Market Week: May 23, 2013

May 23rd, 2013

The Markets

Bears were on the defensive last week as both the Dow and the S&P 500 once again set fresh record highs. Friday’s close put the S&P 500 up almost 147% from its March 2009 low, while the small-cap Russell 2000 has almost tripled since then. Meanwhile, gold followed up on the previous week’s losses by losing some more. The spot price fell below $1,400 an ounce last Monday and kept on going; it ended the week at roughly $1,365, having lost more than 7% in a little over a week.

Market/Index

2012 Close

Prior Week

As of 5/17

Week Change

YTD Change

DJIA

13104.14

15118.49

15354.40

1..56%

17.17%

Nasdaq

3019.51

3436.58

3498.97

1..82%

15.88%

S&P 500

1426.19

1633.70

1667.47

2..07%

16.92%

Russell 2000

849.35

975.16

996.28

2..17%

17.30%

Global Dow

1995.96

2209.77

2234.46

1..12%

11.95%

Fed. Funds

.25%

.25%

.25%

0 bps

0 bps

10-year Treasuries

1..78%

1..90%

1..95%

5 bps

17 bps

Equities data reflect price changes, not total return.

Last Week’s Headlines

· Retail sales were up 0.1% in March, and for a change, the reason wasn’t higher gas prices. The Commerce Department said spending at gas stations fell 4.7%, while building materials/garden supplies, auto/auto parts, clothing, general merchandise, and nonstore retailers all gained at least 1% for the month.

· Inflation showed no signs of putting pressure on the Federal Reserve to raise interest rates. For the second straight month, falling oil prices were responsible for a drop in the Consumer Price Index. According to the Bureau of Labor Statistics, April’s 0.4% decline was the steepest since December 2008, and it pushed the annual consumer inflation rate down to 1.1%–its lowest level since November 2010. Meanwhile, wholesale prices fell 0.7% (also largely because of oil prices), putting the wholesale inflation rate for the last 12 months at 0.6%, its lowest since last July.

· Manufacturing data was underwhelming as both the Federal Reserve’s Empire State and Philly Fed manufacturing surveys showed general business conditions declining during the month. The Empire State index for May fell to -1.4–its first negative reading since January–while the Philly Fed number sank to -5.2.

· The Conference Board’s index of leading economic indicators rebounded from a slight decline to rise 0.6% in April. Housing permits and the interest rate spread were the most positive of the index’s 10 indicators.

Eye on the Week Ahead

Investors will parse minutes of the Federal Open Market Committee to see whether sentiment is tipping toward winding down quantitative easing sooner rather than later. Home sales and durable goods orders also are on tap.

Key dates and data releases: new home sales (5/23); durable goods orders (5/24).

Data sources: Includes data provided by Brounes & Associates. All information is based on sources deemed reliable, but no warranty or guarantee is made as to its accuracy or completeness. Neither the information nor any opinion expressed herein constitutes a solicitation for the purchase or sale of any securities, and should not be relied on as financial advice. Past performance is no guarantee of future results.

The Dow Jones Industrial Average (DJIA) is a price-weighted index composed of 30 widely traded blue-chip U.S. common stocks. The S&P 500 is a market-cap weighted index composed of the common stocks of 500 leading companies in leading industries of the U.S. economy. The NASDAQ Composite Index is a market-value weighted index of all common stocks listed on the NASDAQ stock exchange. The Russell 2000 is a market-cap weighted index composed of 2000 U.S. small-cap common stocks. The Global Dow is an equally weighted index of 150 widely traded blue-chip common stocks worldwide. Market indexes listed are unmanaged and are not available for direct investment.

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Market Week: May 15, 2013

May 15th, 2013

The Markets

And the beat goes on: Amid a week that was relatively light on economic influence, equity markets continued to set new records (except the Nasdaq, which still has a long way to go). The Dow, S&P 500, Nasdaq, and Russell 2000 all appear poised to reach the midyear point nearing or above a 15% gain, while the Global Dow is not far behind. Will the breakneck pace continue? While no one can say for sure, there is certainly no dearth of opinion on the matter. Stay tuned.

