MONTHLY
QUOTE
“Praise
is comforting, but not valuable.” –
Peter Stone
MONTHLY
TIP
Each
year, you can give a current interest in cash or other assets of
up to a specified amount (currently $13,000) to anyone you want,
with no gift or income tax consequences. Doing this
systematically over a period of years could help you maximize
your legacy to your family and avoid unnecessary estate taxes –
let me show you the leverage (both economic and tax) this sort of
program can provide.
MONTHLY RIDDLE
What
do the words Potato, Voodoo, Grammar, Revive and Banana have in
common?
Last month’s riddle:
An auto dealership sold 150 cars in a special 6-day tent sale offer. Each day the dealership sold 6 more cars than the day before. How many cars were sold on the 6th day?
An auto dealership sold 150 cars in a special 6-day tent sale offer. Each day the dealership sold 6 more cars than the day before. How many cars were sold on the 6th day?
Last month’s answer:
40 cars. On the first day, the company sold x cars. On the second day, x + 6, on the third day, x + 12, on the fourth day, x + 18, on the fifth day, x + 24, and on the sixth day, x + 30. If you add all the days together you get the equation: x + (x + 6) + (x + 12) + (x + 18) + (x + 24) + (x + 30) = 150 cars sold. 6x + 90 = 150 and so x = 10. So, on day 6 (x + 30) = 40.
40 cars. On the first day, the company sold x cars. On the second day, x + 6, on the third day, x + 12, on the fourth day, x + 18, on the fifth day, x + 24, and on the sixth day, x + 30. If you add all the days together you get the equation: x + (x + 6) + (x + 12) + (x + 18) + (x + 24) + (x + 30) = 150 cars sold. 6x + 90 = 150 and so x = 10. So, on day 6 (x + 30) = 40.
THE
MONTH IN BRIEF
July is historically a good month for stocks, and July 2010 was no exception. Bulls took back Wall Street, encouraged by earnings reports (as of July 31, about two-thirds of companies in the S&P 500 had published earnings with about 75% beating expectations). The DJIA enjoyed its best month in a year.1 Financial reforms were passed on Capitol Hill, and President Obama’s signature made them law. Rates on conventional mortgages hit lows unseen since the 1950s.The spring correction became a memory, even as analysts worried about a double dip and a stalling recovery.
July is historically a good month for stocks, and July 2010 was no exception. Bulls took back Wall Street, encouraged by earnings reports (as of July 31, about two-thirds of companies in the S&P 500 had published earnings with about 75% beating expectations). The DJIA enjoyed its best month in a year.1 Financial reforms were passed on Capitol Hill, and President Obama’s signature made them law. Rates on conventional mortgages hit lows unseen since the 1950s.The spring correction became a memory, even as analysts worried about a double dip and a stalling recovery.
