Planning
Idea of the month
“When was the last time you noticed an advertisement for broccoli? Smart people know it is wholesome and nutritious, and they probably didn’t have to be reminded of that by the media. By the same token, financial advertising often promotes products or structures that are the most profitable for the financial institutions, but not necessarily for their customers. Make your financial decisions on the basis of sound economic principles, not the sugar-coated, superficial hype in the financial media or the “conventional wisdom” you hear at the water cooler (which usually isn’t very wise at all). – Jim Hecker
“When was the last time you noticed an advertisement for broccoli? Smart people know it is wholesome and nutritious, and they probably didn’t have to be reminded of that by the media. By the same token, financial advertising often promotes products or structures that are the most profitable for the financial institutions, but not necessarily for their customers. Make your financial decisions on the basis of sound economic principles, not the sugar-coated, superficial hype in the financial media or the “conventional wisdom” you hear at the water cooler (which usually isn’t very wise at all). – Jim Hecker
Quote
of the month.
“We would worry less about what others think of us if we realized how seldom they do.” – Ethel Barrett
“We would worry less about what others think of us if we realized how seldom they do.” – Ethel Barrett
The
month in brief.
Wall Street had an eye on Washington for much of last month. Anticipation of earnings season gave way to concern over what might happen if proposed limits on bank risk went into effect, and what might happen if federal tax credits in the housing market went away. Stock and commodities markets fared poorly as some economic data led traders, economists and investors to wonder how much of the recession recovery was attributable to government measures. Still, consumer confidence was on the rise and the economy was clearly on the mend.
Wall Street had an eye on Washington for much of last month. Anticipation of earnings season gave way to concern over what might happen if proposed limits on bank risk went into effect, and what might happen if federal tax credits in the housing market went away. Stock and commodities markets fared poorly as some economic data led traders, economists and investors to wonder how much of the recession recovery was attributable to government measures. Still, consumer confidence was on the rise and the economy was clearly on the mend.
Domestic
economic health.
Some very good news arrived in January: according to the Commerce Department, the preliminary 4Q GDP reading was +5.7%, the best quarter in six years and 1.0% higher than the expectations of analysts. Consumer spending represented 2.0% of the gain. Additionally, the Conference Board’s survey of consumer confidence hit a two-year high last month.1 The University of Michigan consumer sentiment poll rose by 1.6 points to 74.4.2 The latest consumer spending data showed a 0.2% gain for December. January also brought the best news on factory output in five years – the Institute for Supply Management’s manufacturing index read 58.4 for the month. 3
Some very good news arrived in January: according to the Commerce Department, the preliminary 4Q GDP reading was +5.7%, the best quarter in six years and 1.0% higher than the expectations of analysts. Consumer spending represented 2.0% of the gain. Additionally, the Conference Board’s survey of consumer confidence hit a two-year high last month.1 The University of Michigan consumer sentiment poll rose by 1.6 points to 74.4.2 The latest consumer spending data showed a 0.2% gain for December. January also brought the best news on factory output in five years – the Institute for Supply Management’s manufacturing index read 58.4 for the month. 3
Other
news items bothered the Street. In late January, President Obama
rolled out a proposal he referred to as “the Volcker rule”.
Developed with input from former Federal Reserve chairman Paul
Volcker and former SEC chair William Donaldson, the rule would
prohibit banks and bank holding firms from getting involved in hedge
funds or conducting proprietary trading operations.4
Intended as a corrective to the behavior of the 2000s, the proposed
limits on bank size and bank risk sent stocks skidding, as investors
saw reduced potential for bank profits. Tightening in China, debt
problems in Greece and a downgrade of the U.K.’s banking system
didn’t help the mood.
In
terms of rates we all watch, things stayed pretty much the same: the
benchmark interest rate remained between 0-0.25% after the latest
Federal Open Market Committee meeting, and the Senate reconfirmed
Ben Bernanke as Fed chair. We learned that the jobless rate stayed
flat in December at 10.0%.5
The inflation
rate (CPI) had inched north 0.1% for December, up 2.7% over the last
12 months with core CPI rising 1.8% in that stretch.6
A
previously obscure Massachusetts state senator became a person of
influence on Capitol Hill. The unexpected election of Sen. Scott
Brown (R-MA) effectively derailed passage of the Obama
administration’s seemingly assured healthcare reforms. White House
press secretary Robert Gibbs claimed that the health care reform
bill was still “inside the five-yard line.” There were signals
that health insurance reform might be the new tack.7
Global
economic health.
