That Was The Week That Was-1st Week June

 

Markets Tank On Bad Jobs Report. Expecting  approximately 150,000 new jobs investors were surprised Friday to see less than half that amount were created in May. More bad news as jobs numbers for March and April were downgraded to less than originally stated. This by itself wasn’t the worst that the markets had to endure but also the lack of information coming from Europe and the increasing noise that not only would Greece be leaving the EU but a possibility of the euro being dismantled. This lack of transparency drives investors nuts and a selloff was on the way.

You Don’t Lose Money Unless You Sell. Most of us are grownup and know that. We also know that when there are days like last Friday when the Dow fell 275 points, the Naz lost 80 and the S&P 500 fell to 1278 (It was tickling 1400 not that long ago), that there is nowhere to go. The 10-year Treasury is under 1.5% and the 30-year is at 2.56%. Commodities, including oil are down, and gold is off its highs, although up on Friday.

I was having coffee last week with a client and said something to him that sounded a lot what George Soros said over the weekend. ‘Nothing can be done without German support,’ said Soros over the European problem. ‘The heavily indebted countries need relief on their financing costs. The Greek citizens may be frightened enough by the prospect of expulsion from the EU that it will lead to the government willing to abide by the current agreement.’ Soros explained, ‘But no government can meet the conditions so that the Greek crisis is liable to come to a climax in the fall. The likelihood is the euro will survive because a breakup would be devastating not only for the periphery but also for Germany.Germany is likely to do what is necessary to preserve the euro – but nothing more.’ Unlike the United States the EU is bound only by the euro and not by philosophy or politics. And that is their fundamental flaw.

Monday’s WSJ Spouted ‘Deja Vu’ All Over Again…

The above chart from the Wall Street Journal Monday edition puts it all in context. We have been here before. Central banks can only do so much and, as The Ben Bernanke has said over and over and over again, it is time for the politicians to do something. The journal article accompanying the above chart said that injecting more money into the system to lower rates cannot do much when rates are already at all time lows. Politicians keep treating symptoms and not the patient. Eventually, the Journal reported Monday, the patient will die.

There is Good News For U.S. Investors & Citizens. Inflation? There is no real inflation. The price of oil and commodities are down- but call that temporary with a strong dollar. Payrolls have shown a slight increase in the last 30 days. Auto sales were, again, up. Ford’s marketing chief noted Friday that the dismal jobs report shouldn’t impact sales as there was a significant pent-up demand for autos. After hour Friday manufacturing new orders were at the highest level in a year posting a 60.1, anything over 50 is positive for the economy. Add in strong earnings from across the S&P 500 sectors for the first quarter where 493 out of 500 outperformed the Street’s expectations and 44% showed double digit growth, and there is strength and growth (however mild) in this economy.

Heather Bousey wrote for Dow Jones that the poor jobs showing is the price Americans pay for a do-nothing (gasp!) Congress, focused mostly on austerity than job creation. She blames Congress for not acting on the American Jobs Act, which would have helped to reduce unemployment and create jobs. The private sector has added in the last 27 months 4.3 million jobs while state and local governments have been shedding workers since 2008, for a total loss of 660,000 workers.

Whitney Tilson said on CNBC that the dismal jobs picture is not as scary as one would think. There are 132 million jobs currently in the United States. He said he believes lawmakers learned from the collapse of Lehman a few years ago. Those who are doomsayers and calling for a catastrophe in Europe are missing an important point –“ World leaders won’t allow a complete collapse of the system.’

  Finally: Doug Kass- Sometime Bear & Doomster-Offered Up 10 Reasons Why He Is More Optimistic About U.S. Markets Than Ever Before:

• US Growth is superior to global growth.
• US Banks are well capitalized and liquid.
• US Corporations have strong balance sheets.
• US Consumer is more liquid and stable.
• US is politically stable.
• US has solid and transparent corporate reporting.
• US is not in a recession.
• US has a functioning and forward looking central bank that can be aggressive.
• US is rich in resources
• US is a magnet for immigration

 

INDEX STANDINGS  MAY 2012

and now for more news and updates…

Some swear by Target Date Mutual Funds…but Chuck Jaffe disagrees and I agree with his disagreement. In case you don’t know Target Funds are age or year based allocated actively managed mutual funds. The closer you get to retirement, or the target, the less aggressive the fund becomes. Target Funds are better in company retirement plans than simply using money market as a default investment but not as part of an investment scheme (lots of folks do that!). In fact, investing in a Target Fund should be all you do if you embrace the concept that the fund and its managers will get you from here to there in reasonable risk(less) fashion. The fact is the labeling of Target Funds is not specific for exactly what is under the hood, and Jaffe wants you to know that. There are almost 50 different categories of Target Funds. The fact that the managers are all vying for investor money tells you that all is not equal or risk(less) under the same individual Target Date fund banner. Better hire someone to help you choose before making a wrong choice and assuming all will be well down the road.