DOMESTIC
ECONOMIC HEALTH
A poll of “Main Street” revealed an American consumer who was markedly less optimistic. The final July University of Michigan/Reuters poll came in at 67.8; compare that to 76.0 for June. (That 67.8 was also a nine-month low.) The Conference Board poll also went south, declining from a 54.3 for June to a 50.4 in July. One minor morale boost happened early in July when June’s unemployment rate was announced by the Labor Department: 9.5%, down 0.2% from June and better than the 9.8% Wall Street analysts were expecting.2,3
A poll of “Main Street” revealed an American consumer who was markedly less optimistic. The final July University of Michigan/Reuters poll came in at 67.8; compare that to 76.0 for June. (That 67.8 was also a nine-month low.) The Conference Board poll also went south, declining from a 54.3 for June to a 50.4 in July. One minor morale boost happened early in July when June’s unemployment rate was announced by the Labor Department: 9.5%, down 0.2% from June and better than the 9.8% Wall Street analysts were expecting.2,3
The
manufacturing and service sectors were growing, just not booming
– at least according to the latest readings from the respected
ISM indexes. The non-manufacturing (service sector) index came to
53.8 for July after three straight months at 55.4, and the
manufacturing index went from a 56.2 for June to a 55.5 in July
(but that was much better than the 54.1 mark that analysts had
predicted).4,5
Other indicators were less encouraging. We learned factory orders
had fallen 1.4% for May, while durable goods orders had dropped
by 1.0% for June (economists polled by MarketWatch had forecast a
1.1% advance). The Commerce Department also estimated retail
sales down 0.5% for June.6,7,8
Analysts
had new reason to discuss deflation. For the first time since the
presumed depths of the recession (October-December 2008), the
Consumer Price Index declined for a third straight month. In
June, it was down 0.1%, although the Labor Department did
estimate core CPI at +0.2% for June.9
In
other news, the 2Q GDP number came out: +2.4%. No one was too
excited about it. The Dodd-Frank financial reform bill was signed
into law (the “no more bailouts” bill). Besides trying to
prevent a repeat of TARP, it green-lighted the creation of a new
watchdog agency to help protect and educate consumers in the
financial arena, opened up derivatives trading to the public eye,
and set the FDIC insurance limit permanently at $250,000.10,11
With other signatures, President Obama extended long-term jobless
benefits for another six months and allowed homebuyers another
three months to claim federal tax credits of up to $8,000.12,13
GLOBAL
ECONOMIC HEALTH
The fire was almost out in the European Union – or maybe it was just smoldering. The EU and the International Monetary Fund had put the debt crisis in Greece on the back burner with a 110 billion euro bailout (plus about $1 trillion worth of rescue packages for other EU nations with scarily high debt levels). The EU also conducted a stress test of 91 banks – all but a handful passed the test, which many economists thought was too easy. At the top of August, the euro was at a high unseen since March: $1.3261.14
The fire was almost out in the European Union – or maybe it was just smoldering. The EU and the International Monetary Fund had put the debt crisis in Greece on the back burner with a 110 billion euro bailout (plus about $1 trillion worth of rescue packages for other EU nations with scarily high debt levels). The EU also conducted a stress test of 91 banks – all but a handful passed the test, which many economists thought was too easy. At the top of August, the euro was at a high unseen since March: $1.3261.14
The
whole world watches Chinese manufacturing closely, and China’s
official PMI index came in at 51.2 for July – a little
disappointing, but easing concerns that its economy might be
overheating. (However, a private sector PMI from that nation, the
HSBC China PMI, went to 49.4 in July, indicating a bit of sector
contraction plus the fourth month of decline in a row.) The pace
of manufacturing declined across Asian economies in July,
although the PMI in India improved for the sixteenth consecutive
month. The EU’s manufacturing index also improved in July,
going from 55.6 in May to 56.7 with Germany driving sector
growth.5,15
WORLD
MARKETS
Indices around the world advanced dramatically last month. The MSCI World and Emerging Markets indices respectively gained 8.02% and 8.00%. Other big gains were recorded by Brazil’s Bovespa (+8.84%), Argentina's MERVAL (+8.70%), the RTSI in Russia (+9.16%), the Shanghai Composite (+7.24%) and even the FTSE in Great Britain (+8.05%). India’s Sensex (+2.43%), China's Hang Seng (+ 3.41%), Germany's DAX (+3.37%) and France's CAC 40 (+4.77%) all had nice months. The Nikkei 225 rose 0.51%. If you looked long and hard, you could find a down month – such as the July performance of the stock indices of Venezuela (-1.16%) and Vietnam (-1.35%). Year-to-date at the end of July, the global forerunners were Chile’s SSE (+20.79%) and the Jakarta Composite in Indonesia (+20.03%). In contrast, the Nikkei 225 (-10.58%) and the Shanghai Composite (-21.52%) represented the rear of the pack.16,17
