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Archive for February, 2010

February 25th, 2010

The Markets

(Michael Schwartz) - The U.S. stock market has had several "mini corrections" since the March 9, 2009 low and last week's strong performance has some analysts saying the recent 9% drop in the S&P 500 from its mid-January high may have run its course, according to the Associated Press. Stocks rose for the second consecutive week and have now recouped about two-thirds of the 9% drop that occurred between January 19 and February 8. Jitters about sovereign debt problems in Europe, central governments "taking away the punch bowl" of easy money, and a surprise rise in the discount rate last week have started to give way to the good news that corporate earnings are still moving up smartly, the manufacturing sector is on the rise, and inflation is subdued, according to Bloomberg.

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February 24th, 2010

The Markets

(Michael Schwartz) - The Reuters/University of Michigan consumer sentiment preliminary index for February that was reported last week declined slightly from the late January number and it was lower than expected as consumers continued to fret over unemployment. The index is now down 24% from January 2007, according to data from the St. Louis Federal Reserve. Ironically, when consumers are glum, that could be good news for the financial markets.

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February 19th, 2010

Do you Know the Difference between an Investment Advisor and a Broker?

(Tom Tomaj) - As a fee-only investment advisor I come across clients from all walks of life. Lately I have noticed something in common with many of these investors. Many do not know the difference between an investment advisor and a broker who manages and/or makes securities recommendations for their clients’ investment portfolios. With the almost unprecedented volatility in the securities markets, you cannot afford to dig your head in the sand when it comes to whom is managing your assets.

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February 18th, 2010

Change Your Investment Plan Now!

(Michael Farr) - Timing is important. When the old Medicine Man was asked if rain dances really work, he answered that they most certainly do but a lot depends on timing. "How are your investments doing?" may be one of the most complicated of all investment questions. There are a number of considerations: relative to what benchmark; over what specific time period; for what risk level? Measuring the twelve months ended March, 2009 would have resulted in horribly negative returns (S&P 500 was down -39.7%, excluding dividends) using most any long strategy. Measuring the twelve months ended September, 2009 was only modestly negative (-9.4%), while returns for the year ended December, 2009 were strongly positive (+23.5%). Moreover, a portfolio that fared relatively well during the downturn (ie, declined less than the overall market) may not have fared as well for the rally. In fact, a defensive portfolio would be expected to produce results inferior to the overall market in strong years such as 2009. Conversely, an aggressive portfolio would be expected to suffer much more than the overall market in declining markets while rebounding more quickly than the overall market as the markets rebound.

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February 12th, 2010

Why the Sell-off?

(Michael Farr) - The S&P 500 has now declined over 7% from the recent peak on January 19th. This drop has come despite a round of corporate earnings that were largely ahead of expectations. So what gives? We thought we'd take a stab at what's driving the correction. The following is our list of factors that we believe are concerning investors. These factors reflect the tenuous nature of the "recovery", and they reinforce the notion that we have a long road ahead of us. Most people are pointing to the sovereign debt "crisis" in Europe as the primary factor for the recent sell-off. While the main focus has been on Greece, there are several other European countries running huge deficits that may pose a problem in the near term. These so-called PIGS (Portugal, Ireland, Greece, and Spain) have seen their borrowing costs rise as investors have become more nervous about their ability to fund their deficits. While it appears the EU and other institutions may be rallying in support of Greece for now, this issue will likely affect the markets for a while. Incidentally, we would note that the US deficits as a percentage of GDP are trending dangerously high as well, and they are expected to remain so for the next couple of years (see last week's market commentary). In the best case scenario, we are going to needavery painful round of belt-tightening across the globe in order to shore up confidence in these debt markets.

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February 11th, 2010

The Markets

(Michael Schwartz) - Volatility in the financial markets has risen noticeably in the past few weeks as investors remain on edge about a multitude of issues. A mixed employment report for January, continued budget deficit issues in Portugal, Italy, Ireland, Greece and Spain, monetary tightening in China, and a growing sense that the worldwide economy might be running on government stimulus fumes instead of stable gas all contributed to worldwide jitters, according to the Associated Press. In the U.S., the S&P 500 index dropped for the fourth week in a row and it is now down 7.3% from its January 15 recovery high, according to data from Yahoo! Finance. Foreign stocks, commodities, and gold are also down for the year as shown in the chart below.

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February 5th, 2010

Obama Buck$: Start the Presses

(Michael Farr) - On Monday, President Obama submitted his 2011 budget proposal to Congress. The long-range budget projections, included within the administration's proposal, sent shivers down the spines of deficit hawks. By all accounts, our current course is unsustainable, and something must be done. Put bluntly, Americans simply require more out of their government than they are willing to pay in taxes. Absent drastic action to reverse the deteriorating outlook, we should all expect lower living standards for ourselves, our children and our children's children. But alas, election years are not known for the implementation of painful decisions. We fully expect another year of unheeded warnings, deferral of tough decisions, and unchecked spending. All the while, however, the voices at Tea Party rallies grow steadily louder. Are we nearing the day of reckoning, or can we afford to defer fundamental reform indefinitely. Only time will tell.

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February 3rd, 2010

The Markets

(Michael Schwartz) - Let’s recap some of the good news last week: The Commerce Department said the economy grew in the fourth quarter at its fastest pace in more than six years; The Institute for Supply Management-Chicago said its index of Midwest business activity rose more than expected in January; Consumer sentiment in January as measured by The Reuters/University of Michigan Surveys of Consumers hit its highest level in two years; and Of the 220 companies in the S&P 500 index that have reported fourth quarter earnings, 78% of them exceeded analysts' expectations, according to Thomson Reuters. In a typical quarter, only 61% of companies beat Wall Street targets. Sounds pretty good, doesn’t it? So, how does the stock market respond?

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