Saturday, December 24, 2011

Santa Claus Rally

Merry Christmas to you and your family. I hope you have a time of peace, comfort, and joy. This week the news talked about having a Santa Claus Rally which is the subject for this week. At the end is some trivia on Santa Claus so that you can answer the question is their really a Santa Claus? The first paragraph is the weekly review from Vanguard. I hope that you have a Wonderful Christmas!!!!!


Vanguard

As holiday shoppers grabbed last-minute gifts and Europe's leaders continued to search for solutions to their debt crisis, the latest economic reports offered more positive news than negative. Third-quarter GDP's lower-than-expected growth rate was still the best for the year, and leading economic indicators rose for the seventh straight month, while the battered housing market reported progress on a number of fronts. For the week ended December 23, the S&P 500 Index rose 3.7% to 1,265 (for a year-to-date total return—including price change plus dividends—of about 2.7%). The yield on the 10-year U.S. Treasury note rose 17 basis points to 2.03% (for a year-to-date drop of 127 basis points).


Santa Claus Rally

A Santa Claus rally is a rise in stock prices in the month of December, generally seen over the final week of trading prior to the new year. The rally is generally attributed to anticipation of the January effect, an injection of additional funds into the market, and to additional trades which must, for accounting and tax reasons, be completed by the end of the year. The Santa Claus rally is also known as the "December Effect."
Santa Claus, also known as Saint Nicholas, Father Christmas, Kris Kringle, and simply "Santa", is a figure with legendary, mythical, historical and folkloric origins who, in many western cultures, is said to bring gifts to the homes of the good children during the late evening and overnight hours of Christmas Eve, December 24.[1] The modern figure was derived from the Dutch figure of Sinterklaas,[2] which, in turn, may have part of its basis in hagiographical tales concerning the historical figure of gift giver Saint Nicholas. A nearly identical story is attributed by Greek and Byzantine folklore to Basil of Caesarea. Basil's feast day on January 1 is considered the time of exchanging gifts in Greece.


Santa Claus

Santa Claus, also known as Saint Nicholas, Father Christmas, Kris Kringle, and simply "Santa", is a figure with legendary, mythical, historical and folkloric origins who, in many western cultures, is said to bring gifts to the homes of the good children during the late evening and overnight hours of Christmas Eve, December 24. The modern figure was derived from the Dutch figure of Sinterklaas, which, in turn, may have part of its basis in hagiographical tales concerning the historical figure of gift giver Saint Nicholas. A nearly identical story is attributed by Greek and Byzantine folklore to Basil of Caesarea. Basil's feast day on January 1 is considered the time of exchanging gifts in Greece.

Santa Claus is generally depicted as a portly, joyous, white-bearded man wearing a red coat with white collar and cuffs, white-cuffed red trousers, and black leather belt and boots (images of him rarely have a beard with no moustache). This image became popular in the United States and Canada in the 19th century due to the significant influence of Clement Clarke Moore's 1823 poem "A Visit From St. Nicholas" and of caricaturist and political cartoonist Thomas Nast. This image has been maintained and reinforced through song, radio, television, children's books and films. The North American depiction of Santa Claus as it developed in the 19th and 20th century in turn influenced the modern perceptions of Father Christmas, Sinterklaas and Saint Nicholas
in European culture[citation needed].

According to a tradition which can be traced to the 1820s, Santa Claus lives at the North Pole, with a large number of magical elves, and nine (originally eight) flying reindeer. Since the 20th century, in an idea popularized by the 1934 song "Santa Claus Is Coming to Town", Santa Claus has been believed to make a list of children throughout the world, categorizing them according to their behavior ("naughty" or "nice") and to deliver presents, including toys, and candy to all of the well-behaved children in the world, and sometimes coal to the naughty children, on the single night of Christmas Eve. He accomplishes this feat with the aid of the elves who make the toys in the workshop and the reindeer who pull his sleigh.

Sunday, December 18, 2011

Taxes

We have only 2 weeks left to the end of the year, my how time flies. This means that we are 4 months away until we have to pay our taxes on April 15th. Our government has given us ways to reduce our tax obligation if we act before December 31st, more on this in the middle section. The first section is from Vanguard. The last part is a link that tells the Christmas story in social network language, just copy and paste.


Vanguard

The U.S. economy is showing enough momentum to keep the Federal Reserve in wait-and-see mode, though risks from abroad continued this past week. Europe's drift back toward recession and signs of slowing in Asia remained potential stumbling blocks for the U.S. recovery. Meanwhile, the sovereign bond market's cool reaction to a plan to enforce fiscal discipline in Europe kept alive concern that nations could default—with uncertain repercussions for the fate of the Eurozone and the global economy. For the week ended December 16, the S&P 500 Index fell 2.8% to 1,220 (for a year-to-date total return—including price change plus dividends—of about -1.0%). The yield on the 10-year U.S. Treasury note fell 21 basis points to 1.86% (for a year-to-date decline of 144 basis points).


Common Ways to Reduce Your Taxes

Here are few actions for your consideration that can reduce your tax obligation:

1) Sell assets like stock that have gone down in value in a non-retirement account. It is important to avoid the wash sale rule if you repurchase it within 30 days so wait 31 days. A similar asset can be purchased during this 31 day period to keep a portfolio in balance.

2) Contribute to a traditional IRA or 401(k). A contribution to a traditional account is tax deductible while a contribution to a Roth IRA or Roth 401(k) is not tax deductible.

3) Make a donation to a charity. A church or charity can always use your support.

4) Make your January house payment in December to deduct the interest.

5) Contribute to your medical expense account if you have one, either a FSA or HSA.

I would be glad to review this you on an individual basis if you have a question.


A Social Network Christmas - You Tube Link

http://www.youtube.com/watch?v=sghwe4TYY18

Sunday, December 11, 2011

Improving Housing Prices

I hope that all of you are in the Holiday spirit. While I was watching the Republican debate last night, the most important thing that I was a commercial sponsored by AAG which made me very happy, perhaps you saw it as well.

The first paragraph is from Vanguard. The last section is part of an article that I found on if a person should hire someone to manage their portfolio. As an investor, I am looking forward to the rest of the year as our politicians will be relatively quiet and no European summits.

Vanguard

Growth in service-sector activity slowed for the third month in a row as other economic reports issued mixed signals. News from Europe continued to weigh on the markets, even as some European Union nations announced a plan to address the debt burden plaguing the EU economies. For the week ended December 9, the S&P 500 Index rose 0.9% to 1,255.2 (for a year-to-date total return—including price change plus dividends—of about 1.8%). The yield on the 10-year U.S. Treasury note rose 2 basis points to 2.07% (for a year-to-date drop of 123 basis points).

AAG Commercial - Improving Housing Prices

While watching the Republican debates last night on ABC, I saw this commercial sponsored by a company called AAG which made me happy. This is a very important commercial because it says that the economy is improving and the prices of houses are going up. The commercial stated that AAG was interested in offering reverse mortgages. The reason that this is important is that for the first time in a long time someone is advertising for a reverse mortgage and this only happens when the value of the home is going to be going up. This is like someone sounding a bell that said happy days are hear again. As a good friend of mine says, as housing goes so goes the economy.

A reverse mortgage is where a financial company buys your home from you and you continue to live in it. You get a monthly payment that is specified in the contract. This financial company will not buy your home if they believe that the value of the home is going down, they only buy if the price is going up. What AAG is saying in this commercial is that with the prices of housing going up and interest rates being low that they are very happy to make money with your home.

If AAG is buying homes, now would be a good time for others to buy as well. If you have been waiting for a bell to go off to say that now is a time to buy that home. Well it just went off.

Should I Hire a Financial Adviser or Go It Alone? By Walter Updegrave | CNNMoney.com

The answer depends largely on how comfortable you are going it alone -- and how good a job you think you could do overseeing your finances without help from a pro. Let's start with one key aspect of retirement planning: investing. As long as you're familiar with the concept of asset allocation and you're comfortable picking funds, you shouldn't have trouble building a diversified portfolio on your own. And you can get plenty of assistance short of hiring an adviser: These days most 401(k) plans provide tools to help you assess your investing options and assemble an appropriate lineup for your age and risk tolerance.