Indices around the world advanced dramatically last month. The MSCI World and Emerging Markets indices respectively gained 8.02% and 8.00%. Other big gains were recorded by Brazil’s Bovespa (+8.84%), Argentina's MERVAL (+8.70%), the RTSI in Russia (+9.16%), the Shanghai Composite (+7.24%) and even the FTSE in Great Britain (+8.05%). India’s Sensex (+2.43%), China's Hang Seng (+ 3.41%), Germany's DAX (+3.37%) and France's CAC 40 (+4.77%) all had nice months. The Nikkei 225 rose 0.51%. If you looked long and hard, you could find a down month – such as the July performance of the stock indices of Venezuela (-1.16%) and Vietnam (-1.35%). Year-to-date at the end of July, the global forerunners were Chile’s SSE (+20.79%) and the Jakarta Composite in Indonesia (+20.03%). In contrast, the Nikkei 225 (-10.58%) and the Shanghai Composite (-21.52%) represented the rear of the pack.16,17
COMMODITIES
MARKETS
Would you believe gold had the poorest month of any headline commodity in July? It was -5.15% for the month, and silver also lost some ground, going -3.58%. However, other metals did much better. Copper rebounded in July (+12.79%) and palladium was almost as hot (+12.51%). Platinum pulled off a 3.00% July gain. Among energy futures, oil was up 4.39% for July, natural gas gained 6.65%, and gasoline and heating oil futures respectively rose 2.24% and 1.41%. The big mover was an unglamorous but hugely important crop: wheat. Wheat futures soared 37.74% in July and sugar didn’t do too badly either, jumping 21.86%. Other crops had strong Julys: milk went +10.67%, oats went +12.25%, and corn went +17.90%.17
Would you believe gold had the poorest month of any headline commodity in July? It was -5.15% for the month, and silver also lost some ground, going -3.58%. However, other metals did much better. Copper rebounded in July (+12.79%) and palladium was almost as hot (+12.51%). Platinum pulled off a 3.00% July gain. Among energy futures, oil was up 4.39% for July, natural gas gained 6.65%, and gasoline and heating oil futures respectively rose 2.24% and 1.41%. The big mover was an unglamorous but hugely important crop: wheat. Wheat futures soared 37.74% in July and sugar didn’t do too badly either, jumping 21.86%. Other crops had strong Julys: milk went +10.67%, oats went +12.25%, and corn went +17.90%.17
REAL
ESTATE
Home sales continued to seesaw, affected by the perceived expiration of federal tax breaks. In June, existing home purchases dropped by 5.1% from May levels (an effect from the closing of the deadline for federal homebuying credits). NAR did say they were up 9.8% from June 2009. New home sales rebounded from a startlingly bad May – they rose 23.6% for June. The latest Case-Shiller index (May 2010 data) had new home prices in 20 major cities 1.3% above year-age levels.18,19,20
Home sales continued to seesaw, affected by the perceived expiration of federal tax breaks. In June, existing home purchases dropped by 5.1% from May levels (an effect from the closing of the deadline for federal homebuying credits). NAR did say they were up 9.8% from June 2009. New home sales rebounded from a startlingly bad May – they rose 23.6% for June. The latest Case-Shiller index (May 2010 data) had new home prices in 20 major cities 1.3% above year-age levels.18,19,20
Could
mortgage rates get any lower? Yes. It seemed every week we
reached another all-time low for the national average on the
30-year FRM. In Freddie Mac’s July 28 Primary Mortgage Market
Survey, rates on 30-year conventional home loans were averaging
4.54% and rates on 15-year FRMs were averaging 4.00%.21
LOOKING
BACK … LOOKING FORWARD
The S&P 500 and the Dow had their best months in a year in July, and the NASDAQ logged its first monthly gain since April. At the end of July, the DJIA was back in the black.1
The S&P 500 and the Dow had their best months in a year in July, and the NASDAQ logged its first monthly gain since April. At the end of July, the DJIA was back in the black.1
%
CHANGE
|
Y-T-D
|
1-MO
CHG
|
1-YR
CHG
|
10-YR
AVG
|
DJIA
|
+0.36
|
+7.08
|
+14.33
|
-0.05
|
NASDAQ
|
-0.64
|
+6.90
|
+13.63
|
-4.01
|
S&P
500
|
-1.21
|
+6.88
|
+11.64
|
-2.30
|
REAL
YIELD
|
7/30
RATE
|
1
YR AGO
|
5
YRS AGO
|
10
YRS AGO
|
10
YR TIPS
|
1.14%
|
1.78%
|
1.92%
|
4.03%
|
Source:
cnbc.com, bigcharts.com, ustreas.gov, bls.gov - 7/30/101,22,23,24
Indices
are unmanaged, do not incur fees or expenses, and cannot be
invested into directly.
