MONTHLY QUOTE
“My
father said there were two kinds of people in the world: givers
and takers. The takers may eat better, but the givers sleep
better.” –
Marlo Thomas
MONTHLY IDEA
Many
well-off folks are putting off estate planning based on uncertain
future rules or an aversion to giving up control of their assets
and income. There are ways to protect your assets now and
forever, keep your access to them, and have them go where you
want to, not to Uncle Sam – call me.
– Jim
Hecker
MONTHLY TIP
Perform
a mid-year checkup on your financial picture – are you
addressing your risks, saving enough, and positioning your assets
for safety and tax efficiency? Adjust your plan as needed to
reach your goals – I can help.
MONTHLY
RIDDLE
Tim
says he heard that you can find $200 stuffed between pages 147
and 148 of a romance novel at the library. What detail convinces
you that he is wrong?
Last month’s riddle:
It
has a back, but no front; it has three or four legs, yet it can't
run. As you read this, you may be relaxing in one. What is it?
Last month’s answer:A
chair.
THE
MONTH IN BRIEF
There wasn’t a lot for Wall Street to get excited about in May. As the buzz of the 1Q earnings season faded, the latest indicators hinted that the economy was losing momentum. As a result, May turned out to be – well, another May. The Dow lost 1.88% for the month, retreating to 12,569.79. Commodities had a poor month as well, and dreams of a real estate recovery starting in 2011 faded. On Capitol Hill, lawmakers seemed more interested in discussing the debt ceiling than raising it. In Europe, the possibility of Greece defaulting prompted yet another bailout effort.1
There wasn’t a lot for Wall Street to get excited about in May. As the buzz of the 1Q earnings season faded, the latest indicators hinted that the economy was losing momentum. As a result, May turned out to be – well, another May. The Dow lost 1.88% for the month, retreating to 12,569.79. Commodities had a poor month as well, and dreams of a real estate recovery starting in 2011 faded. On Capitol Hill, lawmakers seemed more interested in discussing the debt ceiling than raising it. In Europe, the possibility of Greece defaulting prompted yet another bailout effort.1
DOMESTIC
ECONOMIC HEALTH
While all signs pointed to an economy that was still growing, the growth seemed to be moderating. Federal government reports showed April retreats in durable goods orders (-3.6%) and housing starts and building permits (-10.6%, -4.0%). Reports from the private sector indicated slower economic expansion: ISM’s manufacturing sector PMI dropped way down to 53.5 in May from April’s 60.4 mark, and its service sector PMI fell to 52.8 for April compared with 57.3 in March. (These were the lowest these indices had been in several months.) Existing home sales, pending home sales and home prices headed south (more about all that below).2,3,4,5
While all signs pointed to an economy that was still growing, the growth seemed to be moderating. Federal government reports showed April retreats in durable goods orders (-3.6%) and housing starts and building permits (-10.6%, -4.0%). Reports from the private sector indicated slower economic expansion: ISM’s manufacturing sector PMI dropped way down to 53.5 in May from April’s 60.4 mark, and its service sector PMI fell to 52.8 for April compared with 57.3 in March. (These were the lowest these indices had been in several months.) Existing home sales, pending home sales and home prices headed south (more about all that below).2,3,4,5
Two
truths were inescapable: gas prices were ridiculous, and it was
still hard to find a job. At the end of May, a gallon of regular
unleaded averaged $3.78 nationally (down from $3.98 at the start
of the month). The jobless rate ticked up to 9.0% in April, but
job creation surpassed expectations: the private sector hired
268,000 people, the best monthly increase in more than five
years. The two respected consumer confidence polls brought mixed
results: the Conference Board’s May survey came in at 60.8
compared to 66.0 in April, while the final University of Michigan
survey rebounded to 74.3 from April’s 69.8 mark.6,7,8,9
April’s
gain in consumer spending may have simply resulted from more
money going to pay for gas and food. The Commerce Department said
personal spending improved by 0.4% in April, but the gain was
just 0.1% with inflation factored in. Discernible inflation was
with us: consumer prices increased by 0.4% in April, bringing
annualized inflation to 3.2% (the highest since October 2008).