The problem is, if you screw up, you can end up losing a lot more than you might save. In a recent study, benefit consultant Aon Hewitt and advice firm Financial Engines looked at the 401(k) returns of more than 425,000 savers from 2006 through 2010. The findings: The median annual return of those who got professional help was almost three percentage points higher than the return for those who invested on their own, even after taking fees into account.

One reason for that performance gap is that the investors who flew solo were far more likely to be too aggressive or too conservative. Emotions also played a role: Do-it-yourselfers were more apt to cash out of stocks in the 2008 crash. As a result, their returns lagged substantially when the market rebounded in 2009.

A shot at better investment returns isn't the only reason to seek help. During your working days, sticking with a sufficient savings rate is crucial. Setting aside 12% to 15% a year (including a company match) is an oft-cited rule of thumb, yet a 2011 Vanguard study estimated that fewer than a third of 401(k) participants put away that much.

While you're saving for retirement, you have plenty of free tools to guide you, plus low-cost access to professional help through target-date funds. But as you near the end of your career, the stakes go up.

Turning your retirement savings into a reliable income is essential, and that can be daunting to tackle on your own. An October report from MetLife found that 40% of pre-retirees believe they can spend 7% or more each year without depleting their savings -- most advisers consider 4% to 5% a safe withdrawal rate.

Sunday, December 4, 2011

2012 IRS Retirement Plan Limits

I hope you had a very Happy Thanksgiving. I traveled to Nebraska last week to attend a funeral for my oldest brother on Friday November 25th which impacted my ability to write last weekend. One thing from this experience is that one of the most important things you can do is have a positive impact on the lives of others.

The topic for this week is the IRS limits during 2012 for Retirement plans. A weekly recap from Vanguard is the first section. The last section is words of wisdom from Bill Gates at a high school commencement address that you may find interesting. I especially like Rule 11.

Vanguard

Improvements in U.S. employment and manufacturing suggest the nation's economic recovery has regained traction. However, risks abound. The nation's housing and employment situation remain weak. A slower global economy and turmoil in the Eurozone pose a challenge to any recovery. For the week ended December 2, the S&P 500 Index rose 7.4% to 1,244 (for a year-to-date total return—including price change plus dividends—of about 0.9%). The yield on the 10-year U.S. Treasury note rose 8 basis points to 2.05% (for a year-to-date drop of 125 basis points).

2012 Retirement Plan Limits

It is my personal view that it is important for all of us to contribute to a retirement plan on a regular basis. If the US Government continues with the 2% reductionn in payroll taxes for 2012, it would be prudent to put this savings into a retirement account. Below are the IRS limits for next year:

•401(k) and 403(b) elective deferrals were increased to $17,000, up from $16,500 last year; the catch-up elective deferral limit remained at $5,500

•The taxable wage base for social security rose to $110,100, up from $108,600 last year

•Defined Benefit plan benefit limits moved higher to $200,000, up from $195,000 last year

•Annual contribution plan limits rose to $50,000, up from $49,000 last year

•Annual compensation limits were raised to $250,000, up from $245,000 last year

•The threshold for highly compensated employees moved higher to $115,000, up from $110,000 last year

•The deduction for taxpayers making contributions to a traditional IRA is phased out for singles and heads of household who are covered by a workplace retirement plan and have modified adjusted gross incomes (AGI) between $58,000 and $68,000, up from $56,000 and $66,000 in 2011; for married couples filing jointly, in which the spouse who makes the IRA contribution is covered by a workplace retirement plan, the income phase-out range is $92,000 to $112,000, up from $90,000 to $110,000; for an IRA contributor who is not covered by a workplace retirement plan and is married to someone who is covered, the deduction is phased out if the couple’s income is between $173,000 and $183,000, up from $169,000 and $179,000

•The AGI phase-out range for taxpayers making contributions to a Roth IRA is $173,000 to $183,000 for married couples filing jointly, up from $169,000 to $179,000 in 2011; for singles and heads of household, the income phase-out range is $110,000 to $125,000, up from $107,000 to $122,000; for a married individual filing a separate return who is covered by a retirement plan at work, the phase-out range remains $0 to $10,000

•The AGI limit for the saver’s credit (also known as the retirement savings contributions credit) for low-and moderate-income workers is $57,500 for married couples filing jointly, up from $56,500 in 2011; $43,125 for heads of household, up from $42,375; and $28,750 for married individuals filing separately and for singles, up from $28,250

Bill Gates Commencement Address

Bill Gates, Chairman of Microsoft, gave a Commencement address at a high school. He gave the students eleven rules to remember as they go out into the future.

Rule 1 - Life is not fair - get used to it!

Rule 2 - The world doesn't care about your self-esteem. The world will expect you to accomplish something BE-FORE you feel good about yourself.

Rule 3 - You will NOT make $60,000 a year right out of high school. You won't be a vice-president with a car phone until you earn both.

Rule 4 - If you think your teacher is tough, wait until you get a boss.

Rule 5 - Flipping burgers is not beneath your dignity. Your grandparents had a different word for burger flip-ping - they called it opportunity.

Rule 6 - If you mess up, it's not your parents' fault, so don't whine about your mistakes, learn from them.

Rule 7 - Before you were born, your parents weren't as boring as they are now. They got that way from paying your bills, cleaning your clothes and listening to you talk about how cool you thought you were. So before you save the rain forest from the parasites of your parent's generation, try delousing the closet in your own room.

Rule 8 - Your school may have done away with winners and losers, but life HAS NOT. In some schools, they have abolished failing grades and they'll give you as MANY TIMES as you want to get the right answer. This doesn't bear the slightest resemblance to ANYTHING in real life.

Rule 9 - Life is not divided into semesters. You don't get summers off and very few employers are interested in helping you FIND YOURSELF. Do that on your own time.

Rule - 10 Television is NOT real life. In real life, people actually have to leave the coffee shop and go to jobs.

Rule - 11 Be nice to nerds. Chances are you'll end up working for one.

Friday, November 18, 2011

Record Profits

This is the title an article in the Sunday, November 13, 2011 Charlotte Observer. This article gives the profits for the companies that comprise the S&P 500 index. Next week Thursday is Thanksgiving and let me be one of the first to wish you Happy Thanksgiving, we have many things to be thankful for. Make sure to read the Thanksgiving facts at the bottom, some may surprise you.

Vanguard

After sputtering for months, the U.S. economy began to show some hopeful signs. Industrial output, retail sales, and a gauge of potential future economic activity all climbed substantially in October from September, while also significantly exceeding analysts' expectations. Consumer and producer prices declined. For the week ended November 18, the S&P 500 Index fell 3.8% to 1,215.65 (for a year-to-date total return—including price change plus dividends—of about –1.6%). The yield on the 10-year U.S. Treasury note fell 3 basis points to 2.01% (for a year-to-date drop of 129 basis points).

Record Profits. So What?

It is difficult to make long term investing decision based upon things that are one time events like the US Debt Committee progress. Ultimately, stock prices are related to the growth in corporate profits. So the question is how is the growth in corporate profits?

This article indicates that corporate profits are growing and doing fine. Here is the info:

* 3rd quarter profits of $23.78 per share this tops last quarter's record of $22.24/share.
* The 2nd quarter of 2007 had a profit of $21.88/share.
* Profits are rising because of an improving economy that is growing faster than the previous quarter.
* Even with these record profits the S&P 500 is now 24% below the October 9, 2007 high.
* Financial analysts expect profits to keep rising.
* Investor demand for stocks over the long term depends on corporate profits.

Bottom Line: I look forward to the noise quieting down so that stock prices can reflect improving corporate profits.