Market/Index

2012 Close

Prior Week

As of 5/10

Week Change

YTD Change

DJIA

13104.14

14973.96

15118.49

0..97%

15.37%

Nasdaq

3019.51

3378.63

3436.58

1..72%

13.81%

S&P 500

1426.19

1614.42

1633.70

1..19%

14.55%

Russell 2000

849.35

954.42

975.16

2..17%

14.81%

Global Dow

1995.96

2189.49

2209.77

0..93%

10.71%

Fed. Funds

.25%

.25%

.25%

0 bps

0 bps

10-year Treasuries

1..78%

1..78%

1..90%

12 bps

12 bps

Equities data reflect price changes, not total return.

Last Week’s Headlines

· The U.S. monthly budget surplus reached a level not seen in five years in April, the Treasury Department said on Friday. The higher-than-anticipated $113 billion surplus is due largely to record high tax receipts. Although April surpluses are not unusual due to the month’s income-tax-filing deadline, this year’s figure was almost double the surplus recorded in April 2012.

· The number of Americans filing new claims for unemployment insurance fell to its lowest weekly level in more than five years to 323,000, said the U.S. Labor Department. The four-week moving average was 336,750. Both figures were below the 350,000 benchmark that economists consider indicative of an improving job market.

· The nearly $8 billion in new debt that American consumers incurred in March was almost half the previous month’s $18.6 billion increase, according to the Federal Reserve. Most of the borrowing increase was for major purchases such as cars or education, while revolving credit such as credit card debt fell at an annual rate of 2.4%.

· The dollar surpassed the noteworthy benchmark of ¥100 for the first time in more than four years on Thursday, fueling a Friday rally in the Japanese stock market and gains in the dollar versus other currencies. The surge was likely due to positive U.S. economic data combined with last month’s moves by Japan’s central bank to stimulate growth in that country.

· During a speech at a Fed conference in Chicago, Fed Chairman Ben Bernanke said that U.S. banks could face even more stringent regulation in the future. Indicating that there is still some concern about large, interconnected financial institutions being “too big to fail,” Bernanke said that banks may face higher capital requirements intended to encourage them to reduce their complexity.

· For the first time, the Securities and Exchange Commission accused a local municipality of allegedly misleading investors in its municipal bonds. Harrisburg, PA settled the suit, and no criminal charges were filed against any individuals. The suit charged that city officials failed to fully disclose problems with its finances from 2009 to 2011–for example, a downgrade of the city’s credit rating–after bonds were issued.

Eye on the Week Ahead

With earnings season coming to a close, investors may turn their attention to the flood of manufacturing-related data this week. And given the recent records in equities prices, options expiration at week’s end could be accompanied by some volatility.

Key dates and data releases: retail sales, business inventories (5/13); import/export prices (5/14); wholesale prices, industrial production, Empire State manufacturing survey, international capital flows (5/15); consumer prices, housing starts, Philly Fed manufacturing survey (5/16); leading economic indicators, options expiration (5/17).

Data sources: Includes data provided by Brounes & Associates. All information is based on sources deemed reliable, but no warranty or guarantee is made as to its accuracy or completeness. Neither the information nor any opinion expressed herein constitutes a solicitation for the purchase or sale of any securities, and should not be relied on as financial advice. Past performance is no guarantee of future results.

The Dow Jones Industrial Average (DJIA) is a price-weighted index composed of 30 widely traded blue-chip U.S. common stocks. The S&P 500 is a market-cap weighted index composed of the common stocks of 500 leading companies in leading industries of the U.S. economy. The NASDAQ Composite Index is a market-value weighted index of all common stocks listed on the NASDAQ stock exchange. The Russell 2000 is a market-cap weighted index composed of 2000 U.S. small-cap common stocks. The Global Dow is an equally weighted index of 150 widely traded blue-chip common stocks worldwide. Market indexes listed are unmanaged and are not available for direct investment.