Wholesale inflation increased 0.8% in April, taking annualized
PPI to 6.8%.10,11,12
Congress,
the White House and the Treasury faced a pressing need to
increase the federal debt limit – but there was less than an
immediate response to this crisis. Partisan debate ensued, with
President Obama and Treasury Secretary Timothy Geithner warning
of dire consequences if the federal debt cap wasn’t raised and
Congressional Republicans responding that this was no time to
bloat federal spending any further. On May 31, House Republicans
voted decisively against hiking the debt ceiling; the Treasury
had stated August 2nd as the final deadline to raise the debt cap
and avoid the prospect of default.13
GLOBAL
ECONOMIC HEALTH
As Greece’s debt still stood at roughly 150% of its GDP and it couldn’t devalue its currency to make its exports more attractive, the European Union prepared for another bailout at month’s end and further austerity measures. Greece has an economy about as large as Michigan’s, and it only represents 1% of Eurozone GDP – but a Greek default could panic global markets. To add insult to injury, Poland decided it no longer wanted to join the Eurozone. It wasn’t all bad news in the EU: average Eurozone inflation ticked down to 2.7% in May while unemployment stayed at 9.9%.14,15
As Greece’s debt still stood at roughly 150% of its GDP and it couldn’t devalue its currency to make its exports more attractive, the European Union prepared for another bailout at month’s end and further austerity measures. Greece has an economy about as large as Michigan’s, and it only represents 1% of Eurozone GDP – but a Greek default could panic global markets. To add insult to injury, Poland decided it no longer wanted to join the Eurozone. It wasn’t all bad news in the EU: average Eurozone inflation ticked down to 2.7% in May while unemployment stayed at 9.9%.14,15
Hints
of a manufacturing slowdown weren’t confined to America: the
Asia Pacific region was getting the same signals. Purchasing
manufacturer indices declined in China, India, South Korea and
Taiwan - coming in lower for May, though all remained above 50
(showing growth rather than contraction). Japan’s damaged
manufacturing plants struggled to rev up again, though there were
indications the rebound might be faster than previously
assumed.16
WORLD
MARKETS
Stocks slumped around the world as investors weighed the possibility that the recovery was losing steam, at least in the short term. Looking at Morningstar data calculated in U.S. dollar terms, we see key Asia Pacific indices moving south for the month: Nikkei 225, -1.58%; Sensex, -4.72%; Australian All Ordinaries, -2.25%; Shanghai Composite, -5.77%. Some major European bourses were also in retreat: DAX, -5.09%; FTSE 100, -1.32%; CAC 40, -2.43%. The MSCI World and MSCI Emerging Markets indices followed the global pattern: the World lost 2.45% for May while the EM lost 2.99%.17,18
Stocks slumped around the world as investors weighed the possibility that the recovery was losing steam, at least in the short term. Looking at Morningstar data calculated in U.S. dollar terms, we see key Asia Pacific indices moving south for the month: Nikkei 225, -1.58%; Sensex, -4.72%; Australian All Ordinaries, -2.25%; Shanghai Composite, -5.77%. Some major European bourses were also in retreat: DAX, -5.09%; FTSE 100, -1.32%; CAC 40, -2.43%. The MSCI World and MSCI Emerging Markets indices followed the global pattern: the World lost 2.45% for May while the EM lost 2.99%.17,18
COMMODITIES
MARKETS
The U.S. Dollar Index gained 2.2% for the month, and as the dollar got stronger, interest in commodity futures waned. A couple of crops posted nice returns: wheat went +10.5% and sugar went +9.3% for the month. Gold lost 1.3% in May on the COMEX, but silver was easily the biggest loser, with prices diving -21.2%. Oil was still over $100 per barrel at the end of the month ($102.70) despite a 9.9% May loss. The broad commodities picture was fairly bleak: the Reuters-Jefferies CRB Index went -5.5% during May. It hadn’t lost ground since August, and May was its worst month in a year. 19,20,21
The U.S. Dollar Index gained 2.2% for the month, and as the dollar got stronger, interest in commodity futures waned. A couple of crops posted nice returns: wheat went +10.5% and sugar went +9.3% for the month. Gold lost 1.3% in May on the COMEX, but silver was easily the biggest loser, with prices diving -21.2%. Oil was still over $100 per barrel at the end of the month ($102.70) despite a 9.9% May loss. The broad commodities picture was fairly bleak: the Reuters-Jefferies CRB Index went -5.5% during May. It hadn’t lost ground since August, and May was its worst month in a year. 19,20,21
REAL
ESTATE
Any notion of a housing market rebound seemed truly invalid in light of the latest S&P/Case-Shiller Home Price Index. The March edition showed prices of existing homes across the 20 largest metro markets down 3.6% from a year before and down 33.1% from the index’s July 2006 peak. Existing home sales decreased by 0.8% in April; National Association of Realtors chief economist Laurence Yun claimed sales were “being held back 15 to 20 percent [by] very restrictive loan underwriting standards.” When NAR measured pending home sales for April, it found them way down from March – down 11.6%.22,23,24
Any notion of a housing market rebound seemed truly invalid in light of the latest S&P/Case-Shiller Home Price Index. The March edition showed prices of existing homes across the 20 largest metro markets down 3.6% from a year before and down 33.1% from the index’s July 2006 peak. Existing home sales decreased by 0.8% in April; National Association of Realtors chief economist Laurence Yun claimed sales were “being held back 15 to 20 percent [by] very restrictive loan underwriting standards.” When NAR measured pending home sales for April, it found them way down from March – down 11.6%.22,23,24
Some
positive news did surface. New home sales improved for the second
straight month - the Census Bureau reported a 7.3% gain for
April. Home loans became even cheaper: Freddie Mac’s May 26
Primary Mortgage Market survey showed average interest rates on
30-year FRMs down 0.18% since the April 28 survey to 4.60%.