Fun Facts About Pilgrims

1) The Pilgrims moved to Holland before they came to the New World.
2) The Pilgrims left England because they wanted to practice their own religion, not the religion that the government wanted them to practice.
3) The Pilgrims ddecided to leave Holland, because they found they were losing their own traditions and their children were practicing Dutch traditions. It was sometimes difficult to practice two different traditions.
4) It took 64 days for the pilgrim ship Mayflower to cross the Atlantic.
5) The Pilgrims first spotted land at what is now known as Cape Cod, but kept sailing until they came to Plymouth.
6) Many Pilgrims died the first year because they ran out of food and got sick.
7) During March, the Indians introduced themselves to the Pilgrims and taught them how to use fish to fertilize corn and how to get sap from maple trees.
8) The Pilgrims first Thanksgiving celebration was in the middle of October. It lasted for three days.
9) There were 90 Indian braves and their chief at the first celebration.
10) The Indians brought five deer for the feast.
11) A Plymouth Pilgrim didn't just wear black and white clothes. Pilgrims also wore clothes that were colorful.
12) Women wore bonnets to keep their hair clean.
13) Pilgrims ate venison, which is deer meat, at the first celebration.
14) The first celebration was not called Thanksgiving. It was held because the Pilgrims wanted to thank the Indians for teaching them how to survive.

Saturday, November 5, 2011

Jobs Report - Trick or Treat

We celebrated Halloween this week with spooky news about Greece. The topic this week is about something that I found confusing, the difference between the number of new jobs added and the unemployment rate. This week is seemed that things went from being happy to being sad, fitting for a week with tricks and treats. Initially, is something from Vanguard. Lastly is some history from 1955.

Vanguard

Another weak U.S. jobs report and little clarity over Europe's debt crisis tipped a mixed week toward the glum side. After European leaders appeared to have an agreement in hand early in the week to shore up Greece, the country's political situation deteriorated markedly. By Friday, the Group of 20 had adjourned without broad backing to contain the crisis. For the week ended November 4, the S&P 500 Index fell 2.5% to 1,253.23 (for a year-to-date total return of about 1.33%). The yield on the 10-year U.S. Treasury note fell 30 basis points to 2.04% (for a year-to-date decrease of 126 basis points).

Jobs - Trick or Treat

Normally, the various jobs reports make sense except this week. Today's Charlotte Observer newspaper held the answer which I want to share. Here is the information from the article titled "Modest gains for job market in Oct." Note that Vanguard call it weak while the Charlotte Observer called it modest gains. It appears that the media is confused as well. When this happens it is best to let the data do the talking.

The number of new jobs added during October was 80,000 jobs fewer than the 100,000 jobs that was expected. The unemployment rate dropped from 9.1% to 9.0%. We need 125,000 new jobs to keep the same unemployment rate. So how did the unemployment rate drop when we had less than 125,000 new jobs added?

The article explains that the data comes from 2 sources. To calculate the number of new jobs added, the government uses a survey of mostly large companies and government agencies. To calculate the unemployment rate the government uses a separate survey of households that includes small business like farmers and others that are self-employed. At first blush, the data is saying that small business is growing faster than large business.

The household survey shows that 277,000 jobs were added in October and an average of 335,000 job per month for the last 3 months. The last time the household survey was this strong was in 2006.

The large company and government survey comes out in 2 steps an initial reading, an approximation, that gets reported and then a revised actual reading that is not reported. Remember in August when the initial reading said that 0 jobs were created. The August actual reading was 104,000 more jobs. The September initial reading was 56,000 more jobs with an actual reading of 158,000 more jobs. This means that the October actual reading will probably be higher as well.

Other data: The number of long term unemployed who have been looking for work for at least 6 months fell by 366,000 to 5.9 million the fewest since April. The total number of jobs lost since February 2008 is 8.8 million while the number of jobs that has been created has been 2.3 million jobs.

If we are creating jobs why is the unemployment rate so high? The adult non military population has grown by 7.5 million people. We need an economy that is creating about 125,000 new jobs each month just to maintain the unemployment rate.

You be the judge if the the jobs report was week or the jobs report had modest gains. Personally, I agree with modest gains.

History

The following comments were made in the year 1955! That’s only 56 years ago. Imagine what things are going to be like 56 years from now in 2067!

• “I’ll tell you one thing, if things keep going the way they are, it’s going to be impossible to buy a week’s gro-ceries for $10.00.”

• “Have you seen the new cars? It won’t be long before $1, 000.00 will only buy a used one.”

• “If cigarettes keep going up in price, I’m going to quit - 20 cents a pack is ridiculous.”

• “Did you hear the post office is thinking about charg-ing 7 cents just to mail a letter? They will also probably do away with the penny post card.”

• “If they raise the minimum wage to $1.00, nobody will be able to hire outside help at the store.”

• “When I first started driving, who would have thought gas would someday cost 25 cents a gallon? Guess we’d be better off leaving the car in the garage.”

Sunday, October 30, 2011

Value Investing

So far in October the U.S. Stock market indexes has risen about 14%, a good month. Remember my statements about 1,000 points lower on the Dow Jones Industrial Average, that now was a great to time to buy a mutual fund that invests in U.S. Stock. At the time, many people thought that I was a little crazy. The people who continued to contribute to their retirement account have been rewarded for their persistence. This is an example of value investing. First is the weekly recap from Vanguard. Lastly, are some quotes for your enjoyment.

Vanguard

Signs of progress on Europe's sovereign debt crisis and solid, but unspectacular, GDP growth in the United States sounded hopeful notes in a week of otherwise mixed signals. The S&P 500 Index rose 3.8% to 1,285 (for a year-to-date total return—including price change plus dividends—of about 3.9%). The yield on the 10-year U.S. Treasury note increased 11 basis points to 2.34% (for a year-to-date decrease of 96 basis points).

Value Investing

Value investing is when an investor views a decline in an asset as a potential buying opportunity rather than a time to panic. Some research is needed to know if it is a buying opportunity or a change in climate. It is important to look at the situation from a few perspectives.

Perhaps the most difficult thing about being a value investor is to buy when your emotion says to sell and to sell when your emotion says to buy. The best time to buy an asset is when it is a good value and when experts in the news media are saying how bad things are and that things are going to get worse. Conversely, the best time to sell an asset is when experts in the news media are saying how good things are and that things are going to get even better.

Interesting Quotes

An American went to Scotland and played golf with a newly acquainted Scottish golfer.
After a bad tee shot, he played a "Mulligan" which was an extremely good one.
He then asked the Scottish fellow, "What do you call a Mulligan in Scotland?"
"We call it 3."

A 2:00 am Police Stop: An elderly man was s stopped by the Knoxville, TN police around 2 a.m. and the officer asked him where he was going at that time of night. The man replied, "I am on my way to a lecture about alcohol abuse and the effects it has on the human body, as well as smoking and staying out late." The officer then asked, "Really? Who is giving that lecture at this time of night?" The man replied, "That would be my wife!"

"It’s not important who starts the game but who finishes it."-- John Wooden

“It is not sufficiently considered in the hour of exultation, that all human excellence is comparative – that no person performs much but in proportion to what others accom-plish, or to the time and opportunities which have been allowed them.” Samuel Johnson

“Life’s like a play – it’s not the length, but the excellence of the acting that matters.” Seneca

“The way to achieve success is first to have a definite, clear, practical ideal – a goal, an objective. Second have the ne-cessary means to achieve your ends – wisdom, money, mate-rials and methods. Third, enlist all your means to that end.” Aristotle

“Do not spoil what you now have by desiring what you have not – but remember that what you now have was once among the things you only hoped for.” Epicurus

“A great part of courage is the courage of having done the thing before.” Emerson

“If you’re strong enough, there are no precedents.” George Bernard Shaw

Sunday, October 23, 2011

Birth Rate & Immigration

This past week was full of news about things like pulling troops out of Iraq and the killing of a tyrant in Libya. I think that these are good things for our country. The most important news for your retirement benefits that was not reported related to Birth Rate.

A weekly recap from Vanguard is the opening paragraph. The last section are quotes from one of my favorite historical figures Robert E. Lee known as the General for the Confederate Army in the Civil War, past President of Washington & Lee University, and owner of the land that is now the Arlington National Cemetery.

Vanguard,

The economy is stirring more than it was a few weeks ago, but there's still worry the long slumber will continue. Economic reports were mixed this week. Both the Beige Book and a set of leading economic indicators showed slow growth. Industrial production crawled forward. A sizeable gain in new residential construction was muted by a decline in existing-home sales. Consumer and wholesale prices rose, but inflation still appears tame. For the week ended October 21, the S&P 500 Index rose 1.1% to 1,238 (for a year-to-date total return—including price change plus dividends—of about 0.1%). The yield of the 10-year U.S. Treasury note fell 3 basis points to 2.23% (for a year-to-date decrease of 107 basis points).

