MONTHLY QUOTE
“Forgiveness
is not an occasional act; it is a permanent attitude.” –
Rev. Martin Luther King
MONTHLY TIP
Think
through what bad things could happen “tomorrow”, and manage
those risks accordingly. In a nutshell, that’s what planning is
all about.
MONTHLY
RIDDLE
1987,
1993, 1997, 1999 … these are not only years on the calendar,
but also prime numbers. After 1999, what was the next year that
was also a prime number?
Last month’s riddle:
You
walk into a restaurant, and the floor is covered with a kind of
wood – but the wood is neither straight nor smooth. What kind
of wood is all across the floor?
Last month’s answer:Sawdust.
THE
MONTH IN BRIEF
As a call for democracy spread across the Middle East in February, U.S. stocks posted a nice advance, responding more to earnings reports and domestic economic indicators than headlines from abroad. Historically, this February was a pleasant anomaly; the Dow, NASDAQ and S&P 500 all registered monthly gains of 2.8% or better. In real estate, home sales data painted a mixed picture. Consumer confidence in America rose remarkably … but not as remarkably as the prices of oil, gold and silver.1
As a call for democracy spread across the Middle East in February, U.S. stocks posted a nice advance, responding more to earnings reports and domestic economic indicators than headlines from abroad. Historically, this February was a pleasant anomaly; the Dow, NASDAQ and S&P 500 all registered monthly gains of 2.8% or better. In real estate, home sales data painted a mixed picture. Consumer confidence in America rose remarkably … but not as remarkably as the prices of oil, gold and silver.1
DOMESTIC
ECONOMIC HEALTH
Americans grew more upbeat about the economy last month. One possible factor: the payroll tax holiday was offering them more take-home pay. The Conference Board’s February survey came in at 70.4, a big leap up from January’s 64.8 mark. The poll hadn’t seen a number like that in three years. February’s final University of Michigan consumer sentiment survey came in at 77.5, a 3.3% gain – and similarly, the best number in 37 months. Personal incomes had grown by a whopping 1.0% in January, according to the Commerce Department; however, personal spending only grew by 0.2%, the smallest monthly increase seen in the last few months. Yet there was a 0.3% rise in retail sales, which were 7.8% better than they had been in January 2010.2,3,4,5
Americans grew more upbeat about the economy last month. One possible factor: the payroll tax holiday was offering them more take-home pay. The Conference Board’s February survey came in at 70.4, a big leap up from January’s 64.8 mark. The poll hadn’t seen a number like that in three years. February’s final University of Michigan consumer sentiment survey came in at 77.5, a 3.3% gain – and similarly, the best number in 37 months. Personal incomes had grown by a whopping 1.0% in January, according to the Commerce Department; however, personal spending only grew by 0.2%, the smallest monthly increase seen in the last few months. Yet there was a 0.3% rise in retail sales, which were 7.8% better than they had been in January 2010.2,3,4,5
The
January unemployment report came out, and it mirrored the
December report: the jobless rate dipped another 0.4%, but
largely as a result of jobseekers dropping off the unemployment
rolls. While the jobless rate was down to 9.0% in January,
non-farm payrolls only grew by 36,000 positions. The brutal
weather may have affected the numbers.6
We
learned that inflation increased by 0.4% for the second month in
a row in January, with year-over-year inflation at 1.6%. Producer
prices rose by 0.8% in January – that was the seventh
consecutive monthly increase and the fourth straight monthly
increase of 0.6% or more.7,8
Looking
at the manufacturing and service sector, the twin Institute for
Supply Management indexes continued to reflect expansion. ISM’s
February service sector index came in at 59.7 (a 0.3% increase
over January) while the February manufacturing index went to 61.4
from the previous month’s 60.8. The latest data showed durable
goods orders rising 2.7% in January … but minus aircraft
orders, they actually retreated 3.6%.9,10,11
GLOBAL
ECONOMIC HEALTH
As protests demanding more democratic governments erupted in Egypt, Bahrain, Yemen, Tunisia, Algeria, Libya, Morocco, Iran and other nations in North Africa and the Middle East, fear began to spread about possible interruptions to oil and commodity shipments. These fears sent Brent and NYMEX crude oil prices over $100 per barrel last month. Would the economic effects of the unrest have the potential to dampen the global recovery? Would Saudi Arabia see the level of unrest seen in Egypt? The stock and commodity markets are still watching and waiting; global markets outside the Middle East held up reasonably well last month.