Before The Economic Collapse Designing and Implementing a Retirement Income Was Relatively Easy-Peasy. If you retired in the early 90s chances are you created an income plan based on historical returns and started pulling six to eight percent per year out of your account for income. As stocks and asset allocated investments trended lower advisors reluctantly tried to get clients to take less income out in order to stretch principal as long as possible. Today smart advisors are suggesting no more than three and a half percent withdrawal rate from portfolios. This, they point out, would preserve principal and still provide ‘sufficient’ income for the retiree. The definition of ‘sufficient’ is in the mind of the designer. There is a lot of math that goes into these calculations-specifically how to preserve principal. It seems, from what I read, most advisors do their calculation for middle-income earners on the same premise as if they were the uber-rich. And, this, we know, is that they are not. It therefore makes more sense to create and provide income that is needed and not an income plan that fits certain mathematical formulas. Income design is just as complex as investment planning and usually needs more than just the retiree to plan and implement.

Lets Think About This For A Second…if NASDAQ didn’t screw up the Facebook IPO and Morgan Stanley played things square would there be as much ‘bad publicity’ on Facebook as there has been? And…

Usually Options Play Is Not Available on a stock so soon after its Initial Public Offering. But someone doesn’t like Facebook (or maybe the other way round?), and offered option plays a week after its open. The exchanges make the rules on when options become available. This could make volatility in the stock even more so. There is a list of criteria before allowing shares to be traded on the options market- volatility and number of shares traded  are just two. But, me-thinks this decision was made long before the Facebook IPO. Shares in FB fell below $30 Tuesday.

Options Play on Facebook could drive the stock to $25 by mid-July (probably sooner), so wrote WSJ. Still, the Journal reported, many analysts are recommending the stock to clients at $40 to $48 a share.

With all the FB Noise…Apple shares are still below $600.00 CEO Tim Cook held a meeting where he enthused about new and exciting things the company was involved in. He also said the company would provide greater transparency, more than when Jobs was at the helm, with no inkling of what could be on the horizon. On CNBC the gang mused about the possibility of a new television (Apple has been working on that for ages) and a smart-phone wallet. The company is working closely with Twitter, and its important you know this going forward. Cook told his audience to ‘stay tuned’ as to whether the company would develop a plan with Facebook with its iPhone. Tim Cook, not to be confused with Steve Jobs.

 

Domestic Markets Up Handsomely Tuesday…. but I wouldn’t read too much into it…Oil below $90. and gold fell to $1549, even as some Central Banks added to their stores.

June a Turning Point for Markets? loads of meetings and other stuff…Worst 30 days in the last two years.

Wednesday Markets open down on worries over Spain! Quick, name three things we can’t do without from Spain? (A) Spanish Olives …(2) ?….(3)…?

A tricky question- what about Greece?

• Has the biggest production facilities for nickel.
• 15% of the world’s olive oil production
• 46% of Western Europe’s Magnesium
• Biggest producer of bauxite in the EU
• 5th in the world for asparagus exports
• 7th in the world in cotton export
• #1 in commercial shipping SOURCE WORLDPRESS.COM

10-year Treasury Dove to 1.620%

as the flight to safety continued Wednesday. The Dow lost 161 points, Nasdaq –34 and the S&P 500 lost 19.  It lost significant more to 1.45% yield through Friday.

The Question We Have To Ask Is ‘Do EU Politicians Have the Will & Desire to Hold Together Their Creation?’

Remember This Latest Market Spiral Started With JP Morgan Chase Announcing a $2 Billion Trading Loss. That had nothing to do with the EU…or, well, it was a loss as they tried to hedge and prevent losing money on any issues with the EU. 

Scary Talking Heads Are Out There…especially on Talk Radio. These folks are having so much fun during times of stress telling whomever that the world is ending. Even the Mayan calendar has been updated…

Sunny or Dreary For Stocks? muse the ‘Getting Technical’ Michael Kahn @ Barrons.com. For the answer Michael drags out a chart of the S&P 500 illustrating the 200 day moving average (prices of the S&P over 200 days as shown below) and states if the Bulls have their way they’ll keep things north of the 200 day moving average. He said that over the past week the 200 day acted as ‘support’ and resistance. On Friday the S&P closed at 1278. This was just below the 200 day average. 

Everything Acting Like Dead Weight? Commodities, especially precious metals, you’d expect to move up in worrisome times but investors are running to safety. That safety is the U.S. dollar. When the dollar rises it makes other stuff cheaper. A cheap dollar makes oil more expensive and the reverse is true. As investors its not too early to start putting together ‘Wish Lists’ of stocks you always wanted to own when the ‘Price Was Right.’ That day will soon enough be coming.

The Stocks That Make Sense Owning When the Economy is Working…. Material stocks like those that manufacture aluminum, steel, fertilizer and chemicals are the raw stuff that other companies need to make other stuff. These companies, according to Jeff Reeves, have trimmed the fat and have illustrated profitability. You can follow Jeff’s reasoning and buy stocks in those companies that include DuPont and Dow or invest in a mutual fund or ETF that concentrates on owning material funds. When the engines of commerce start humming you won’t be disappointed.

Questions call Paul @ 877 783 7080 or write him at pstanley@westminsterfinancial.com. Share this blog with someone who cares about their money.