WEEKLY QUOTE
“The
key to the ability to change is a changeless sense of who you
are, what you are about and what you value.” –
Dr. Stephen Covey
MONTHLY TIP
Make
long-term planning decisions about taxes and other matters on the
basis of long-term trends, not on “quick fixes” and political
compromises made in anticipation of pre-election gymnastics. We
now hear that income and estate taxes may stay flat or go down in
the near term, but for planning purposes, expect both to rise in
your longer-term future.
MONTHLY
RIDDLE
The
English language has a noun with three consecutive double letters
in it. The word is 10 letters long, and it describes a job
involving math. What is this word?
Last month’s riddle:
You see a large truck stopped just before the underpass of a low bridge. The driver informs you that his truck is 1" higher than the maximum clearance. This is the only road to his destination. What is the easiest way to help him get his truck through the underpass?
You see a large truck stopped just before the underpass of a low bridge. The driver informs you that his truck is 1" higher than the maximum clearance. This is the only road to his destination. What is the easiest way to help him get his truck through the underpass?
Last month’s answer:
Let
enough air out of the tires to lower the truck.
THE
MONTH IN BRIEF
Overseas developments put pressure on U.S. stocks last month, and the S&P 500 lost 0.23% for November. The month got off to a bright start, with the DJIA and NASDAQ reaching highs unseen since 2008 … but a new round of worries over debt in the European Union, an artillery attack on South Korea by North Korea and concerns about tightening in China changed the mood. Stateside, the midterm elections were a bonanza for Republicans. The Federal Reserve unveiled another round of monetary easing. Mortgage rates went up; home sales didn’t. The dollar and gold both had a good month.
Overseas developments put pressure on U.S. stocks last month, and the S&P 500 lost 0.23% for November. The month got off to a bright start, with the DJIA and NASDAQ reaching highs unseen since 2008 … but a new round of worries over debt in the European Union, an artillery attack on South Korea by North Korea and concerns about tightening in China changed the mood. Stateside, the midterm elections were a bonanza for Republicans. The Federal Reserve unveiled another round of monetary easing. Mortgage rates went up; home sales didn’t. The dollar and gold both had a good month.
DOMESTIC
ECONOMIC HEALTH
A political development and a policy move livened the economic discussion even more last month. The Republicans won control of the House, and that comforted Wall Street. Perhaps less reform and regulation and a more business-friendly environment would follow. Capitol Hill was poised for a negotiation over EGTRRA, JGTRRA and estate taxes; the question was, could a lame-duck Congress make up its collective mind before the end of 2010? The Fed announced plans to purchase $600 billion worth of Treasuries over an eight-month period, plus their intentions to buy as much as $900 billion in debt by the end of September 2011.2 Some thought it was a wise move to promote lending, inflation and the overall economy; others thought the announcement effectively invited a trade war and wondered if the Fed’s actions would lead to bubbles.
A political development and a policy move livened the economic discussion even more last month. The Republicans won control of the House, and that comforted Wall Street. Perhaps less reform and regulation and a more business-friendly environment would follow. Capitol Hill was poised for a negotiation over EGTRRA, JGTRRA and estate taxes; the question was, could a lame-duck Congress make up its collective mind before the end of 2010? The Fed announced plans to purchase $600 billion worth of Treasuries over an eight-month period, plus their intentions to buy as much as $900 billion in debt by the end of September 2011.2 Some thought it was a wise move to promote lending, inflation and the overall economy; others thought the announcement effectively invited a trade war and wondered if the Fed’s actions would lead to bubbles.
The
economy seemingly needed more encouragement. The Commerce
Department put 3Q 2010 GDP at +2.5% -- not bad, but hardly what
was needed to make a dent in the jobless situation. (Unemployment
was at 9.6% in October, and in late November the Fed estimated it
would stay well above 7% through 2012. It also forecast growth of
3.0-3.6% for the economy in 2011, down from prior projections.)