As protests demanding more democratic governments erupted in Egypt, Bahrain, Yemen, Tunisia, Algeria, Libya, Morocco, Iran and other nations in North Africa and the Middle East, fear began to spread about possible interruptions to oil and commodity shipments. These fears sent Brent and NYMEX crude oil prices over $100 per barrel last month. Would the economic effects of the unrest have the potential to dampen the global recovery? Would Saudi Arabia see the level of unrest seen in Egypt? The stock and commodity markets are still watching and waiting; global markets outside the Middle East held up reasonably well last month.
The
difference between haves and have-nots has become glaring in the
European Union, and few statistics demonstrate that better than
unemployment figures. In February, Germany’s adjusted jobless
rate fell to 7.3% - the eighteenth decline in the last 19 months.
Compare that to the jobless rates in France (9.7%), Ireland
(13.4%, having tripled since 2005), Greece (13.9%) and Spain
(20.3%). The European Commission thinks Germany’s economy will
grow 2.4% in 2011; the German government estimates 2.3% growth.
Inflation pressures do seem to be building: producer prices in
the Eurozone shot up by 1.5% in January, the biggest monthly
surge since 1982; producer prices have gone up 6.1% across the
last 12 months of data. The European Central Bank did keep its
benchmark interest rate at 1.0% last month.12,13,14
Turning
to Asia, the news arrived that China’s manufacturing sector had
slowed to a pace not seen in six months. In contrast, India’s
manufacturing sector accelerated to a pace unseen in three
months; its overall economy had grown by 8.2% in 4Q 2010, and
that represented a slowdown. As for the largest economy in
Southeast Asia, Indonesia’s annualized inflation rate heated up
to a 22-month high of 7.1% in February.15,16,17
WORLD
MARKETS
Many European indices mimicked the behavior of the Dow, NASDAQ and S&P 500 and posted gains last month. In Asia, the going was a bit tougher. Looking at data from Morningstar calculated in U.S. dollar terms, Germany’s DAX rose 0.52%, Japan’s Nikkei 225 advanced 4.67%, Australia’s All Ordinaries gained 1.41%, and Canada’s TSX Composite and China’s Shanghai Composite were both up 4.31%. Indices across the Middle East had a rough month, but they weren’t alone: Pakistan’s Karachi Stock Exchange fell 8.7% in February for its poorest month in 20 years. Also heading south last month: India’s Sensex (-2.75%) and Hong Kong’s Hang Seng (-0.37%). In YTD terms, the Egyptian EGX 30 was the world’s worst performer at -20.9%. Other notable YTD downturns after two months: the Sensex (-13.1%) and the PSE Composite in the Philippines (-10.3%). The hottest indices after two months of 2011 included the Russian RTS (+11.3%), Spain’s IBEX (+10.1%), the FTSE MIB in Italy (+11.4%) and the French CAC 40 (+8.0%).18,19,20
Many European indices mimicked the behavior of the Dow, NASDAQ and S&P 500 and posted gains last month. In Asia, the going was a bit tougher. Looking at data from Morningstar calculated in U.S. dollar terms, Germany’s DAX rose 0.52%, Japan’s Nikkei 225 advanced 4.67%, Australia’s All Ordinaries gained 1.41%, and Canada’s TSX Composite and China’s Shanghai Composite were both up 4.31%. Indices across the Middle East had a rough month, but they weren’t alone: Pakistan’s Karachi Stock Exchange fell 8.7% in February for its poorest month in 20 years. Also heading south last month: India’s Sensex (-2.75%) and Hong Kong’s Hang Seng (-0.37%). In YTD terms, the Egyptian EGX 30 was the world’s worst performer at -20.9%. Other notable YTD downturns after two months: the Sensex (-13.1%) and the PSE Composite in the Philippines (-10.3%). The hottest indices after two months of 2011 included the Russian RTS (+11.3%), Spain’s IBEX (+10.1%), the FTSE MIB in Italy (+11.4%) and the French CAC 40 (+8.0%).18,19,20
The
MSCI World Index (-0.80%) and MSCI Emerging Markets Index
(-1.01%) had subpar months. In YTD performance, the World was at