Birth Rate and Immigration

The future solvency of Social Security and Medicare is dependent upon having people contribute to it on an ongoing basis. The statistic this week on the United States Birth Rate shows that since 2007 the number of babies being born has been declining. Even as the economy has been recovering, this birth rate continues to decline.

We need an expanding economy creating more jobs and American citizens filling them. We need to have people paying FICA and Medicare taxes. The issue of immigration is of paramount importance as well. If we do not have enough babies then we need to have legal immigration to have an ample supply of workers. What really makes me mad is a business person that hires illegal aliens to get around paying FICA and Social Security taxes and then complains about the future solvency of Social Security and Medicare.

Robert E. Lee Quotes

"Duty is the most sublime word in our language. Do your duty in all things. You cannot do more. You should never wish to do less.”

“Never do a wrong thing to make a friend or to keep one.”

“It is well that war is so terrible, or we should get too fond of it.”

“The education of a man is never completed until he dies.”

“I cannot trust a man to control others who cannot control himself.”

“Get correct views of life, and learn to see the world in its true light. It will enable you to live pleasantly, to do good, and, when summoned away, to leave without regret.”

“We have fought this fight as long, and as well as we know how. We have been defeated. For us as a Christian people, there is now but one course to pursue. We must accept the situation.”

“I have fought against the people of the North because I believed they were seeking to wrest from the South its dearest rights. But I have never cherished toward them bitter or vindictive feelings, and have never seen the day when I did not pray for them.”

“Obedience to lawful authority is the foundation of manly character.”

“I think it better to do right, even if we suffer in so doing, than to incur the reproach of our consciences and posterity.”

Sunday, October 16, 2011

Annual Meeting

The first week of corporate earnings is here and the investing environment has turned around. It appears that all of the noise of Europe is in the background and the focus is on corporate earnings which appear to be coming in about as expected. The first annual meeting occured past Thursday night and the bullet points from the meeting are shown.

Vanguard

Retail sales grew faster than expected in September as the Federal Open Market Committee (FOMC) minutes showed considerable debate about what the Fed should do next to help the economy out of its funk. For the week ending October 14, the S&P 500 Index rose 6% to 1,225 (for a year-to-date total return—including price change plus dividends—of about –2.74%). The yield on the 10-year U.S. Treasury note increased 16 basis points to 2.26% (for a year-to-date decrease of 104 basis points).

Annual Meeting Bullet Points

1) Business Cycle: The US economy remains in a recovery mode, not in a growth mode.
2) Investment Cycle: The cycle has shifted to being favorable to stocks and when stocks reach the July high the accounts that purchased stocks will be asked to be sell stocks and get back to the previous position.
3) Retirement Environment: People need to continually invest in retirement accounts due to future reductions in Social Security, Medicare, and government pension funds.
4) Cheapest Investment Today: US Stocks, bonds and gold are expensive.
5) Greece/Europe: This is a minor story as Europe has to solve it to keep the European Union together.
6) Current Concerns: Legislation involving the Volker Rule and the impact on banks and the Yuan Bill impacting the relationship with China.
7) Housing and Banks: Banks are not the cause of the housing mess rather government policy.
8) Timing to buy Real Estate: Now is a great time to refinance a mortgage and for many people now is a great time to buy real estate due to improving economic conditions and having mortgage rates at historically low levels.
9) Obama Care: Medicare reimbursements to health providers are starting to be reduced because of it. This means that individuals will be paying more in the future so it would be prudent to keep contributing to a retirement account.
10) Investing in the Short Term: Take advantage of the Investment Cycle.
11) Investing Strategy: Long term time horizon with decisions based upon value of possible asset choices.

Friday, October 7, 2011

Corporate Earnings Season

Next week is the start of corporate earnings season, alleluia. Remember that this next Thursday is the first annual meeting which will be held in Lenoir. If you are planning to attend, and have not told me as of yet, please let me know. The first section is from Vanguard. The last section is titled Cliff Young, you will enjoy reading how 1 person changed a sport.

Vanguard

The latest economic reports suggest that the U.S. economy is on a knife's edge—growing enough at the moment to stave off recession, but not enough to make a dent in the unemployment rolls, while casting a shadow on the longer-term outlook. The week's closely watched jobs figures illustrated the dilemma: The unemployment rate was unchanged in September at 9.1%, payroll job growth was substantially higher than expected, and previous months' payroll figures were restated upward. Good, but not good enough, say economists. Meanwhile, Ben Bernanke, chairman of the Federal Reserve Board, warned that the U.S. economic recovery was "close to faltering" and urged fiscal action from Congress and the White House. For the week ended October 7, the S&P 500 Index rose 2.1% to 1,155 (for a year-to-date total return—including price change plus dividends—of about -6.7%). The yield of the 10-year U.S. Treasury note increased 18 basis points to 2.10% (for a year-to-date decrease of 120 basis points).

Corporate Earnings Season

The 2nd week of the first month in a quarter starts corporate earnings season. This season goes strong for about 7 weeks until the end of the second month in a quarter. Typically, corporations announce any earning surprises before earnings season begins. So far, it appears that corporate earnings should be good which should provide support for stock prices. I am really looking forward to the next 7 weeks.

Cliff Young

Many runners already know the legendary story of Cliff Young. Every year Australia hosts the Westfield run. A 543.7-mile – (875 kilometers) – endurance run from Sydney to Melbourne. It is considered among the world’s most grueling ultra-marathons. The race takes five days to complete and is normally only attempted by world-class athletes who train specifically for the event. These athletes are typically less than 30 years old and are sponsored by large companies such as Nike.

In 1983, a man named Cliff Young from Beech Forest, Victoria showed up at the start of this race. Cliff was 61 years old and wore overalls and work boots. To everyone’s shock, Cliff wasn’t a spectator. He picked up his race number and joined the other runners. The press and other athletes became curious and questioned Cliff. They told him, “You’re crazy, there’s no way you can finish this race.” To which he relied, “Yes, I can. You see, I grew up on a ranch. We couldn’t afford horses or tractors, and whenever the storms would roll in, I’d have to go out and round up the sheep. We had 2,000 sheep on 2,000 acres. Sometimes I would have to run those sheep for three or four days. It took a long time, but I would always catch them. This race is kind of like herding sheep!”

When the race started, the pro runners quickly left Cliff behind. The crowd and television audience were enter-tained because Cliff didn’t even run properly, he appeared to shuffle. Many even feared for the old rancher’s safety. The professional athletes knew that it took 5 days to finish the race. In order to compete, one had to run about 18 hours a day and sleep the remaining 6 hours. They also had an entourage traveling with them – trainers, nutritionists, massage therapists, medical personnel, sleeping tents, etc. The thing is, Cliff Young didn’t know this. He had his girl friend and an old pickup truck. (Cliff married his girl friend shortly after the Westfield race.)

The morning of the second day, everyone was in for another surprise. Not only was Cliff still in the race, he had continued shuffling all night – he didn’t stop to sleep. He was only a little ways behind the leaders of the race. Cliff was asked about his tactics for the rest of the race. To everyone’s disbelief, he claimed he would continue to run straight through to the finish without sleeping.

Cliff kept shuffling. Each night he came a little closer to the leading runners. By the final night, he had passed all of the younger, world-class athletes. He was the first competitor to cross the finish line beating his nearest competitor by nine hours. In addition, he set a new course record. When Cliff was awarded the winning prize of $10,000, he said he didn’t know there was a prize and insisted that the money be given to the other runners.

The following year, Cliff entered the same race and took 7th place. During the race, he had fallen and displaced his left hip. His wife kicked it back in place and Cliff continued to shuffle to the finish line.

Cliff came to prominence again in 1997 at age 76, when he set out to raise money for homeless children by shuf-fling around Australia’s border. He completed 6,520 kilometers – (4,051 miles) - before he had to drop out. His only support staff member, his wife, had become ill. Cliff Young passed away in 2003 at the age of 81.