Concerned about an overheated economy, China told its commercial banks to boost capital ratios; that led to the worst market day in Asia since early November, and it was the first in a series of cautions from the government.8 China’s GDP was +10.7% in 4Q 2009 with December showing amazing annualized gains in industrial output (+18.5%) and retail sales (+17.5%).9 The Bank of Japan forecast moderate improvement for that nation’s economy; Japan’s jobless rate fell to 5.1% in December, and its vehicle sales went north in January for the sixth consecutive month.10
Concerned about an overheated economy, China told its commercial banks to boost capital ratios; that led to the worst market day in Asia since early November, and it was the first in a series of cautions from the government.8 China’s GDP was +10.7% in 4Q 2009 with December showing amazing annualized gains in industrial output (+18.5%) and retail sales (+17.5%).9 The Bank of Japan forecast moderate improvement for that nation’s economy; Japan’s jobless rate fell to 5.1% in December, and its vehicle sales went north in January for the sixth consecutive month.10
In
Europe, the government of Greece wrestled with a $75 billion budget
deficit. Standard and Poor’s took the United Kingdom’s banking
system off of its global list of “most stable and low-risk”
banking systems.11
Yet Eurozone
consumer confidence increased for the tenth consecutive month in
January, even as the latest figures showed unemployment had reached
10.0% for November.12,13
World
financial markets.
Indices in a few of the BRIC nations posted gains last month. Venezuela’s Caracas General pulled off a 7.7% increase, and Russia’s RTSI rose 3.3%; the Jakarta Composite in Indonesia gained 3.0%. (The world’s best performing index was the CASE 30 in Egypt, which rose 7.8% last month.) Most world indices took monthly losses, as follows: Hang Seng, -8.0%; Shanghai Composite,
Indices in a few of the BRIC nations posted gains last month. Venezuela’s Caracas General pulled off a 7.7% increase, and Russia’s RTSI rose 3.3%; the Jakarta Composite in Indonesia gained 3.0%. (The world’s best performing index was the CASE 30 in Egypt, which rose 7.8% last month.) Most world indices took monthly losses, as follows: Hang Seng, -8.0%; Shanghai Composite,
-8.8%;
Sensex, -6.3%; All Ordinaries, -5.9%; Nikkei 225, -3.3%; STOXX 600,
-2.4%; DAX, -5.9%; CAC 40, -5.0%; FTSE 100, -4.1%. The MSCI World
Index fell 3.67% in local currency terms; the MSCI Emerging Markets
index lost 4.47% in January.14,15,16
Commodities
markets.
Most commodities struggled on the NYMEX last month. Three posted January gains of 5% or better: coal, +8.31%; sugar, +9.80%; orange juice, +5.46%. Platinum prices went up 3.15% and palladium prices gained 0.93%. Gold lost 1.20%, silver 3.89% and copper 8.79%. Gold ended the month at $1,083.00 per ounce. Crude oil, which finished January at $72.89 per barrel, lost 8.15% for the month. Crops were hit hardest, with soybeans down 12.83%, wheat down 12.47%, corn down 13.99% and oats down 17.69%. The U.S. Dollar Index gained 2.07% last month.17
Most commodities struggled on the NYMEX last month. Three posted January gains of 5% or better: coal, +8.31%; sugar, +9.80%; orange juice, +5.46%. Platinum prices went up 3.15% and palladium prices gained 0.93%. Gold lost 1.20%, silver 3.89% and copper 8.79%. Gold ended the month at $1,083.00 per ounce. Crude oil, which finished January at $72.89 per barrel, lost 8.15% for the month. Crops were hit hardest, with soybeans down 12.83%, wheat down 12.47%, corn down 13.99% and oats down 17.69%. The U.S. Dollar Index gained 2.07% last month.17
Housing
& interest rates.
What would happen with the housing market without federal subsidies in place? The latest new and existing home sales figures made analysts wonder. Purchases of existing homes fell by 16.7% while new home purchases dipped 7.6%; both figures reflected the assumption that government tax credits were expiring.17 Construction spending slipped 1.2% in December.18 On the bright side, National Association of Realtors tallies put existing home sales for 2009 approximately 5% above levels of 2008.19
What would happen with the housing market without federal subsidies in place? The latest new and existing home sales figures made analysts wonder. Purchases of existing homes fell by 16.7% while new home purchases dipped 7.6%; both figures reflected the assumption that government tax credits were expiring.17 Construction spending slipped 1.2% in December.18 On the bright side, National Association of Realtors tallies put existing home sales for 2009 approximately 5% above levels of 2008.19
What
about mortgage rates? Did 30-year FRMs manage to average under 5%
for another month? The answer is yes. On January 28, Freddie Mac
tracked average interest rates on 30-year FRMs at 4.98%. Rates on
15-year FRMs were averaging 4.39%, rates on 5-year hybrid ARMs were
averaging 4.25% and rates on 1-year ARMs averaged 4.29%.20
Major
indexes.