+4.75% after February while the Emerging Markets was at -3.79%.21
COMMODITIES
MARKETS
The run toward hard assets was dramatic and swift. Gold pushed toward its all-time high as prices climbed $79.50 across the month, silver pushed toward a 30-year peak and oil prices briefly topped $103. The performances of these three commodities in February were as follows: gold, +5.7% to $1,409.30 an ounce; silver, +20.0% to $30.80 an ounce; oil, +5.2% to $96.97 a barrel. Cotton led crops in February, ascending 14.0% to a new record of $1.91 a pound. The U.S. Dollar Index lost 1.13% for the month and settled at settled at 76.87 on February 28.22,23,24,25
The run toward hard assets was dramatic and swift. Gold pushed toward its all-time high as prices climbed $79.50 across the month, silver pushed toward a 30-year peak and oil prices briefly topped $103. The performances of these three commodities in February were as follows: gold, +5.7% to $1,409.30 an ounce; silver, +20.0% to $30.80 an ounce; oil, +5.2% to $96.97 a barrel. Cotton led crops in February, ascending 14.0% to a new record of $1.91 a pound. The U.S. Dollar Index lost 1.13% for the month and settled at settled at 76.87 on February 28.22,23,24,25
REAL
ESTATE
Even with the weather, existing home sales were up 2.7% for January. The increase was not matched in new home sales – they slid by 12.6% in that month. Existing home prices slipped 1.0% in December, according to the latest available Case-Shiller home price index data. How about January’s pending home sales? Well, they were down – down 2.8%, and down for the second straight month.26,27,28
Even with the weather, existing home sales were up 2.7% for January. The increase was not matched in new home sales – they slid by 12.6% in that month. Existing home prices slipped 1.0% in December, according to the latest available Case-Shiller home price index data. How about January’s pending home sales? Well, they were down – down 2.8%, and down for the second straight month.26,27,28
Did
mortgage rates rise last month? Yes. Freddie Mac calculated a
0.15% rise in average interest rates on 30-year FRMs (4.95% at
the end of February), a 0.13% increase in the average rate for
the 15-year FRMs at (4.22%), a tenth-of-a-percentage point rise
in the average rate on the 5-year ARM (3.80%), and even the
average rates for 1-year ARMs ticked up 0.14% to 3.40%.29
Oh
yes, regarding Freddie Mac and Fannie Mae … the federal
government reached a decision about the two GSEs last month. It
intends to wind them down over the next several years. So if
there is no Freddie Mac or Fannie Mae, what degree of mortgage
financing will the government offer? The Obama administration
presented three options to Congress in February, with the idea of
generating legislation by 2014. One option has the government
leaving the mortgage market apart from the VHA, FHA and other
existing agencies. Two other options would create “reinsurance”
programs. A limited version would backstop private mortgages only
in economic or real estate downturns; another would provide
protection for mortgage investments already guaranteed by private
insurers. All three options open the door for higher mortgage
costs later in this decade.30
LOOKING
BACK…LOOKING FORWARD
Last month, the DJIA recorded its finest February since 1998. In fact, the Dow gained a terrific 11.09% across December-February.1
Last month, the DJIA recorded its finest February since 1998. In fact, the Dow gained a terrific 11.09% across December-February.1
| % CHANGE |
Y-T-D
|
1-MO
CHG
|
1-YR
CHG
|
10-YR
AVG
|
DJIA
|
+5.60
|
+2.81
|
+17.52
|
+1.65
|
NASDAQ
|
+4.88
|
+3.04
|
+22.37
|
+2.93
|
S&P
500
|
+5.53
|
+3.20
|
+18.96
|
+0.70
|
| REAL YIELD |
2/28
RATE
|
1
YR AGO
|
5
YRS AGO
|
10
YRS AGO
|
10
YR TIPS
|
1.03%
|
1.46%
|
2.02%
|
3.52%
|
Sources:
online.wsj.com, bigcharts.com, treasury.gov, treasurydirect.gov -
2/28/111,31,32,33
Indices
are unmanaged, do not incur fees or expenses, and cannot be
invested into directly.
These
returns do not include dividends.
