Weekly Commentary
August 16, 2010
The Markets
One week, the
glass is half full, the next week, it is half empty.
Investor’s lack
of conviction was on full display last week as a scandal at Hewlett Packard, a
change of heart from the Fed, a revenue miss from tech bellwether Cisco
Systems, and an unexpected rise in weekly jobless claims led to a decline in
global stock markets, according to Bloomberg.
In particular,
the Federal Open Market Committee last week slightly changed its economic
outlook by saying, “The pace of economic recovery is likely to be more modest
in the near term than had been anticipated.” To help the economy maintain
momentum, the Fed announced that it will goose the economy a bit by reinvesting
the principal payments it receives on its agency securities in longer-term
Treasury securities and that it will roll over its maturing holdings of
Treasury securities in new Treasury securities. Effectively, this means the Fed
will not shrink its balance sheet for the time being.
Whether this move
is good or bad for the economy is subject to debate. One camp says it will help
keep interest rates low, which could be good for the economy. Another camp says
it will help keep interest rates low, which
could be bad for the economy at this stage of the economic recovery. That
was not a misprint -- smart people are taking opposite views on whether low
rates are good or bad for the economy. Kansas City Fed President Thomas Hoenig
leads the dissenters. In a speech in Lincoln, NE last week, Hoenig said, “We
need to get off of the emergency rate of zero, move rates up slowly and
deliberately” and “We will repeat the cycle of severe recession and
unemployment in a few short years by keeping rates too low for too long.”
This tug-o-war
between smart people makes for interesting reading (at least for us, anyway!)… but
generates no clear trend in the market.
|
1-Week |
Y-T-D |
1-Year |
3-Year |
5-Year |
10-Year |
|
|
Standard & Poor's
500 (Domestic Stocks) |
-3.8% |
-3.2% |
7.5% |
-9.4% |
-2.6% |
-3.2% |
|
DJ Global ex US
(Foreign Stocks) |
-4.2 |
-5.0 |
4.4 |
-9.6 |
1.2 |
1.0 |
|
10-year Treasury Note
(Yield Only) |
2.7 |
N/A |
3.6 |
4.8 |
4.3 |
5.8 |
|
Gold (per ounce) |
0.5 |
10.0 |
27.3 |
22.0 |
22.3 |
16.0 |
|
DJ-UBS Commodity Index |
-1.9 |
-4.6 |
1.4 |
-7.6 |
-4.2 |
2.5 |
|
DJ Equity All REIT TR
Index |
-3.8 |
12.5 |
33.2 |
-4.9 |
1.3 |
10.0 |
Notes: S&P 500, DJ
Global ex US, Gold, DJ-UBS Commodity Index returns exclude reinvested dividends
(gold does not pay a dividend) and the three-, five-, and 10-year returns are
annualized; the DJ Equity All REIT TR Index does include reinvested dividends
and the three-, five-, and 10-year returns are annualized; and the 10-year
Treasury Note is simply the yield at the close of the day on each of the
historical time periods.
Sources: Yahoo! Finance,
Barron’s, djindexes.com, London Bullion Market Association.
Past performance is no guarantee of future
results. Indices are unmanaged and
cannot be invested into directly. N/A
means not applicable or not available.
IF YOU HAD TO DESCRIBE THE
STATE OF THE ECONOMY as
an animal, which animal would you pick? This may sound like a silly question,
but it is an actual question from a national survey released last month and
sponsored by the Certified Financial Planner Board of Standards.
Some of the less common survey responses included
cow, kangaroo, lamb, dinosaur, possum, rat, giraffe, hyena, and, not
surprisingly, bull. Looking at this list makes us wonder… what attribute does a
giraffe or a possum have that can be compared to the economy? Let us know what
you think.
The most common
responses were bear, snake, turtle, sloth, lion, pig, dog, and skunk.
Okay, have you
picked your animal?
For discussion
purposes, let’s say that you picked a bear as your animal. Of course, a “bear”
is also commonly used to describe a weak stock market. Now, here’s the point.
Often, investors get an idea in their mind -- e.g. this is a “bear” market -- and
have a hard time changing their perception even in the face of new evidence
that would suggest their perception is inaccurate. Psychologists call this
“anchoring” and it has led many investors astray, according to Investopedia.
The key to
overcoming anchoring is to keep an open mind, be willing to change, and utilize
rigorous thinking.
So, no matter
what animal you picked, whether it be bull, bear, turtle, sloth, or skunk, be
alert to new information that may suggest that it’s time to pick a new animal.
As your advisor, we are mindful of the “anchoring” bias and we do our best to
base our decisions on rigorous thinking and not on an outdated opinion.
Weekly Focus
– Think About It
“To get all
there is out of living, we must employ our time wisely, never being in too much
of a hurry to stop and sip life, but never losing our sense of the enormous
value of a minute.”
--Robert
Updegraff
Best regards,
John F. Reutemann,
Jr., CLU, CFP®
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Securities
offered through through LPL Financial, Member FINRA/SIPC. Investment
Advice offered through Research Financial Strategies, a registered investment
advisor and separate entity from LPL Financial.
*
This newsletter was prepared by PEAK.
*
The Standard & Poor's 500 (S&P 500) is an unmanaged group of securities
considered to be representative of the stock market in general.
*
The DJ Global ex US is an unmanaged group of non-U.S. securities designed to
reflect the performance of the global equity securities that have readily
available prices.
*
The 10-year Treasury Note represents debt owed by the United States Treasury to
the public. Since the U.S. Government is seen as a risk-free borrower,
investors use the 10-year Treasury Note as a benchmark for the long-term bond
market.
*
Gold represents the
*
The DJ Commodity Index is designed to be a highly liquid and diversified
benchmark for the commodity futures market. The Index is composed of futures
contracts on 19 physical commodities and was launched on July 14, 1998.
*
The DJ Equity All REIT TR Index measures the total return performance of the
equity subcategory of the Real Estate Investment Trust (REIT) industry as
calculated by Dow Jones.
*
Yahoo! Finance is the source for any reference to the performance of an index
between two specific periods.
*
Opinions expressed are subject to change without notice and are not intended as
investment advice or to predict future performance.
*
Past performance does not guarantee future results.
*
You cannot invest directly in an index.
*
Consult your financial professional before making any investment decision.
*
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