However, the Commerce Department brought us word that personal
spending was +0.4% for October. Additionally, personal wages were
+0.5% for the month, and the personal savings rate even ticked up
a tenth of a percent to 5.7%. In
October, real disposable income was 2.5% above year-ago levels,
the best 12-month gain registered since June 2008.3,4,5
Consumer
prices (at least as gauged by the Consumer Price Index) had risen
just 0.2% in October, and the core CPI didn’t go up at all –
it was flat for the third consecutive month. Retail sales were
not flat – the Census Bureau said they were up 7.3% in October
compared to 12 months before, and the monthly gain was 1.2%. With
regard to Black Friday, many of the numbers were quite good:
year-over-year sales improved at Macy’s (+6.1%), Target (+5.1%)
and Costco (+9.0%), all topping those companies’
expectations.6,7,8
How
was manufacturing doing in America? The sector expanded for the
sixteenth straight month in November, according to the Institute
for Supply Management’s newest report. The pace of production
did slow down a bit in November while stockpiles and supplier
deliveries increased. The Commerce Department noted a 3.3% drop
in hard goods orders for October.2,9
GLOBAL
ECONOMIC HEALT
Ireland. Portugal. Spain. Greece. These were the economic hot spots in Europe in November, and the European Union was saddled with trying to put out either embers or full-fledged fires. Ireland was the latest nation to adopt austerity measures and accept a bailout; the European Central Bank and the International Monetary Fund arranged to offer as much as 85 billion euros of help to recapitalize banks and aid its punctured bubble economy. Economists feared Spain was next. That nation was dealing with astonishingly high unemployment, a stock market swoon, and the collapse of its real estate market. The bad news was that Spain’s debt was at about 64% of its GDP; the good news, so to speak, was that the majority of it was domestically financed. There hadn’t been much growth in the Eurozone in the third quarter: Germany’s economy expanded just 0.7%, and the Eurozone as a whole grew just 0.4%.10,11,12
Ireland. Portugal. Spain. Greece. These were the economic hot spots in Europe in November, and the European Union was saddled with trying to put out either embers or full-fledged fires. Ireland was the latest nation to adopt austerity measures and accept a bailout; the European Central Bank and the International Monetary Fund arranged to offer as much as 85 billion euros of help to recapitalize banks and aid its punctured bubble economy. Economists feared Spain was next. That nation was dealing with astonishingly high unemployment, a stock market swoon, and the collapse of its real estate market. The bad news was that Spain’s debt was at about 64% of its GDP; the good news, so to speak, was that the majority of it was domestically financed. There hadn’t been much growth in the Eurozone in the third quarter: Germany’s economy expanded just 0.7%, and the Eurozone as a whole grew just 0.4%.10,11,12
The
People’s Bank of China twice set new capital ratio requirements
for the nation’s lenders in November, following its first
interest rate hike since 2007. This decision came after China’s
consumer prices rose 4.4% in October. Speaking of an economy
heating up, Japan’s GDP improved to an annualized 3.9% in the
third quarter.13,14
WORLD
MARKET
It was generally a poor month for stocks worldwide. Yet Japan’s Nikkei 225 rose 8.0% in November, buoyed by noteworthy economic growth. While the German DAX advanced 1.3%, losses were more common in Europe – France’s CAC 40 slid 5.8% last month, the FTSE 100 lost 2.6%, Ireland’s ISEQ descended 1.4% and Spain’s IBEX fell a dramatic 14.3%. Away from Europe, India’s Sensex lost 2.6% for November, Australia’s All Ordinaries fell 1.2%, Brazil’s Bovespa declined by 4.2% and the Shanghai Composite in Hong Kong lost 5.3%. However, the TSX Composite in Canada gained 2.2% for the month, and a couple of benchmarks in emerging markets did surprisingly well – Russia’s RTSI gained 2.8% and Mexico’s Bolsa gained 3.5%.15