So
far, the U.S. stock market has sauntered by most of the danger
signs coming out of other areas of the world. Can stocks keep
this up? Are we due for a correction? Could this current bull run
actually turn into the next great secular bull market? These were
the questions analysts entertained last month. We can turn to
history for some short-term encouragement: the DJIA has advanced
in both January and February in 26 of the years since 1940, and
in 25 of those years the Dow has finished up for the year (1974
being the lone exception). While there is much room for
improvement with regard to our economy (the jobless rate, the
residential and commercial real estate sectors, GDP), we are
having a much easier time of it than some other regions around
the world, and our consumers and employers seem reasonably
optimistic.34
UPCOMING
ECONOMIC RELEASES
Here are some of the headlines in the making for the rest of March. The first trading week of the month ends on a day when we receive the February jobs report and news about January’s factory orders (3/4). After that, we have January wholesale inventories (3/9), the initial University of Michigan March consumer sentiment poll plus February retail sales and January business inventories (3/11), an FOMC rate decision (3/15), the February PPI and February building permits and housing starts (3/16), February’s CPI and industrial production figures and the Conference Board’s LEI index (3/17), February existing home sales (3/21), February new home sales (3/23), February durable goods orders and the final March consumer sentiment survey from the University of Michigan (3/25), February consumer spending and January pending home sales (3/28), the Conference Board’s March index of consumer confidence and the January edition of the Case-Shiller home price index (3/29), and finally a report on February’s factory orders (3/31).
Here are some of the headlines in the making for the rest of March. The first trading week of the month ends on a day when we receive the February jobs report and news about January’s factory orders (3/4). After that, we have January wholesale inventories (3/9), the initial University of Michigan March consumer sentiment poll plus February retail sales and January business inventories (3/11), an FOMC rate decision (3/15), the February PPI and February building permits and housing starts (3/16), February’s CPI and industrial production figures and the Conference Board’s LEI index (3/17), February existing home sales (3/21), February new home sales (3/23), February durable goods orders and the final March consumer sentiment survey from the University of Michigan (3/25), February consumer spending and January pending home sales (3/28), the Conference Board’s March index of consumer confidence and the January edition of the Case-Shiller home price index (3/29), and finally a report on February’s factory orders (3/31).
This
material was prepared by Peter Montoya Inc., and does not
necessarily represent the views of the presenting party, nor
their affiliates. This information should not be construed as
investment, tax or legal 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 DAX 30 is a Blue Chip stock market
index consisting of the 30 major German companies trading on the
Frankfurt Stock Exchange. 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 S&P/ASX
All Ordinaries Index represents the 500 largest companies in the
Australian equities market. The S&P/TSX Composite Index is an
index of the stock (equity) prices of the largest companies on
the Toronto Stock Exchange (TSX) as measured by market
capitalization. The SSE Composite Index is an index of all stocks
(A shares and B shares) that are traded at the Shanghai Stock
Exchange. The Karachi Stock Exchange or KSE is a stock exchange
located in Karachi, Sindh, Pakistan. Founded in 1947, it is
Pakistan's largest and oldest stock exchange, with many Pakistani
as well as overseas listings. 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 EGX 30 Index is a free-float
capitalisation weighted index of the 30 most highly capitalized
and liquid stocks traded on the Egyptian Exchange. The PSE
Composite Index, commonly known previously as the PHISIX and
presently as the PSEi, is the main stock market index of the
Philippine Stock Exchange. The RTS Index (RTSI) is an index of 50
Russian stocks that trade on the RTS Stock Exchange in Moscow.
The IBEX 35 is the benchmark stock market index of the Bolsa de
Madrid, Spain's principal stock exchange.
The
FTSE MIB is the primary benchmark Index for the Italian equity
markets. Capturing approximately 80% of the domestic market
capitalization, the Index is comprised of highly liquid, leading
companies across ICB sectors in Italy. The CAC-40 Index is a
narrow-based, modified capitalization-weighted index of 40
companies listed on the Paris Bourse. 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 US
Dollar Index measures the performance of the U.S. dollar against
a basket of six currencies. Additional risks are associated with
international investing, such as currency fluctuations, political
and economic instability and differences in accounting standards.
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
assistance is needed, the reader is advised to engage the
services of a competent professional.
Citations.