Today the “Young shuffle” has been adopted by ultra-marathon runners because is it considered more energy-efficient. Further more, during the Sydney to Melbourne race, modern competitors do not sleep. Winning the race now requires runners to go all night as well as all day, just like Cliff Young.

• Moral of the story – it only takes one person to change long held perceptions in this world.

Sunday, October 2, 2011

Mortgage Rates, Buying Stock

Congratulations on getting through September and a very volatile third quarter of investing. I look forward to a more rational time period. This will have 3 sections, none written by me, that cover the topics of Vanguard Weekly Recap, Record Low Mortgage Rates, and Warren Buffet's view of Stocks. The bottom line is this, now is a great time to re-finance a mortgage and now is a great time to buy stock if you have a longer term time horizon. I hope you enjoy it.

Vanguard Weekly Recap

The U.S. economy grew slightly more than expected in the second quarter, tempering some fears of another recession. But the economy remains weak. The housing market continues to struggle, and although initial jobless claims fell significantly last week, the number of unemployed remains high. For the week ended September 30, the S&P 500 Index fell 0.4% to 1,131 (for a year-to-date total return—including price change plus dividends—of about -8.7%). The yield on the 10-year U.S. Treasury note rose 8 basis points to 1.92% (for a year-to-date decrease of 138 basis points).

Record Low Mortgages

Mortgage rates have skated near record lows for weeks. But now it can finally be said: Long-term rates in the United States have never been lower. This week, the average rate on a 30-year fixed mortgage fell to 4.01 percent, mortgage buyer Freddie Mac said in its weekly report. That's the lowest since it began keeping records in 1971.

For months, Freddie had pointed to data from the National Bureau of Economic Research showing that rates were lower in the early 1950s, when long-term mortgages typically lasted just 20 or 25 years. But Freddie says that's no longer true: Today's average 30-year rate is even lower than the average 20- or 25-year rate was in the 1950s.

The NBER's data show that between July 1950 and February 1951, long-term rates averaged 4.08 percent. Today's average 30-year rate is 4.01 percent. Both are higher once you include the extra fees most buyers pay. Those fees are called points; one point equals 1 percent of a loan amount. If you include fees and points comparable to today's low rates, the 1950-51 average would be 4.33 percent, Freddie Mac said Friday. Today's average on the 30-year, with extra fees factored in, is 4.17 percent.

The average on a 15-year fixed mortgage, a popular refinancing option, also ticked down to 3.28 percent this week. Economists say that's the lowest rate ever for that loan. Mortgage rates tend to track the yield on the 10-year Treasury note, which has risen this week to around 2 percent. A week ago, it touched 1.74 percent -- the lowest level since the Federal Reserve Bank of St. Louis started keeping daily records in 1962. As recently as July, the 10-year exceeded 3 percent. Rates on mortgages could fall further after the Federal Reserve announced last week that it would take further action to try to lower long-term rates.

Warren Buffet's View of Investing

Warren Buffett says Berkshire Hathaway has been buying stocks at bargain prices, including shares of his own company. In a live interview on CNBC from the floor of the New York Stock Exchange, Buffett revealed Berkshire has bought a net total of $4 billion worth of common stocks during the quarter that ends today. That's about as much as the company bought in the first half of the year.

He tells Squawk Box co-host Andrew Ross Sorkin, "The cheaper stocks get, the better I like to buy them, whether its our stock or somebody else's." Buffett says he thinks Berkshire's market price is very attractive, and the company has just begun to repurchase some shares under the surprise buyback program announced on Monday. Buffett wouldn't reveal how much has been bought, noting the "paperwork was just completed yesterday." It all depends on the price. "The cheaper it is, the more aggressive, generally, we will be buying. It's just like any other stock."

Buffett says the buyback program should not be seen as a sign he's pessimistic about finding potential acquisitions, and he's still looking for "elephants" to buy. The Omaha billionaire isn't worried his new purchases will be caught up in a 'double-dip' for the U.S. economy. He thinks "it's very, very unlikely we'll go back into a recession... We're coming out of a recession."

Buffett tells us profits for Berkshire's businesses are improving and the company will invest $7 billion in its plants and equipment this year. Ninety percent of that money will be spent in the United States.

Sunday, September 25, 2011

Operation Twist, US Treasury Bonds = Very Very Expensive

This week the top story was that the Federal Reserve launched a new program named Operation Twist. To put this in my best southern accent, would y'all go borrow some money for something expensive like a house. What this does is make the interest rates for US Treasury Bonds very low, in fact to a record low. You should take advantage of this and investigate re-financing of your home if you have a mortgage. The first paragraph is from Vanguard. The last section is titled 56 years ago and shows how important it is for an investment to grow faster than the rate of inflation.

The topic of the last blog was that gold was expensive and should be avoided. Last week, the price of gold dropped by about 10% and ended the week at $1,637.50. This is not a buying opportunity and gold should be avoided. The reason for this drop included a significant cost increase to purchase and maintain a contract on gold.

The stock market is getting way too much help from the US Federal Government. You would think that the US stock market indexes would have gone up with this news from the Federal Reserve. Unfortunately, investors got stressed about why would the action be taken. Last week, the US stock market indexes went down the most since 2008. The week before, the US stock market indexes went up the most since 2009. It means that the US stock market is currently being driven by political forces rather than economic forces. Eventually, economic forces will reign supreme and political forces will go into the background.

Vanguard:

The economic data released this week were mixed, but long-term persistent troubles were enough for the Federal Open Market Committee (FOMC) to take additional steps in its efforts to boost the economy. On the housing front, existing-home sales increased, while new residential construction fell. The index of leading economic indicators grew, but at a slower pace. For the week ended September 23, the S&P 500 Index fell 6.5% to 1,136 (for a year-to-date total return—including price change plus dividends—of about -8.3%). The yield on the 10-year U.S. Treasury note fell 24 basis points to 1.84% (for a year-to-date decrease of 146 basis points).

Operation Twist, US Treasury Bonds = Very Very Expensive:

Last week the 10 year US Treasury Bond briefly reached a historically low level of 1.67%. This means that interest rates are lower now than the Great Recession, World War II, Korean War, Vietnam War, etc... The only reason it went this low was through the help of the Federal Reserve and is not sustainable.

What the Federal Reserve did was to tell investors to sell other stuff and buy US Treasury Bonds. Forget about all of the long term stuff like having an interest rate less than the rate of inflation, just focus on the short term that interest rates could go even lower.

So why are US Treasury Bonds more expensive as interest rates drop? The best way to illustrate this is to look at a 10 year bond at the interest rates of 3.5%, 7%, and 14%. Remember that US Treasury bonds have a known value at maturity and the cost to purchase it fluctuates with interest rates. For example, the ball-park cost to purchase a $1,000 10 year US Treasury bond with a 3.5% interest rate would be about $750, 7% interest rate would be about $500, while a 14% interest rate would be about $250. The lower the interest rate the higher the cost.

The reason for the statement that US Treasury Bonds are expensive is because the cost to buy these bonds is unusually high. As interest rates go up to more normal levels the value will go down and if you sell it before the maturity you will lose money. If you hold it and the inflation rate is higher you will lose. Yes you can lose money on US Treasury Bonds.

56 years ago:

The following comments were made in the year 1955! That’s only 56 years ago. Imagine what things are going to be like 56 years from now in 2067!

• “If cigarettes keep going up in price, I’m going to quit - 20 cents a pack is ridiculous.”
• “Drive-in restaurants are convenient in nice weather, but I seriously doubt they will ever catch on.”
• “Did you hear the post office is going to charge 7 cents just to mail a letter and also cancel the penny postcard?”
• “When I first started driving, who would have thought gasoline would someday cost 25 cents a gallon?”
• “I heard some scientists think it’s possible to put a man on the moon by the end of the century - ridiculous.”
• “Did you see where some baseball player signed a con-tract for $50,000 a year just to play ball?”
• “I never thought I’d see the day all our kitchen ap-pliances would be electric. They are even making electric typewriters now.”
• “I’m afraid the Volkswagen car is going to open the door to a whole lot of foreign business.”
• “There’s no sense going on short weekend trips any-more. It costs nearly $2.00 a night to stay in a hotel.”
• “No one can afford to be sick anymore. At $15.00 a day in the hospital, it’s too rich for my blood.”
• “30 cents for a hair cut, forget it.”