It was generally a poor month for stocks worldwide. Yet Japan’s Nikkei 225 rose 8.0% in November, buoyed by noteworthy economic growth. While the German DAX advanced 1.3%, losses were more common in Europe – France’s CAC 40 slid 5.8% last month, the FTSE 100 lost 2.6%, Ireland’s ISEQ descended 1.4% and Spain’s IBEX fell a dramatic 14.3%. Away from Europe, India’s Sensex lost 2.6% for November, Australia’s All Ordinaries fell 1.2%, Brazil’s Bovespa declined by 4.2% and the Shanghai Composite in Hong Kong lost 5.3%. However, the TSX Composite in Canada gained 2.2% for the month, and a couple of benchmarks in emerging markets did surprisingly well – Russia’s RTSI gained 2.8% and Mexico’s Bolsa gained 3.5%.15
Speaking
of emerging markets, the MSCI Emerging Markets Index lost 2.70%
in November in U.S. dollar terms. Its sibling, the World Index,
fell 2.35%. Our own U.S. Dollar Index rose to 81.32 at the end of
November, climbing 5.56% for the month.16,17
COMMODITIES
MARKETS
The key precious metals mostly advanced last month. Only platinum did not, declining 2.4%. Gold gained 2.1% on the COMEX, ending November at $1,385.00 per ounce and making its gain 26.5% YTD. Silver rose 14.9% last month and palladium gained 9.0%. As for energy futures, oil advanced 3.3% to close the month at $84.11 per barrel, ending November up 6.0% YTD. Natural gas futures rose 3.5% in November and gasoline futures gained 6.3%; heating oil futures gained 3.6%. In crops, sugar grabbed headlines with its first negative month since May, as those futures fell 5.4%.18,19,20,21
The key precious metals mostly advanced last month. Only platinum did not, declining 2.4%. Gold gained 2.1% on the COMEX, ending November at $1,385.00 per ounce and making its gain 26.5% YTD. Silver rose 14.9% last month and palladium gained 9.0%. As for energy futures, oil advanced 3.3% to close the month at $84.11 per barrel, ending November up 6.0% YTD. Natural gas futures rose 3.5% in November and gasoline futures gained 6.3%; heating oil futures gained 3.6%. In crops, sugar grabbed headlines with its first negative month since May, as those futures fell 5.4%.18,19,20,21
REAL
ESTATE
Hm. Perhaps the home buyer tax credit needs to be reinstated? In light of the home sales numbers from October, it might help. New home sales fell 8.1% for the month, and existing home sales slipped 2.2%. The existing home sales rate was 25.9% below October 2009 and the new home sales pace was 28.5% below that of a year ago (but that was when the initial deadline for first-time buyer tax breaks was approaching). Existing home prices were down 0.9% from a year prior, according to the National Association of Realtors; the Commerce Department said new home prices were down 8.2% from October 2009.22,23,24
Hm. Perhaps the home buyer tax credit needs to be reinstated? In light of the home sales numbers from October, it might help. New home sales fell 8.1% for the month, and existing home sales slipped 2.2%. The existing home sales rate was 25.9% below October 2009 and the new home sales pace was 28.5% below that of a year ago (but that was when the initial deadline for first-time buyer tax breaks was approaching). Existing home prices were down 0.9% from a year prior, according to the National Association of Realtors; the Commerce Department said new home prices were down 8.2% from October 2009.22,23,24
Was
there any upside worth noting? Yes. That came in the category of
pending home sales. October’s pending sales rose 10.4% - the
largest one-month jump since the NAR began tracking that
statistic in 2001.25
Mortgage
rates went up. (At least for the short term.) Comparing Freddie
Mac’s October 28 and December 2 Primary Mortgage Market
Surveys, we see that average rates on 30-year FRMs went from
4.23% to 4.46%. How about 15-year FRMs? The movement was similar:
3.66% to 3.81%. Over the same period, the average interest rates
on 5-year ARMs went from 3.41% to 3.49%; average interest rates
on 1-year ARMs actually diminished a bit from 3.30% to 3.25%.26
LOOKING
BACK…LOOKING FORWARD
November was the first down month for the DJIA since August. Fortunately, the losses were relatively minor across all three major U.S. indices.