January brought some chills to Wall Street, with the proposed
“Volcker rule” and concerns about financial pressures in China,
England and Greece affecting the three marquee indices.
%
Change
|
1-Month
|
2009
|
DJIA
|
-3.46
|
+18.82
|
NASDAQ
|
-5.37
|
+43.89
|
S&P
500
|
-3.70
|
+23.45
|
10YrTIPS
Real Yield
|
-12.16
|
-30.84
|
(Source: CNBC.com, ustreas.gov, 1/29/09)17,21
Indices
are unmanaged, do not incur fees or expenses, and cannot be invested
into directly. These returns do not include dividends.
February
outlook.
The Dow opened February with strong gains, as it did in January – it seemed those who had sold stocks toward the end of the month wanted to buy back in. Some feel a correction is coming after the fantastic gains of 2009; in late January, the S&P 500 broke it 80-day moving average for the first time since March.22 Bulls feel January represented a short-term blip on the radar screen in response to the headlines of the moment, and that investors will proceed cautiously but with confidence.
The Dow opened February with strong gains, as it did in January – it seemed those who had sold stocks toward the end of the month wanted to buy back in. Some feel a correction is coming after the fantastic gains of 2009; in late January, the S&P 500 broke it 80-day moving average for the first time since March.22 Bulls feel January represented a short-term blip on the radar screen in response to the headlines of the moment, and that investors will proceed cautiously but with confidence.
Let’s
take a look at February’s significant economic releases. We have
the January ISM service sector index (2/3), December factory orders
(2/4), January’s unemployment report (2/5), December wholesale
inventories (2/9), January retail sales and December business
inventories (2/11), the University of Michigan’s February consumer
sentiment index (2/12), January industrial production, housing
starts and building permits (2/17), January PPI and the Conference
Board’s leading indicators (2/18), January CPI (2/19), the
Case-Shiller home price index for December and February consumer
confidence as measured by the Conference Board (2/23), January new
home sales (2/24), January durable goods orders (2/25) and January
existing home sales (2/26). On March 1, we’ll learn about January
consumer spending.
Riddle
of the month.
Some months have 30 days, others 31. How many have 28?
Some months have 30 days, others 31. How many have 28?
Contact
my office or see next month’s Update for the answer.
Last
month’s riddle.
If an electric train is going south and the wind is blowing north, what direction is the smoke going?
If an electric train is going south and the wind is blowing north, what direction is the smoke going?
Last
month’s riddle answer
Nowhere - an electric train doesn’t emit smoke.
Nowhere - an electric train doesn’t emit smoke.
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Representative and Financial Advisor of Park Avenue Securities LLC
PAS.
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products/services and advisory services offered through PAS a
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Field
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(Guardian) New York, NY.
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Design Group is not an affiliate or subsidiary of PAS or Guardian.
PAS
is a member FINRA, SIPC.
These
views are those of Peter Montoya Inc., and not the presenting
Representative or the Representative’s Broker/Dealer, and should
not be construed as investment advice. The Dow Jones Industrial
Average is a price-weighted index of 30 actively traded blue-chip
stocks. The NASDAQ Composite Index is an unmanaged, market-weighted
index of all over-the-counter common stocks traded on the National
Association of Securities Dealers Automated Quotation System. The
Standard & Poor's 500 (S&P 500) is an unmanaged group of
securities considered to be representative of the stock market in
general. It is not possible to invest directly in an index. NYSE
Group, Inc. (NYSE:NYX) operates two securities exchanges: the New
York Stock Exchange (the "NYSE") and NYSE Arca (formerly
known as the Archipelago Exchange, or ArcaEx®,
and the Pacific Exchange). NYSE Group is a leading provider of
securities listing, trading and market data products and services.
The New York Mercantile Exchange, Inc. (NYMEX) is the world's largest
physical commodity futures exchange and the preeminent trading forum
for energy and precious metals, with trading conducted through two
divisions – the NYMEX Division, home to the energy, platinum, and
palladium markets, and the COMEX Division, on which all other metals
trade. The Caracas Stock Index consists of 15 companies, and its
regulatory body is the National Securities Commission of Venezuela.
