6%. The Standard & Poor’s 500 rallied for five straight days to reach 1340, with last week’s 71-point gain its biggest since March 2009. The Nasdaq Composite Index jumped 163, or 6.2%, to 2816, while the Russell 2000 added 42, or 5.3%, to 840. Other risk assets also jumped, with crude oil climbing 4.2% for its first gain in five weeks, but copper fell 4.7%.
The rally helped narrow June’s losses to 1.2% for the Dow, 1.8% for the S&P 500, 2.2% for the Nasdaq and 2.5% for the Russell. The Dow finished the second quarter up 0.8%, its eighth gain in nine quarters, but the S&P ended a three-quarter run and pulled back 0.4%. The Nasdaq and the Russell also absorbed small quarterly losses of 0.3%, and 1.9%, respectively (Source: Barrons Online).
Last week, US Stocks and Foreign Stocks increased. Bonds were declined. During the last 12 months, U.S. STOCKS outperformed BONDS.
Returns through 7-1-2011 | 1-week | Y-T-D | 1-Year | 3-Years | 5-Years | 10-Years |
Bonds- BarCap Aggregate Index | -1.0 | 2.6 | 3.7 | 6.5 | 6.5 | 5.8 |
US Stocks-Standard & Poor’s 500 | 5.3 | 5.6 | 27.3 | – .4 | -1.8 | 1.2 |
Foreign Stocks- MS EAFE Developed Countries | 5.1 | 3.5 | 28.3 | – 3.9 | -1.2 | 3.1 |
Rory McIlroy’s championship at the 2011 U.S. Open was historic and record setting. He is a needed inspiration to fill the vacuum caused by Tiger Woods’ fade. My own take on Rory is that it’s wonderful especially since he, along with last year’s champ, Graeme McDowell, both hail from Northern Ireland, the Riddle family’s ancestral home. Imagine, a small country the size of Northern Ireland with less than 2 million residents producing 2 consecutive U.S. Open Champions!
This is the second of three articles discussing the urgent need for the US to get its financial house in order or face the consequences. Our objective is to help you understand the implications of this ominous trend and provide the strategy to protect your wealth.
If the U.S. were forced to account for its debts like Apple or Exxon, its debts would equal a whopping $76,000,000,000, 000 ($76 Trillion). That is an enormous number, so large that it is difficult to imagine. To understand how large this number is consider this: it equals $244,000 for every man, woman and child in the U.S. – and, it is growing at $17,000 per year.
The U.S. Government reports its deficits and debts using “cash accounting”. Under cash accounting, the government makes no provision for future Social Security and Medicare benefits in the year in which those benefits accrue. However, this is not Generally Accepted Accounting Principles (“GAAP”) which corporations like Exxon, Microsoft and Apple are required to use. GAAP basis includes year-for-year changes in the net present value of unfunded liabilities in social insurance programs such as Social Security and Medicare.
As the Obama administration prepares to finance a Fiscal Year 2011 budget deficit expected to top $1.6 trillion, the American public is largely unaware that the true negative net worth of the federal government reached $76.3 trillion last year.
That figure was five times the 2010 gross domestic product of the United States and exceeded the estimated gross domestic product for the world by approximately $14.4 trillion.
According to the U.S. Department of Commerce Bureau of Economic Analysis, U.S. GDP for 2010 was $14.861 trillion. World GDP in 2010, according to the International Monetary Fund, was $61.936 trillion
The U.S. government cannot cover such a shortfall by raising taxes, as there are not enough untaxed wages and salaries or corporate profits to do so. Other measures must be taken to reduce future expenditures (Source: The World Press).