November was the first down month for the DJIA since August. Fortunately, the losses were relatively minor across all three major U.S. indices.
| % CHANGE |
Y-T-D
|
1-MO
CHG
|
1-YR
CHG
|
10-YR
AVG
|
DJIA
|
+5.54
|
-1.01
|
+6.39
|
+0.57
|
NASDAQ
|
+10.10
|
-0.37
|
+16.49
|
-0.38
|
S&P
500
|
+5.87
|
-0.23
|
+7.75
|
-1.02
|
| REAL YIELD |
11/30
RATE
|
1
YR AGO
|
5
YRS AGO
|
10
YRS AGO
|
10
YR TIPS
|
0.74%
|
1.41%
|
2.12%
|
4.03%
|
Sources: online.wsj.com, bigcharts.com, ustreas.gov, bls.gov - 11/30/101,27,28,29
Indices
are unmanaged, do not incur fees or expenses, and cannot be
invested into directly.
These
returns do not include dividends.
December
tends to be a very bullish month on Wall Street. Citing data from
The
Stock Trader’s Almanac,
CNBC.com notes that since 1990, the S%P 500 has gained an average
of 1.79% in the last month of a year, and posted monthly gains in
16 of the past 20 Decembers.30
Of course that is simply past performance, and no guarantee of
future results. December has certainly gotten off to a great
start as global markets have reacted to assurances from the ECB
about controlling EU member debt, the big rebound in pending home
sales, and retail sales numbers from Black Friday weekend. If
Congress extends the Bush-era tax cuts and sets a reasonable
estate tax for 2011 and beyond, the rally at the top of December
could potentially gain fresh legs.
UPCOMING
ECONOMIC RELEASES.
Here is some notable data coming out across the balance of the month: October wholesale inventories (12/9), the initial December University of Michigan consumer sentiment survey (12/10), an FOMC rate decision, the November PPI, November retail sales and October business inventories (12/14), the November CPI and November industrial output (12/15), November housing starts and building permits (12/16), the Conference Board’s November leading indicator index (12/17), November existing home sales and the final estimate of 3Q GDP (12/22), and then plenty of data just before Christmas: November consumer spending, durable goods orders and new home sales plus the final December University of Michigan consumer sentiment survey (12/23). The last market week of 2010 brings us the Conference Board’s December poll of consumer confidence and October’s Case-Shiller home price index (12/28).
Here is some notable data coming out across the balance of the month: October wholesale inventories (12/9), the initial December University of Michigan consumer sentiment survey (12/10), an FOMC rate decision, the November PPI, November retail sales and October business inventories (12/14), the November CPI and November industrial output (12/15), November housing starts and building permits (12/16), the Conference Board’s November leading indicator index (12/17), November existing home sales and the final estimate of 3Q GDP (12/22), and then plenty of data just before Christmas: November consumer spending, durable goods orders and new home sales plus the final December University of Michigan consumer sentiment survey (12/23). The last market week of 2010 brings us the Conference Board’s December poll of consumer confidence and October’s Case-Shiller home price index (12/28).