Saturday, September 17, 2011

Investing in Gold, Gold = Very Expensive

The topic is the current status of investing in Gold. My personal view is that it was expensive a long time ago and should be avoided, I will share the data. At the end is s short story titled Bubba's Loan for your enjoyment.

Vanguard

Consumers grew more cautious in August amid wild stock market swings, zero job growth, and heightened concerns the economy had weakened. While business inventories and industrial production climbed, retail sales were flat as consumer prices rose higher than expected. For the week ended September 16, the S&P 500 Index rose 5.4% to 1,216 (for a year-to-date total return—including price change plus dividends—of about -1.9%). The yield on the 10-year U.S. Treasury note rose 15 basis points to 2.08% (for a year-to-date decrease of 122 basis points).

Investing in Gold, Gold = Very Expensive

The value of Gold is all around us and a common question is should I be investing in it? It can be seen in advertisements for selling old jewelry and paid endorsements. I keep making reference to Gold as being part of the investing Tug of War with it being on the opposite side with Treasury Bonds against Stocks. Gold is a commodity that has a value strictly based upon buyers and sellers with no underlying basis.

Historically, Gold has grown at a 5% per year rate. The value of Gold in September 2001 was about $300 per ounce. So if Gold was grow at the historical rate of 5% it would be worth about $450 per ounce. The value of Gold last Friday was about $1,800 per ounce. I believe that Gold is about 4 times more expensive than it should be and the price has been driven up by political forces and the news media. I am concerned about something that is 4 times the level that I can correlate back in time.

In today's Barron's magazine on page M54, a chart shows the price of Gold and the relative price of an index of Gold minig stocks. So while Gold has risen about 40% in value during the last year the value of Gold mining stocks has grown only by 10%. This suggests a lack of confidence in the future price of Gold.

Bottom Line: While it is impossible to predict the price of Gold in the future, it is difficult to imagine it maintaining a growth rate that far exceeds it historic growth rate.

Bubba’s Loan

His name was Bubba - he was from Tennessee - he needed a loan. He walked into a bank in New York City and asked for the loan officer. He told the loan officer that he was going to Paris for an international redneck festival for two weeks and needed to borrow $5,000. He also pointed out that he was not a depositor of the bank. The loan officer noted that Bubba was wearing what would be considered his “Sunday go to meeting” clothes - bib overalls, U of TN sweatshirt and ball cap and formal black flip-flops.

The bank officer told him that the bank would need some form of security for the loan, so the redneck handed over the keys to a new Ferrari. The car was parked on the street in front of the bank. The redneck produced the title and everything checked out. Bubba did own the Ferrari and it was paid for. The loan officer agreed to hold the car as collateral for the loan and apologized for having to charge 12% interest.

Later, the bank's president and its officers all enjoyed a good laugh at the redneck from the south for using a $250,000 Ferrari as collateral for a $5,000 loan. An em-ployee of the bank then drove the Ferrari into the bank's private underground garage and parked it.

Two weeks later, the redneck returned, repaid the $5,000 and the interest of $23.07. The loan officer said, "Sir, we are very happy to have had your business, and this transac-tion has worked out very nicely. However, we are a little puzzled. While you were away, we checked you out on Dun & Bradstreet and found that you are a Distinguished Alum-ni from the University of Tennessee, a highly sophisticated investor and multi-millionaire with real estate and financial interests all over the world. What puzzles us is, why would you need to borrow $5,000?"

The good 'ole boy replied, "Where else in New York City could I park my car for two weeks for only $23.07 and ex-pect it to be there when I returned?"

Sunday, September 11, 2011

Stocks = Value

I hope your day of remembrance has gone well and you have had a chance to enjoy the good things of life. This will be relatively short and will have 3 sections: Vanguard, Stocks = Value, and a true story called The Gingham Dress for your enjoyment. During the past 10 years the investment that has been impacted the most has been Stocks which makes them the investment that currently has the best value which is why I want every client to have a stock mutual fund.

Vanguard

Despite a few good signs, the market's mood turned grim as somewhat favorable reports on spending, trade, and service-sector growth were offset by higher new jobless claims and continued caution from Federal Reserve officials throughout the country. In remarks similar to those he made a few weeks ago, Fed Chairman Ben Bernanke said the central bank has a few more tools in the box to bolster the weakening economy. However, he didn't say whether he'd use them before the Federal Open Market Committee meets on September 20 to consider other measures to promote economic growth. For the week ended September 9, the S&P 500 Index fell 1.7% to 1154.23 (for a year-to-date total return—including price change plus dividends—of about -6.9%). The yield on the 10-year U.S. Treasury note dropped 9 basis points to 1.93% (for a year-to-date decline of 137 basis points).

Stocks = Value

As we all know, the long-term driver for stock price is corporate profits as profits go so does stock price. So in the 10 years what has happened to corporate profits and to stock price?

The Federal Reserve Bank of New York publishes information on publicly traded corporate profit and the chart is titled Corporate Profits with IVA and CCADJ. On September 2001, publicly held corporations had about $800 Billion in profits. The latest number on the chart is about $1,850 Billion in profits or about 2.3 times more.

The Saturday 9/10/2011 Wall Street Journal shows the value for the S&P 500 Stock Index for the last 10 years. The current S&P 500 stock index value is about $1,150. With corporate profits having grown 2.3 times you would think that the value of the S&P 500 index on 9/10/2001 would be much lower. Actually, 10 years ago the value of the S&P 500 index was a little less then $1,100, about the same. So while corporate profits have been growing at an average annual rate of about 9% the value of the S&P 500 index has barely moved.

So why am I still recommending that people buy a stock based mutual fund(s)? Because this is currently the investment that has the best value for a long-term investor.

The Gingham Dress

A lady in a faded gingham dress and her husband, dressed in a homespun threadbare suit, stepped off the train in Boston, Massachusetts and proceeded to the office of the President of Harvard University. The secretary could tell in a moment that such backwoods, country hicks had no business at Harvard.

“We'd like to see the president,” the man said softly. "He'll be busy all day," the secretary snapped. "We'll wait," the lady replied. For hours the secretary ignored them, hoping that the couple would finally become discouraged and go away. They didn't, and the secretary grew frustrated and finally decided to disturb the presi-dent, even though it was a chore she always dreaded.

"Maybe if you see them for a few minutes, they'll leave," she said. He sighed and nodded. Someone of his impor-tance obviously didn't have the time to spend with them, and he detested gingham dresses and homespun suits clut-tering up his outer office. The president, stern faced and with dignity, strutted toward the couple.

The lady told him, "We had a son who attended Harvard for one year. He loved Harvard and he was happy here. About a year ago, he was accidentally killed. My husband and I would like to erect a memorial to him on campus."

The president wasn't touched. He was shocked. "Ma-dam," he said, gruffly, "We can't put up a statue for every person who attended Harvard and died. If we did, this place would look like a cemetery." “Oh, no,” the lady explained quickly. "We don't want to erect a statue. We thought we would like to give a building to Harvard."

The president rolled his eyes. He glanced at the gingham dress and homespun suit, and then exclaimed, “A build-ing. Do you have any earthly idea how much a building costs? We have over seven and a half million dollars in the physical buildings here at Harvard." For a moment, the lady was silent. The president was pleased. Maybe he could get rid of them now.

The lady turned to her husband and said quietly, "Is that all it costs to start a university? Why don't we just start our own?" Her husband nodded. The president's face wilted in confusion and bewilderment. Mr. and Mrs. Leland Stanford got up and walked away, traveled to Palo Alto, California where they established the university that bears their son’s name, Stanford University, a memorial to a son that Harvard no longer cared about.

You can easily judge the character of others by how they treat those who they think can do nothing for them. A true story by Malcolm Forbes.

Monday, September 5, 2011

JOBS

Happy Labor Day, I hope you enjoyed your time with family and friends. Labor Day is a celebration related to jobs something that is in the news constantly. The first section is from Vanguard. The middle section is on the job related metrics used by economists. Lastly is the rest of the information on the Tomb of the Unknown Soldier.