These
returns do not include dividends.
In
August, we have the widely held perception that the recovery is
crawling along. We now have news from the Commerce Department
that both consumer spending and consumer income were flat for
July, adding fuel to that fire.25
Again and again, the stock market has recovered from downturns
faster than the economy. Another stimulus is probably not in the
cards. So we are in sit-and-wait mode: frustrating perhaps, but
the Great Recession was one of the severest in memory. Talk of a
double-dip has begun to fade a bit, however, and stocks are
currently pretty cheap. At the end of June, who would have
guessed July would have been so fantastic? Hopefully, we will see
stocks rise a bit, if not in late summer then perhaps after
election time.
Finally,
here are the important economic releases for the rest of August.
We have the ISM services index for July (8/4), the July jobless
report (8/6), an FOMC rate decision and June wholesale
inventories (8/10), July CPI and retail sales, June business
inventories and the preliminary August University of Michigan
consumer sentiment survey (8/13), July PPI, housing starts and
building permits and June factory output (8/17), July new home
and existing home sales (8/24), July durable goods orders (8/25),
July personal income and personal spending (8/30), and the June
Case-Shiller home price index and the Conference Board’s August
barometer of consumer confidence (8/31).
*Registered
Representative and Financial Advisor of Park Avenue Securities
LLC PAS.
Securities
products/services and advisory services offered through PAS a
registered Broker-dealer and investment advisor.
Field
Representative, The Guardian Life Insurance Company of America
(Guardian) New York, NY.
PAS
is an indirect wholly owned subsidiary of Guardian.
Wealth
Design Group is not an affiliate or subsidiary of PAS or
Guardian.
PAS
is a member FINRA, SIPC.
This
material was prepared by Peter Montoya Inc., and does not
necessarily represent the views of the presenting Representative
or the Representative’s Broker/Dealer. This information 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 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. The Bovespa, the benchmark stock index of
Brazil, is the second largest in the Americas, and the leading
exchange in Latin America. The MERVAL Index is the most important
index of the Buenos Aires Stock Exchange. The RTS Index (RTSI) is
an index of 50 Russian stocks that trade on the RTS Stock
Exchange in Moscow. The Shanghai Composite Index is an index of
all stocks (A shares and B shares) that are traded at the
Shanghai Stock Exchange. The FTSE 100 Index is a share index of
the 100 most highly capitalized companies listed on the London
Stock Exchange. BSE Sensex or Bombay Stock Exchange Sensitivity
Index is a value-weighted index composed of 30 stocks that
started January 1, 1986. The Hang Seng Index is a free-float
capitalization-weighted index of selection of companies from the
Stock Exchange of Hong Kong. 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 Nikkei 225 is the
benchmark stock market index for the Tokyo Stock Exchange (TSE).