Average rates for 15-year FRMs (3.78%), 5-year ARMs (3.41%) and
1-year ARMs (3.11%) were also all lower on May 26.25,26
LOOKING
BACK…LOOKING FORWARD If
you’re wondering how poor May was for stocks, it wasn’t all
that bad. While the S&P 500 had its poorest month since
August, it lost just 1.35%. By comparison, its August descent was
4.74%.1
| % CHANGE |
Y-T-D
|
1-MO
CHG
|
1-YR
CHG
|
10-YR
AVG
|
DJIA
|
+8.57
|
-1.88
|
+25.40
|
+1.52
|
NASDAQ
|
+6.88
|
-1.33
|
+27.58
|
+3.43
|
S&P
500
|
+6.96
|
-1.35
|
+25.64
|
+0.71
|
| REAL YIELD |
5/31
RATE
|
1
YR AGO
|
5
YRS AGO
|
10
YRS AGO
|
10
YR TIPS
|
0.80%
|
1.32%
|
2.48%
|
3.52%
|
Sources: online.wsj.com, bigcharts.com, treasury.gov, treasurydirect.gov - 5/31/111,27,28,29
Indices
are unmanaged, do not incur fees or expenses, and cannot be
invested into directly.
These
returns do not include dividends.
We
are now in June, a tough month for stocks in recent years. The
Dow started the month with a big plunge, reacting mostly to
disappointing job creation in the latest ADP report. The
prevalent assumption is that the pace of the recovery slowed this
spring but may pick up by fall. We’ll need some pleasant
surprises this month to turn that assumption on its head. Since
2000, June has actually been the Dow’s weakest month (-2.31%).
Average June returns for all ten sectors of the S&P 500 have
also been negative since 2000. Keep in mind, though: that is
history, and history is not a reliable gauge of what the market
may do.30
UPCOMING
ECONOMIC RELEASES:
On the calendar, we see the May unemployment report and the May ISM service sector index (6/3), a new Beige Book from the Federal Reserve (6/8), April wholesale inventories (6/9), May PPI, May retail sales and April business inventories (6/14), May CPI and industrial output (6/15), May building permits and housing starts (6/16), the Conference Board’s LEI index for May and the initial University of Michigan June consumer sentiment poll (6/17), May existing home sales (6/21), a Fed rate decision (6/22), May new home sales (6/23), May durable goods orders (6/24), May consumer spending (6/27), April’s Case-Shiller home price index and the Conference Board’s June consumer confidence poll (6/28) and May pending home sales (6/29). The final June consumer sentiment survey from the University of Michigan comes out a little late, you might say – it will be released on July 1.
On the calendar, we see the May unemployment report and the May ISM service sector index (6/3), a new Beige Book from the Federal Reserve (6/8), April wholesale inventories (6/9), May PPI, May retail sales and April business inventories (6/14), May CPI and industrial output (6/15), May building permits and housing starts (6/16), the Conference Board’s LEI index for May and the initial University of Michigan June consumer sentiment poll (6/17), May existing home sales (6/21), a Fed rate decision (6/22), May new home sales (6/23), May durable goods orders (6/24), May consumer spending (6/27), April’s Case-Shiller home price index and the Conference Board’s June consumer confidence poll (6/28) and May pending home sales (6/29). The final June consumer sentiment survey from the University of Michigan comes out a little late, you might say – it will be released on July 1.
*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.
This
material was prepared by MarketingLibrary.Net 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 and may not be relied on for the
purpose of avoiding any Federal tax penalty. 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.