Vanguard

The long Labor Day weekend got off to a shaky start on Friday because of a weaker-than-expected report from the Labor Department, which indicated that the U.S. economy produced no net job growth in August. In other news, minutes from the Federal Open Market Committee's August meeting revealed that members were split over how best to help the economy. Meanwhile, consumer confidence hit its lowest point in more than two years last month. On a brighter note, consumer spending and factory orders both increased in July. For the week ended September 2, the S&P 500 Index fell 0.2% to 1,174 (for a year-to-date total return—including price change plus dividends—of about -5.4%). The yield of the 10-year U.S. Treasury note fell 17 basis points to 2.02% (for a year-to-date decrease of 128 basis points).

Job Statistics

The news on Friday was about 2 job statistic, the nonfarm payroll employment number and the unemployment rate. The data showed no change in nonfarm employment and no change in the unemployment rate. Three job metrics are typically given each month and I have given all 3 below. The bottom line of all these 3 metrics is that the economy is still in the recovery phase and job creation is going slowly as the Federal, State and Local governments are adjusting their workforce.

Nonfarm Payroll and Unemployment Rate

Nonfarm payroll employment was unchanged (0) in August, and the unemployment
rate held at 9.1 percent, the U.S. Bureau of Labor Statistics reported today.
Employment in most major industries changed little over the month. Health
care continued to add jobs, and a decline in information employment reflected
a strike. Government employment continued to trend down, despite the return
of workers from a partial government shutdown in Minnesota.

The ADP National Employment Report August 2011 Report

Private-sector employment increased by 91,000 from July to August on a seasonally adjusted basis, according to the latest ADP National Employment Report® released today. The estimated advance in employment from June to July was revised down modestly to 109,000, from the initially reported 114,000. According to today’s ADP National Employment Report, employment in the nonfarm private business sector rose 91,000 from July to August on a seasonally adjusted basis. Employment in the private, service-providing sector rose 80,000 in August, down from increases that averaged 115,000 per month over the prior two months. Employment in the private goods-producing sector rose 11,000 in August, while manufacturing employment slipped by 4,000.

UNEMPLOYMENT INSURANCE WEEKLY CLAIMS REPORT SEASONALLY ADJUSTED DATA

In the week ending August 27, the advance figure for seasonally adjusted initial claims was 409,000, a decrease of 12,000 from the previous week's revised figure of 421,000. The 4-week moving average was 410,250, an increase of 1,750 from the previous week's revised average of 408,500.

Tomb of the Unknown Soldier

• Their shoes are standard military issue with some mod-ifications. They are built up so the sole and heel are equal in height. This allows the Sentinel to stand with their back straight and perpendicular to the ground. A side effect of this is that the sentinel can “roll” on the outside of the build-up as they walk down the mat. This allows them to move in a fluid fashion. If done correctly their hat and bayonet will appear to not “bob” up and down with each step. This gives them a more formal and smooth look as they walk rather than a “marching” appearance. There is also a “clicker” built into the shoes. This is a shank of steel attached to the inside face of the heel. It allows sentinels to click their heels during certain movements. If done properly during the changing of the sentinels the click will be so perfect that it will sound like one click.

• Only eight words are spoken when the sentinels change. The sentinel being relieved will say to the relief commander and the replacement sentinel, “Post and orders remain as directed.” The relieving sentinel replies, “Orders acknowledger.”

• The average tour of duty for a sentinel is about a year. There is no set time for service. The sentinels live in a barrack at Ft. Myer, which is located adjacent to the Ar-lington National Cemetery. They can live off base if they prefer. There are also living quarters under the Arlington amphitheater where they stay during their 24-hour shifts. The sentinel guards are a special platoon within the 3rd U.S. Infantry Regiment.

• The Sentinel Identification Badge is awarded after a sentinel passes a special test and has served nine months. This Badge is a full size award, and is worn on the right pocket of their uniform jacket. This badge is the second rarest decoration awarded by the U S Army. (Only the Army Astronaut Badge is rarer.)

• Have there ever been any unusual circumstances at the Tomb? In 1984, a former government employee took the sentinel hostage with a handgun. In that situation the Tomb sentinels not on duty were alerted and proceeded to tackle the gunman from behind – no one was injured.

Sunday, August 28, 2011

Investing Tug of War


I hope you are doing well and are enjoying life as August comes to a close. For an investor, a good way to describe this past week is to think of the game Tug of War. I will illustrate this in the middle section. The first section is from Vanguard. The last section is more trivia on the subject of the Tomb of the Unknown Soldier.

Vanguard Weekly Recap

The march to extreme caution quickened its pace this week led by more disappointing news for the fragile economy. Key reports on housing, new orders, and national output indicate that the economy, still buffeted by slow growth and persistent joblessness, remains far from reaching a sustained recovery. Amid this discouraging environment, Federal Reserve Chairman Ben Bernanke—in widely anticipated comments on Friday from Jackson Hole, Wyoming—said the central bank stands ready to help dig the economy out of the doldrums but didn't indicate what tools he would use to do so. For the week ended August 26, the S&P 500 Index rose 4.7% to 1,176.80 (for a year-to-date total return—including price change plus dividends—of about -5.2%). The yield on the 10-year U.S. Treasury note increased 12 basis points to 2.19% (for a year-to-date decline of 111 basis points).

Tug of War

I think the best way to describe investing for this year is to use the game of tug of war. As you recall, in this game each side is pulling against each other to move a rope a distance so that a team can win. Normally, during the game the number of players on a team are fixed.

For investing the teams for this tug of war are gold and US Treasury Bonds on 1 side and Stocks on the other side. As gold and US Treasury Bonds go up, stocks go down and vice versa. What makes this game unique is that investors have no loyalty and are either switching sides on a continual basis or putting their money in cash and leaving the game all together.

Who will win this tug of war during 2011? My money is on Stocks since Corporate profits are at an all time record high, about 10% higher than the previous peak in 2006 while the price of gold and US Treasury Bonds are inflated, making absolutely no sense.

Just watch for yourself this week the price of gold, the interest rates on the 10 year US Treasury Bond, and the S&P 500. Since this tug of war exists, this is why a balanced portfolio has both stocks and bonds.

Tomb of the Unknown Soldier Trivia

• Originally called “The Tomb of the Unknown Soldier” it is now called “The Tomb of the Unknowns.” (This change has not been ratified by Congress.) This is the result of WWII, Korean War and the Viet Nam War.

• The guards are called “sentinels” not guards. The sen-tinels wear no insignia of rank on their uniforms so as not to outrank the “unknowns” buried there.

• The sentinels stop on the 21st step, do a ninety-degree turn and face the Tomb for 21 seconds, turn ninety de-grees again hesitate 21 seconds before beginning their return walk. This walk is done on a black mat.

• Why are the sentinels gloves wet? Their gloves are moistened to prevent losing their grip on the M14 rifles, which are unloaded, but kept ready for use at all times and always have a bayonet fixed.

• How many women have served as sentinels? Three.

• Do the sentinels carry their rifle on the same shoulder all the time? No. They always carry their rifle on the shoulder away from the tomb. After they walk 21 steps across the mat, they execute a ninety-degree turn and move the rifle to their outside shoulder.

• How often are the sentinels changed? Sentinels are changed every thirty minutes during the summer – (April 1 – September 30) - and every hour during the winter (October 1 – March 31.) During the hours the cemetery is closed, the sentinel is changed every two hours. The Tomb is guarded twenty-four hours a day, 365 days a year. There has been a sentinel on duty every minute of every day since July 2, 1937. Currently the sentinels work on a three Relief (team) rotation. 24 hours on, 24 hours off, 24 hours on, 24 hours off, 24 hours on and 96 hours off.

• What are the physical characteristics of all sentinels? For a person to apply for sentinel duty they must be be-tween 5’ 10” and 6’ 4” tall and their waist size cannot exceed 30 inches. They are assigned to Relief Teams by height. This is done so that each team will look as identical as possible.

Sunday, August 21, 2011

Should I Be In The Stock Market?