Market more confusing than ever

May 15th, 2013
Two unusual things happened last week, and I’m wondering if they are related: First of all, I turned 75, and second I found myself confused by the stock market.
It wasn’t that way at the beginning of the year. I was only 74 years old and I felt that I had a pretty good idea of what the market would do during 2013. I expected a slow steady increase in large cap stocks, with the occasional dips; a better than average rise in stocks related to home-building, including copper; and benefits to healthcare stocks as the national health program got under way. I was down on Europe, high on Asia, and I felt that Japan would clean up its act and its market would go up.
Now I’m not so sure on all of this. So far I’ve been right on Japan. That market is doing well and seems poised to continue in an upward trend:
43013_After the bell graph 1
On copper, as we all know, I was dead wrong. Perhaps because of fears that the Chinese market is softening, copper has gone way down. I can’t help but think this is a buying opportunity.
043013_After the bell graph 2And so, as they say, you win a few and lose a few. In addition to holding my view on Japan, I still am down on Europe.
On healthcare I think the expected rise from universal health care has kicked in prematurely. When I look at Athena Health, (ATHN) and see that over the past six months it’s gone from about 60 to about 90, with a PE (price earnings ratio) of 190, it looks like a bubble and I can’t bring myself to buy it. United Health (UNH) looks a bit better to me, but less reliable. It’s moved up and down from about 52 to 62 over the past six months, but with a current PE of 12, more in line with the market. So if one believes that the healthcare market will improve with so many new people getting care, that might be a good buy. Some say that hospital stocks might improve, such as LifePoint Hospitals (JPNT). But it too has anticipated the future profits it hopes to see, and moved up from 36 to 46 over the past six months, with a PE of 14. I am not a big fan of hospital stocks because I rarely see good management there. Business might increase, but I doubt that profits will.
Finally one can look at medical device companies such as Medtronic (MDT) and Johnson & Johnson (JNJ). Those two have already moved up, and my guess is that they will be pressured to reduce prices in the new environment.
The only stock in the medical area that I’m thinking of buying is Cerner (CERN). This is a company offering electronic medical record systems. As confused as I feel, somehow I feel strongly that companies like this that increase efficiency will continue to have increased business demand. While it too has moved up over the past six months from 80 to 95, and has a fairly high PE around 42, I think it has further to go with less pressure on pricing than other companies in the medical field.
At the beginning of the year I was down on bank stocks, partly because my personal experience with banks is that they are poorly managed and poorly staffed. But now I think bank stocks, even Bank of America, may be good buys. The poor performance from the recession finally seems to be over and profits are starting to move up. As building and real estate comes back, as it is, the banks should benefit from lending into this market.
My final thoughts on the market are the same as when I was younger: you can’t successfully time the market. You have to think long term. I don’t think anybody knows who wrote the song “Nobody Knows,” but it sure describes my philosophy of the problem in trying to time the market.  There’s a mathematical reason why it doesn’t work, that has to do with the fact that the top days and the bottom days usually come very close together, so a timer gets whipsawed.
And so, for the moment in my confused state, I’m holding on to some cash, keeping some in short-term bond funds, writing wide put spreads well out of the money, selling calls on long positions I’ve held for some time, and praying that Apple and copper come back.
Merv Hecht

Is retirement real?

May 15th, 2013
In a recent article published on Motley Fool, Morgan Hausel makes the interesting case that the classic “retirement” as we know it never really existed.  So the concept that somehow we have to save more than ever because our safety net has been eroded simply doesn’t pass close examination.  Hausel claims that a cushy retirement has always been elusive when you look at the historical statistics.  This is not to say that there is no retirement crisis, just that we have always been in that mode of crisis.
The gist of the article boils down to individuals making hard choices about their savings and how long they want to work.  Hausel demonstrates that in the past retirement aged people typically worked long into their golden years, and many worked until they died.  That is probably the last option for most people, if they had a choice.  But if you chose not to save money during your prime working years, then working until you die is basically the only option.  And in the past that was normal.  Only in the last 30 to 40 years has this notion been challenged, as many corporate and state pension set up 50 years ago now start to fade away.  So in a sense, we are merely turning back to the strategy of old — pun intended.
So retirement then really is or has been largely a figment of the imagination, nothing real but rather an ideal.  Why work in the golden years when you can retire on a nice pension?  That is a great thought, if you even have access to one.  It is clear from the historical record that most workers will have to choose to self-fund a comfortable retirement by deferring current expenditures  and gratification.  The question then is what is the best way to leverage cash flow to create the assets necessary for future income.
As I have argued before, a pension or retirement plan is the best way because of the immediate tax deduction today and the long term tax free growth of the asset over the long run.  Add in to this mix a fairly solid legal basis for the protection of those pension assets, and you have yourself a pretty solid program to fund the golden years.  But it doesn’t happen without commitment, without desire and without a plan.  Feel free to contact me regarding your pension plans and how you are going to secure your cash flow over the long run.