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The Markets

Michael Schwartz | Monday, April 12th, 2010

The U.S. stock market continued grinding its way higher last week as the Dow Jones Industrial Average briefly pierced the 11,000 level for the first time since September 2008, according to The Wall Street Journal. Back then, the Dow was piercing 11,000 on its way down to below 7,000 in March 2009. This time, it’s on its way up from the March 2009 low. Same number, but clearly a much different feel.

The main difference between then and now is the economy–it was bad then and getting worse, now, it is still weak but clearly improving.

On the improvement side, Thomson Reuters says analysts are looking for a 37% rise in first-quarter 2010 corporate earnings. Retailers reported a whopping 9.1% jump in March same-store sales, according to Barron’s. On top of that, “The service sector is growing at the fastest pace since May 2006, and manufacturing the most since 2004. Employers are hiring again, and sales of existing homes rose 8.2% in February,” according to Barron’s. Stats like that are keeping investors interested in owning stocks even at ever-increasing prices.

Of course, the problems of the Great Recession are still here such as high unemployment, unsustainable budget deficits, tight credit, and weak housing. However, there is a potential solution to working our way out of this hole. The Economist magazine calls it a “re-balancing” of the world economy. Put succinctly, the magazine said, “If Americans save more and spend less while other big countries do the opposite, the world economy will prosper.” In effect, the U.S. will need to export more to other countries who gobble up our goods and services. A weaker dollar could speed up this re-balancing; and, word that China might let its currency appreciate against the dollar in the near future supports this re-balancing theory, according to MarketWatch.

The effectiveness of this re-balancing could determine whether the next 1,000-point move in the Dow Jones Industrial Average is up to 12,000 or down to 10,000.

Data as of 4/9/10 1-Week Y-T-D 1-Year 3-Year 5-Year 10-Year
Standard & Poor’s 500 (Domestic Stocks) 1.4% 7.1% 39.4% -6.1% 0.2% -2.3%
DJ Global ex US (Foreign Stocks) 0.8 3.8 51.2 -6.5 4.1 1.0
10-year Treasury Note (Yield Only) 3.9 N/A 2.9 4.7 4.5 5.8
Gold (per ounce) 2.6 4.4 30.9 19.4 21.9 15.1
DJ-UBS Commodity Index 0.7 -3.2 19.1 -7.9 -3.1 3.6
DJ Equity All REIT TR Index 4.1 14.8 78.0 -9.5 4.8 11.9

Notes: S&P 500, DJ Global ex US, Gold, DJ-UBS Commodity Index returns exclude reinvested dividends (gold does not pay a dividend) and the three-, five-, and 10-year returns are annualized; the DJ Equity All REIT TR Index does include reinvested dividends and the three-, five-, and 10-year returns are annualized; and the 10-year Treasury Note is simply the yield at the close of the day on each of the historical time periods.

Sources: Yahoo! Finance, Barron’s,, London Bullion Market Association.

Past performance is no guarantee of future results.  Indices are unmanaged and cannot be invested into directly.  N/A means not applicable or not available.

U.S. COMPANIES ARE SITTING ON A RECORD PILE OF CASH and that could buoy stock prices as companies use their cash to repurchase stock, according to Bloomberg. At the end of 2009, S&P 500 companies were sitting on a record $831 billion in cash, according to Standard and Poor’s. This cash hoard grew as companies spent only 28% of their operating profits on stock buybacks in 2009, according to Standard and Poor’s as reported by Bloomberg. Further, Bloomberg said, “The last time the ratio dropped to that level, the S&P 500 subsequently climbed for four years.”

Prominent money manager and Forbes columnist Ken Fisher said in a Bloomberg television interview in early April, “There’s cash sitting there, waiting to come in later, which will then later help buoy both businesses and stocks. This bull market will carry on for several years.” Yes, it is getting easier to find reasons for the stock market’s year-long rise. But, just like in the late 1990s, a good fundamental story can get taken to an extreme and end in major disappointment.

One of the hallmarks of great investors is their ability to manage their enthusiasm. Rather than succumbing to euphoria, they try to maintain perspective. They aim to balance the positive with the potential negatives and not get carried away with an untamed crowd.

With the S&P 500 still down more than 20% from its all-time high and trading volume relatively low, we are likely not in danger (yet) of a new wave of market hysteria. However, we are always mindful of what could go wrong and, if this market keeps rising, so will our concern about the danger of getting caught in an “untamed crowd.”

Weekly Focus – Think About It

“Markets are constantly in a state of uncertainty and flux and money is made by discounting the obvious and betting on the unexpected.”