*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 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. 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 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 ISEQ 20 is a benchmark stock
market index composed of companies that trade on the Irish Stock
Exchange. The IBEX 35 is the benchmark stock market index of the
Bolsa de Madrid, Spain's principal 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. The
Bovespa, the benchmark stock index of Brazil, is the second
largest in the Americas, and the leading exchange in Latin
America. 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
RTS Index (RTSI) is an index of 50 Russian stocks that trade on
the RTS Stock Exchange in Moscow. The IPC Index is the main
benchmark stock index of the Mexican Stock Exchange (BMV: BOLSA),
which is Mexico's only stock exchange. 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
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/2010/11/30/data-points-us-markets-325/
[11/30/10]
2
– money.cnn.com/2010/11/03/news/economy/fed_decision/index.htm
[11/3/10]
3
-
bloomberg.com/news/2010-11-24/u-s-michigan-consumer-sentiment-increases-to-five-month-high.html
[11/24/10]
4
- news.yahoo.com/s/ap/20101123/ap_on_bi_ge/us_fed_forecast
[11/23/10]
5
-
online.barrons.com/article/SB50001424052970203984204575635153852477576.html
[11/26/10]
6
-
marketwatch.com/story/us-consumer-prices-up-02-in-october-2010-11-17
[11/17/10]
7
- census.gov/retail/marts/www/marts_current.pdf [11/15/10]
8
–
foxbusiness.com/markets/2010/12/02/futures-rise-second-day-ahead-jobless-claims-data/
[12/2/10]
9
- ism.ws/ISMReport/MfgROB.cfm [12/1/10]
10
– cnbc.com/id/40350540/ [11/24/10]
11
–
cnbc.com/id/40350810/Why_Spain_Is_NOT_Like_Greece_Ireland_Portugal
[11/24/10]
12
–
nytimes.com/2010/12/03/business/global/03euro.html
[12/3/10]
13
-
businessweek.com/news/2010-12-02/pboc-bills-shunned-on-irrationally-low-yields-china-credit.html
[12/2/10]
14
- straitstimes.com/BreakingNews/Money/Story/STIStory_603431.html
[11/15/10]
15
-
investmentpostcards.com/ [12/1/10]
16
-
mscibarra.com/products/indices/international_equity_indices/gimi/stdindex/performance.html
[11/30/10]
17
-
online.wsj.com/mdc/public/npage/2_3051.html?mod=mdc_curr_dtabnk&symb=DXY
[12/1/10]
18
- bullionpricestoday.com/bullion-prices-rally-in-november-2010/
[12/1/10]
19
-
marketwatch.com/story/oil-slides-on-dollar-european-debt-concerns-2010-11-30
[11/30/10]
20
-
bloomberg.com/news/2010-11-30/white-sugar-climbs-to-a-two-week-high-as-global-stocks-may-remain-limited.html
[11/30/10]
21
–blogs.wsj.com/marketbeat/2010/11/30/data-points-energy-metals-411/
[11/30/10]
22
– census.gov/const/newressales.pdf
[11/24/10]
23
- realtor.org/press_room/news_releases/2010/11/october_retreat
[11/23/10]
24
-
articles.latimes.com/2010/nov/25/business/la-fi-new-home-sales-20101125
[11/25/10]
25
-
marketwatch.com/story/pending-home-sales-jump-in-october-2010-12-02
[12/2/10]
26
– freddiemac.com/pmms/index.html?year=2010 [12/2/10]
27
-
bigcharts.marketwatch.com/historical/default.asp?detect=1&symbol=DJIA&close_date=11%2F30%2F09&x=0&y=0
[11/30/10]
27
-
bigcharts.marketwatch.com/historical/default.asp?detect=1&symbol=COMP&close_date=11%2F30%2F09&x=0&y=0
[11/30/10]
27
-
bigcharts.marketwatch.com/historical/default.asp?detect=1&symbol=SPX&close_date=11%2F30%2F09&x=0&y=0
[11/30/10]
27
-
bigcharts.marketwatch.com/historical/default.asp?detect=1&symbol=DJIA&close_date=11%2F30%2F00&x=0&y=0
[11/30/10]
27
-
bigcharts.marketwatch.com/historical/default.asp?detect=1&symbol=COMP&close_date=11%2F30%2F00&x=0&y=0
[11/30/10]
27
-
bigcharts.marketwatch.com/historical/default.asp?detect=1&symbol=SPX&close_date=11%2F30%2F00&x=0&y=0
[11/30/10]
28
-
ustreas.gov/offices/domestic-finance/debt-management/interest-rate/real_yield_historical.shtml
[11/30/10]
29
-
treasurydirect.gov/instit/annceresult/press/preanre/2000/ofm11200.pdf
[7/12/00]
30
- cnbc.com/id/40435588 [12/1/10]