1
- blogs.wsj.com/marketbeat/2011/02/28/data-points-u-s-markets-3/
[2/28/11]
2
-
blogs.barrons.com/stockstowatchtoday/2011/02/22/consumer-confidence-up-home-prices-down/
[2/22/11]
3
-
marketwatch.com/story/consumer-sentiment-rises-in-february-2011-02-25
[2/25/11]
4
- bea.gov/newsreleases/national/pi/2011/pi0111.htm [2/28/11]
5
- census.gov/retail/marts/www/marts_current.pdf [2/15/11]
6
-
businessweek.com/news/2011-02-04/u-s-economy-jobless-rate-declines-payrolls-slow.html
[2/4/11]
7
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8
-bls.gov/news.release/ppi.nr0.htm
[2/16/11]
9
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10
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11
-
reuters.com/article/2011/02/24/us-usa-economy-instant-idUSTRE71N38R20110224
[1/27/11]
12
-
bloomberg.com/news/2011-03-01/germany-s-unemployment-shrinks-three-times-as-fast-as-economists-estimated.html
[3/1/11]
13
-
online.wsj.com/article/SB10001424052748704506004576173860548525204.html
[3/1/11]
14
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online.wsj.com/article/SB10001424052748703559604576175901792034500.html
[2/2/11]
15
-
businessweek.com/news/2011-03-01/china-s-manufacturing-grows-at-slowest-pace-in-six-months.html
[3/1/11]
16
-
marketwatch.com/story/india-october-december-gdp-growth-slows-to-82-2011-02-28
[2/28/11]
17
-
reuters.com/article/2011/03/01/indonesia-economy-inflation-idUSJKB00435020110301
[3/1/11]
18
– news.morningstar.com/index/indexReturn.html [3/1/11]
19
-
thenews.com.pk/TodaysPrintDetail.aspx?ID=33756&Cat=3&dt=3/2/2011/
[3/2/11]
20
-
online.wsj.com/mdc/public/page/2_3022-intlstkidx.html?mod=topnav_2_3004
[2/28/11]
21
-
mscibarra.com/products/indices/international_equity_indices/gimi/stdindex/performance.html
[2/28/11]
22-
blogs.wsj.com/marketbeat/2011/02/28/data-points-energy-metals-465/
[2/28/11]
23
-
blogs.wsj.com/marketbeat/2011/02/28/gold-had-a-strong-month-but-silver-did-even-better/
[2/28/11]
24
–
businessweek.com/news/2011-03-01/commodities-advance-in-longest-winning-streak-since-2004.html
[3/1/11]
25
–
online.wsj.com/mdc/public/npage/2_3051.html?mod=mdc_curr_dtabnk&symb=DXY
[3/3/11]
26
-
blogs.barrons.com/stockstowatchtoday/2011/02/22/consumer-confidence-up-home-prices-down/
[2/22/11]
27
-
marketwatch.com/story/new-home-sales-fall-126-in-january-2011-02-24
[2/24/11]
28
-
msnbc.msn.com/id/41826147/ns/business-real_estate/
[2/2/11]
29
- freddiemac.com/pmms/ [3/2/11]
30
- cnbc.com/id/41529671 [2/11/11]
31
-
bigcharts.marketwatch.com/historical/default.asp?detect=1&symbol=DJIA&close_date=2%3F1%2F10&x=0&y=0
[2/28/11]
31
-
bigcharts.marketwatch.com/historical/default.asp?detect=1&symbol=COMP&close_date=2%3F1%2F10&x=0&y=0
[2/28/11]
31
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bigcharts.marketwatch.com/historical/default.asp?detect=1&symbol=SPX&close_date=1%3F1%2F10&x=0&y=0
[2/28/11]
31
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bigcharts.marketwatch.com/historical/default.asp?detect=1&symbol=DJIA&close_date=2%2F28%2F01&x=0&y=0
[2/28/11]
31
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bigcharts.marketwatch.com/historical/default.asp?detect=1&symbol=COMP&close_date=2%2F28%2F01&x=0&y=0
[2/28/11]
31
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bigcharts.marketwatch.com/historical/default.asp?detect=1&symbol=SPX&close_date=2%2F28%2F01&x=0&y=0
[2/28/11]
32
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treasury.gov/resource-center/data-chart-center/interest-rates/Pages/TextView.aspx?data=realyieldAll
[3/3/11]
33
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treasurydirect.gov/instit/annceresult/press/preanre/2001/ofm11001.pdf
[1/10/01]
34
- cnbc.com/id/41832880 [2/28/11]
35
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montoyaregistry.com/Financial-Market.aspx?financial-market=inheriting-an-ira&category=22
[3/4/11]