The RTS Index (RTSI) is an index of 50 Russian stocks that trade on
the RTS Stock Exchange in Moscow. The Jakarta Stock Price Index is a
modified capitalization-weighted index of all stocks listed on the
regular board of the Indonesia Stock Exchange.
The CASE 30 (Cairo & Alexandria Stock Exchange: EGX30) is the
main stock exchange of Egypt. The
Hang Seng Index is a free-float capitalization-weighted index of
selection of companies from the Stock Exchange of Hong Kong. The
Shanghai Stock Exchange Composite Index is a capitalization-weighted
index that tracks the daily price performance of all A-shares and
B-shares listed on the Shanghai Stock Exchange. The BSE Sensex or
Bombay Stock Exchange Sensitive Index is a value-weighted index
composed of 30 stocks that started January 1, 1986. The S&P/ASX
All Ordinaries Index represents the 500 largest companies in the
Australian equities market. Nikkei 225 (Ticker: ^N225) is a stock
market index for the Tokyo Stock Exchange (TSE). The Nikkei average
is the most watched index of Asian stocks. The Dow Jones STOXX
(Price) Index is a broad based capitalization-weighted index of
European stocks. The DAX 30 is a Blue Chip stock market index
consisting of the 30 major German companies trading on the Frankfurt
Stock Exchange. The CAC-40 Index is a narrow-based, modified
capitalization-weighted index of 40 companies listed on the Paris
Bourse. The FTSE 100 Index is a share index of the 100 most highly
capitalized companies listed on the London Stock Exchange. The MSCI
World Index is a free-float weighted equity index that includes
developed world markets, and does not include emerging markets. The
MSCI Emerging Markets Index is a float-adjusted market capitalization
index consisting of indices in more than 25 emerging economies.
Neither the named Representative nor Broker/Dealer gives tax or legal
advice. All information is believed to be from reliable sources;
however we make no representation as to its completeness or accuracy.
All economic and performance data is historical and not indicative of
future results. The market indices discussed are unmanaged. Investors
cannot invest in unmanaged indices. The publisher is not engaged in
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services of a competent professional. Please consult your Financial
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economic instability and differences in accounting standards.
Citations.
1
washingtonpost.com/wp-dyn/content/article/2010/01/29/AR2010012901694.html?hpid=moreheadlines
[1/29/10]
2
money.cnn.com/2010/01/29/markets/markets_newyork/ [1/29/10]
3
online.wsj.com/article/SB10001424052748704107204575038941133108482.html?mod=WSJ_Commercial_sections_HomeAndGarden
[2/1/10]
4
curiouscapitalist.blogs.time.com/2010/01/21/a-question-about-the-volcker-steagall-act/?xid=rss-topstories
[1/21/10]
5
online.wsj.com/article/SB126295679510421517.html?mod=rss_Today%27s_Most_Popular
[1/8/10]
6
money.cnn.com/2010/01/15/news/economy/consumer_prices_december/
[1/15/10]
7
cnn.com/2010/POLITICS/01/31/health.care/ [12/4/09]
8
cfdtrading.com/category/asian-markets/page/2/ [1/13/10]
9
cfdtrading.com/category/asian-markets/
[1/26/10]
10
cfdtrading.com/category/asian-markets/ [2/1/10]
11
online.wsj.com/article/BT-CO-20100128-716068.html?mod=rss_Global_Stocks
[1/28/10]
12
cfdtrading.com/category/european-markets/ [1/28/10]
13
marketwatch.com/story/euro-zone-unemployment-at-11-year-high-2010-01-08?reflink=MW_news_stmp
[1/8/10]
14
online.wsj.com/mdc/public/page/2_3022-intlstkidx.html?mod=mdc_intl_pglnk
[1/29/10]
15
blogs.wsj.com/marketbeat/2010/01/29/data-points-asia-europe-193/
[1/29/10]
16
mscibarra.com/products/indices/stdindex/performance.html [1/29/10]
17
cnbc.com/id/35150197 [1/29/10]
18
seekingalpha.com/article/184822-an-expected-drop-for-u-s-home-sales
[1/27/10]
19
nytimes.com/2010/01/30/business/economy/30charts.html [1/29/10]
20
freddiemac.com/pmms/ [2/1/10]
21
ustreas.gov/offices/domestic-finance/debt-management/interest-rate/real_yield_historical.shtml
[1/29/10]
22
cnbc.com/id/35184183 [2/1/10]