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. BSE Sensex or Bombay Stock Exchange
Sensitivity 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. The SSE Composite Index is an index of all
stocks (A shares and B shares) that are traded at the Shanghai
Stock Exchange. The DAX 30 is a Blue Chip stock market index
consisting of the 30 major German companies trading on the
Frankfurt Stock Exchange. The FTSE 100 Index is a share index of
the 100 most highly capitalized companies listed on the London
Stock Exchange. 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. For more
than 50 years, the world-renowned Thomson Reuters-Jefferies CRB
Index has served as the most widely recognized measure of global
commodities markets. 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
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blogs.wsj.com/marketbeat/2011/05/31/data-points-u-s-markets-23/
[5/31/11]
2
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dailyfx.com/forex/market_alert/2011/05/25/052411_US_Durable_Goods_Fall_Most_in_Six_Months.html
[5/25/11]
3
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marketwatch.com/story/us-housing-starts-decline-106-in-april-2011-05-17
[5/17/11]
4
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5
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6
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boston.com/business/markets/articles/2011/06/01/oil_gas_prices_take_a_summer_break/
[6/1/11]
7
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9
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marketwatch.com/story/consumer-sentiment-rises-in-may-2011-05-27
[5/27/11]
10
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11
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nytimes.com/aponline/2011/05/13/business/AP-US-Consumer-Prices.html
[5/13/11]
12
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bloomberg.com/news/2011-05-12/u-s-april-producer-price-index-report-text-.html
[5/12/11]
13
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npr.org/2011/06/01/136855840/house-gop-obama-hold-frank-talk-on-debt
[6/1/11]
14
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globalpublicsquare.blogs.cnn.com/2011/05/31/what-in-the-world-trouble-in-the-eurozone/
[5/31/11]
15
- bbc.co.uk/news/business-13601570 [5/31/11]
16
-
reuters.com/article/2011/06/01/economy-global-idUSL3E7H105P20110601
[6/1/11]
17
– news.morningstar.com/index/indexReturn.html [5/31/11]
18
-
mscibarra.com/products/indices/international_equity_indices/gimi/stdindex/performance.html
[6/2/11]
19
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forexyard.com/en/news/COMMODITIES-Copper-and-oil-firm-up-gold-falls-from-4-wk-high-2011-05-31T201750Z
[5/31/11]
20
-
blogs.wsj.com/marketbeat/2011/05/31/data-points-energy-metals-490/
[5/31/11]
21
–
online.wsj.com/mdc/public/npage/2_3051.html?mod=mdc_curr_dtabnk&symb=DXY
[6/1/11]
22
-
nj.com/business/index.ssf/2011/06/home_prices_at_lowest_point_si.html
[6/1/11]
23
-
blogs.forbes.com/heatherstruck/2011/05/19/stronger-signals-from-retail-still-contest-with-struggling-housing-market/
[5/19/11]
24
- realtor.org/press_room/news_releases/2011/05/gains_drop
[5/27/11]
25
- census.gov/const/newressales.pdf/ [5/24/11]
26
- freddiemac.com/pmms/ [6/1/11]
27
-
bigcharts.marketwatch.com/historical/default.asp?symb=DJIA&closeDate=6%2F1%2F10&x=0&y=0
[6/2/11]
27
-
bigcharts.marketwatch.com/historical/default.asp?symb=COMP&closeDate=6%2F1%2F10&x=10&y=18
[6/2/11]
27
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bigcharts.marketwatch.com/historical/default.asp?symb=SPX&closeDate=6%2F1%2F10&x=0&y=0
[6/2/11]
27
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bigcharts.marketwatch.com/historical/default.asp?symb=DJIA&closeDate=5%2F31%2F01&x=0&y=0
[6/2/11]
27
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bigcharts.marketwatch.com/historical/default.asp?symb=COMP&closeDate=5%2F31%2F01&x=0&y=0
[6/2/11]
27
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bigcharts.marketwatch.com/historical/default.asp?symb=SPX&closeDate=5%2F31%2F01&x=0&y=0
[6/2/11]
28
-
treasury.gov/resource-center/data-chart-center/interest-rates/Pages/TextView.aspx?data=realyieldYear&year=2011
[6/2/11]
28
-
treasury.gov/resource-center/data-chart-center/interest-rates/Pages/TextView.aspx?data=realyieldAll
[6/2/11]
29
-
treasurydirect.gov/instit/annceresult/press/preanre/2001/ofm11001.pdf
[1/10/01]
30
- cnbc.com/id/43197003 [5/31/11]