The Caracas Stock Exchange or Bolsa de Valores de Caracas (BVC)
is a stock exchange located in Caracas, Venezuela. Ho Chi Minh
City Stock Exchange (HSX), located in Ho Chi Minh City, is the
largest stock exchange in Vietnam. The Santiago Stock Exchange
(SSE), founded on November 27, 1893, is Chile's dominant stock
exchange. The JSX Composite is an index of all stocks that trade
on the Indonesia Stock Exchange. 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. Market
indices discussed are unmanaged. Investors cannot invest in
unmanaged indices. The publisher is not engaged in rendering
legal, accounting or other professional services. If other expert
assistance is needed, the reader is advised to engage the
services of a competent professional. Please consult your
Financial Advisor for further information. Additional risks are
associated with international investing, such as currency
fluctuations, political and economic instability and differences
in accounting standards. www.montoyaregistry.com
www.petermontoya.com
Citations.
1
- cnbc.com/id/38494013 [7/30/10]
2
-
thestreet.com/story/10822616/1/consumer-sentiment-hits-9-month-low.html
[7/30/10]
3
–
forbes.com/2010/07/02/labor-markets-bumpy-road-markets-economy-jobs-unemployment.html
[7/2/10]
4
–
marketwatch.com/story/us-service-sector-weakens-a-bit-in-june-2010-07-06
[7/6/10]
5
– foxbusiness.com/markets/2010/08/02/rallies-europe-asia-gains/
[8/2/10]
6
–
dailyfinance.com/story/May-factory-orders-fall-economic-slowdown/19539948/
[7/2/10]
7
-
marketwatch.com/story/surprise-drop-in-june-us-durable-goods-orders-2010-07-28?dist=beforebell
[7/28/10]
8
-
online.wsj.com/article/SB10001424052748703792704575366743747967242.html
[7/15/10]
9
- reuters.com/article/idUSTRE65M2WK20100716 [7/16/10]
10
-
usatoday.com/money/industries/banking/2010-07-22-regs22_ST_N.htm
[7/22/10]
11
-
latimes.com/business/la-fi-financial-reform-20100716,0,2303004.story
[7/16/10]
12
-
washingtonpost.com/wp-dyn/content/article/2010/07/22/AR2010072203825.html
[7/22/10]
13
–
marketwatch.com/story/home-buyers-win-more-time-to-claim-tax-credit-2010-07-02
[7/2/10]
14
-
google.com/hostednews/ap/article/ALeqM5jBXhqoTrl7rt2PecP1DmklW1Pi1gD9HC02E80
[8/3/10]
15
-
online.wsj.com/article/SB10001424052748704271804575405091292123812.html
[8/3/10]
16
-
mscibarra.com/products/indices/international_equity_indices/gimi/stdindex/performance.html
[7/30/10]
17-
cnbc.com/id/38494013/page/2 [7/30/10]
18
- realtor.org/press_room/news_releases/2010/07/ehs_june_above
[7/22/10]
19
- reuters.com/article/idUSTRE65M2WK20100716 [7/26/10]
20
-
articles.latimes.com/2010/jul/28/business/la-fi-home-prices-20100728
[7/28/10]
21
- freddiemac.com/pmms/release.html?week=30&year=2010
[7/29/10]
22
-
bigcharts.marketwatch.com/historical/default.asp?detect=1&symbol=DJIA&close_date=7%2F31%2F00&x=0&y=0
[7/30/10]
22
-
bigcharts.marketwatch.com/historical/default.asp?detect=1&symbol=COMP&close_date=7%2F31%2F00&x=0&y=0
[7/30/10]
22
-
bigcharts.marketwatch.com/historical/default.asp?detect=1&symbol=SPX&close_date=7%2F31%2F00&x=0&y=0
[7/30/10]
23
-
ustreas.gov/offices/domestic-finance/debt-management/interest-rate/real_yield.shtml
[7/30/10]
23
-
ustreas.gov/offices/domestic-finance/debt-management/interest-rate/real_yield_historical.shtml
[7/30/10]
24
-
treasurydirect.gov/instit/annceresult/press/preanre/2000/ofm11200.pdf
[7/12/00]
25
- online.wsj.com/article/BT-CO-20100803-708949.html [8/3/10]