– George Soros

Value vs. Growth Investing

Here are the numbers (4/9/10)

Name 1-Week YTD 4-Week 13-Week 1-Year 3-Year 5-Year
US Market 1.59 8.36 5.00 5.35 44.34 -3.45 3.15
Large Cap 1.35 6.86 4.75 4.12 39.45 -3.88 2.38
Large Core 0.89 7.25 4.54 5.33 40.61 -1.35 3.52
Large Growth 1.63 4.93 3.98 2.62 43.39 -1.53 2.65
Large Value 1.56 8.31 5.66 4.30 34.15 -9.08 0.52
Mid Cap 2.05 11.88 5.67 8.19 56.83 -2.91 4.90
Mid Core 1.92 11.23 5.41 7.27 55.23 -3.11 4.55
Mid Growth 2.08 11.05 5.07 7.56 51.53 -1.93 5.66
Mid Value 2.16 13.42 6.55 9.88 64.09 -4.09 4.20
Small Cap 2.63 13.48 5.53 9.52 61.13 -1.51 5.29
Small Core 3.38 13.61 5.74 9.53 60.69 -2.59 5.11
Small Growth 1.76 11.45 4.73 8.26 49.83 -2.18 4.28
Small Value 2.63 15.28 6.06 10.72 73.61 -0.26 6.14
US Core 1.30 8.57 4.82 6.06 44.92 -1.58 3.95
US Growth 1.73 6.61 4.27 4.01 45.44 -1.64 3.45
US Value 1.76 9.81 5.87 5.85 42.34 -7.43 1.70


©2004 Morningstar, Inc. All Rights Reserved. The information contained herein: (1) is proprietary to Morningstar; (2) is not warranted to be accurate, complete or timely. Morningstar is not responsible for any damages or losses arising from any use of this information and has not granted its consent to be considered or deemed an “expert” under the Securities Act of 1933. Past performance is no guarantee of future results.  Indices are unmanaged and while these indices can be invested in directly, this is neither a recommendation nor an offer to purchase.  This can only be done by prospectus and should be on the recommendation of a licensed professional.

Office Notes

Caring For Your Aging Parents (Part 2)

What kind of advice will you need?

Housing and health care advice

If your parents are like many older individuals, where they live will depend upon how healthy they are. As your parents grow older, their health may deteriorate so much that they can no longer live on their own. At this point, you may need to find them in-home health care or health care within a retirement community or nursing home. On the other hand, you may want them to move in with you.  In addition, you will need information on managing the cost of health care, long-term care insurance, major medical insurance, Medicare, and Medicaid.


National Association for Home Care

Visiting Nurse Associations of America

Centers for Medicare & Medicaid Services (formerly known as the Health Care Financing Administration)

American Association of Homes and Services for the Aging

American Association of Retired Persons (AARP)

Health Insurance Association of America

Financial advice

If your parents need help managing their finances, you may need to contact professionals whose advice both you and your parents can trust, including one or more of the following individuals or organizations.


Your financial planner

Your banker

Your investment counselor

Your tax attorney

The Social Security Administration

Legal advice

Legal advisors can help you plan for your parents’ incapacity (including preparing documents such as power of attorneys, medical directives, and living wills), contact nursing home ombudsmen, set up and monitor guardianship, prepare wills, give tax advice, and provide bill payment and representative payee assistance. Many states provide funds for the delivery of free legal services to the elderly and many attorneys specialize in elder law, so finding legal advice shouldn’t be difficult.


Your attorney

National Association of State Units on Aging

American Bar Commission on the Legal Problems of the Elderly

Legal Counsel for the Elderly

What kinds of support and community services will you need?

Caring for your aging parents will be easier if you know what kinds of support and community services are available and where to locate them. The following is a list of the kinds of support and community services you can find locally and nationally, along with specific suggestions of who to contact for information. For other useful information and a more comprehensive list of organizations you can contact for help.

Adult day care

If you need to work or run errands and you can’t leave your parents alone, consider using adult day care. These programs are located in hospitals, churches, temples, nursing homes, or community centers. Many are private nonprofit organizations. Adult day care can be expensive but is sometimes subsidized by the government, and fees may be based on a sliding scale. In addition, Medicare, Medicaid, long-term care insurance, or your health insurance may pay part of the cost.


Your local senior center or community center

National Institute on Adult Day Care

The Alzheimer’s Association

Caregiver support groups (self-help)

Many self-help groups are available to provide information and emotional support on broad topics (such as aging) or specific topics (such as heart disease). You may find these support groups helpful if you know little about caring for your aging parents. Such groups might also provide an opportunity to help others by sharing your experiences.


The Alzheimer’s Association

Children of Aging Parents

National Self-Help Clearinghouse

Caregiver training/health education

You may feel better about taking care of your parents if you are armed with knowledge. You may want to complete first-aid courses or take classes in gerontology.


Your local college or university

Your local hospital

The American Red Cross

Geriatric assessment

If you are uncertain of your parent’s mental or physical capabilities, ask his or her doctor to recommend somewhere you can take your parent to undergo an assessment. These assessments can be done at hospitals or clinics. Your parent will be evaluated to determine his or her capabilities. The evaluation determines whether the individual can take care of himself or herself on a day-to-day basis, including such things as bathing, dressing, eating, using the telephone, doing housework, and managing money. Based on this evaluation, you and your parent will receive advice regarding care options.


Your doctor

Your lawyer

The National Association of Professional Geriatric Care Managers

Aging Network Services

Respite care

When you are caring for your aging parents, you may feel guilty or even resentful because you don’t have limitless energy. Taking care of your parents is hard work, however, and everyone needs a break once in a while. If you are caring for your aging parents, look into respite care. Medicaid may pay for some respite-care services.


Your doctor

Your local hospital

The Alzheimer’s Association

National Association for Home Care

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