For the average investor, this week was like going to the dentist office, something that I did this week. This week was filled with news media hype about how bad things are and computer program trading that gyrated investments. This week, I was asked this question by my favorite client. First is the info from Vanguard. Last is some trivia on the Tomb of the Unknown Soldier.

What was very significant this week but not reported was something that probably will never happen again. This event was the 10 year US Treasury Bond went below 2% which suggests that we are on the verge of a depression, which does not make sense.

To answer the question, it depends. A short term investor, less than 6 months, the answer is to always be out of the stock market and in cash. For a longer term investor the answer is yes. I will explain below. The key to the answer is that an investor must invest in something that beats inflation.

Vanguard

Volatility in the financial markets dominated the news, as the U.S. economic outlook and Europe's fiscal woes weighed on investors. Economic reports didn't help matters—two regional manufacturing surveys reported glum results, housing remains in the doldrums—despite positive news about national production and future economic activity. For the week ended August 19, the S&P 500 Index fell 4.7% to 1,124 (for a year-to-date total return, including price change plus dividends, of about –9.5%). The yield on the 10-year U.S. Treasury note slipped below 2%, its lowest level since at least the 1960s. Stressed investors often flee to Treasury securities, which has the effect of lowering yields. The note's yield for the week dropped 17 basis points to 2.07% (for a year-to-date decline of 123 basis points).

Should I be in the Stock Market - Long Term Investor

My answer is that the Stock Market is one of the only places to invest. Let's look at the options and remember that a long term investment must beat inflation, historically 3%.

Treasury Bonds: With bonds below the historical inflation rate it does make sense to invest unless the inflation rate for the next 10 years is going to be negative, illogical. Currently, the inflation rate is about 2% per year. Also, a stock that pays a dividend of 3% is a better option right now.

Gold: At $1850 per ounce this seems like an unsustainable level.

Cash or Money Market Funds: At less than 1% it is lower than the inflation rate. An investor will only stay in cash for a short period when fear is prevalent.

The bottom line: When the craziness ends, cash will come out and invest. The only place that makes sense for it to go is the Stock Market for a rational long term investor. My belief is that prudent long term investors are buying stock not acting in fear.

Tomb of the Unknown Soldier - History

On March 4, 1921, the United States Congress approved the burial of an unidentified American serviceman from World War I in the plaza of the new Memorial Amphi-theater. The tomb’s design was selected in a competition won by architect Lorimer Rich. The sculpture was by Thomas Hudson Jones.

The white marble sarcophagus has a flat-faced form and is relieved at the corners and along the sides by neo-classical pilasters set into the surface. The stone was quarried in Marble, CO from the Yule Marble Quarry. The tomb was fabricated in Proctor, VT. In the east panel that faces Washington, DC are sculpted three Greek figures repre-senting Peace, Victory and Valor. Inscribed on the western panel are the words – “Here rests in honored glory an American soldier known but to God.”

The six wreaths carved into the North and South sides of the Tomb represent six major battles of WW I - Ardennes, Belleau Wood, Château-Thierry, Meuse-Argonne, Oise-Aisne and Somme. West of the Tomb are the crypts of Unknowns from World War II, Korea and Viet Nam. The Unknown from Viet Nam was later identified in 1998 through DNA and was removed and buried in his hometown. This crypt remains empty.

Because of age and weathering, cracks have begun to ap-pear on the Tomb. In 2009, it was announced that the long 28.4-foot and the 16.2-foot cracks would be re-paired.

Friday, August 12, 2011

Emergency Fund

This past week was filled with events that made the calmest investor a little nervous. I have been sending out updates this week so this one will be relatively short.

Vanguard

Market tensions overflowed this past week as economic prospects appeared to dim, doubts about European solvency deepened, and policymakers struggled to forge remedies. The volatility added to signs suggesting a higher risk of another U.S. recession, though the consensus view remains that the economy will continue its slow and fitful recovery. After diving and spiking throughout the week, stocks regained some of their poise by Friday, but their recent performance has been downward. "Market volatility is always high when investors' expectations about the economy take a sudden turn," said Vanguard senior economist Roger Aliaga-Díaz, who noted that economists now expect slower growth in the second half of the year and that consumer and business confidence has slipped amid heightened uncertainty over economic and fiscal policy. For the week ended August 12, the S&P 500 Index fell 1.7% to 1,178.81 (for a year-to-date total return, including price change plus dividends, of about -5.1%). The yield on the 10-year U.S. Treasury note fell 34 basis points to 2.24% (for a year-to-date decrease of 106 basis points).

Importance of an Emergency Fund

Some age old advice is always be ready for a rainy day. This adage has been changed to always have an emergency fund. A rule of thumb is to have up to 3 months of income in cash or money market funds. The past 6 weeks in my life illustrates why this is important.

During July and August my family has made 2 trips to Omaha, took care of tree damage, fixed 2 cars, fixed a plumbing problem, fixed a refrigerator compressor, and fixed an air conditioning compressor plus A coil. Now you have had this same type of experience already. If you have not you have a good chance of it happening to you in the future as these are all man made things.

The reason for the emergency fund is to prevent from racking up credit card debt at a very high interest rate. View it as money to allow you to sleep easy at night. Do not think of it as I am only getting a small interest rate on my money. Do think of it as I can sleep at night and avoid credit card issues.

Trivia

We will not see another July like the one we just expe-rienced for 823 years! This past July had 5 Fridays, 5 Saturdays and 5 Sundays.

This year of 2011, we will experience four unusual dates – 1/1/11, 1/11/11, 11/1/11 and 11/11/11. Take the last two digits of the year in which you were born – now add this number to the age you currently are or will be this year. The results will be 111 or 11 for everyone in the world.

August is National Catfish Month

Sunday, August 7, 2011

A Manufactured Crisis

Wow, what a week for an investor. Three weeks ago, the US Stock Markets were about at the high for the year and the economy was good. Now, the sky is falling and the future is terrible. So what happened in 3 weeks? I think that President Obama stated it best last week that this debt ceiling crisis was A Manufactured Crisis.

My view is that for 3 weeks the news media has stated over and over again that the US, Europe, Middle East, China, Japan is in a crisis of one form or another. After stating that we are in crisis enough times sooner or later people will believe it even if it is not true. During these 3 weeks some things have been constant. Our economy is still in a recovery phase, our government is still printing money to feed the economy, interest rates are low due to the actions of the Federal Reserve, corporate profits are still growing, and jobs are still being created.

So this week when the stock market was supposed to have a relief rally and interest rates would be steady it kept thinking about the word crisis and had an emotional decline. This decline reduced the 10 year treasury bond interest rate below 2.5% for the 3rd time in my life-time. More on this in the middle section. First is the recap from Vanguard. The end is a quote from a former US President that seems very appropriate.

Vanguard

A week that began with the federal government striking a deal to avert defaulting on the nation's debts ended with the release of better-than-expected unemployment numbers. The week also saw the largest one-day drop for the Dow Jones Industrial Average since autumn 2008. Consumer spending fell for the first time in nearly two years, while service industry expansion slowed to its lowest rate of growth in 17 months. For the week ended August 5, the S&P 500 Index fell 7.2% to 1199 (for a year-to-date total return—including price change plus dividends—of about -3.6%). The yield on the 10-year U.S. Treasury note fell 24 basis points to 2.58% (for a year-to-date decrease of 72 basis points).

A Manufactured Crisis

This week the US Treasury 10 Year Treasury Bond dropped to 2.47%. The next day the rate rose to 2.58% making it only the 3rd time it went below 2.5% in my life-time. The previous time was when it reached 2.38% during a 2 week period between September 27 to October 12, 2010. The only other time was when it reached 2.13% during a 6 week period between December 8, 2008 and January 26, 2009.

So the question to ask is the economy better today than last year and 3 years ago? The answer is clearly yes by looking at a number of economic indicators.

We know that a correlation exists between the US Stock Market and the US Treasury 10 Year Treasury Bond. As this bond interest rate goes up this means that these bonds are being sold and the money has to go somewhere and a good portion of it goes into purchasing US Stocks.

My bottom line is that this crisis creates a good opportunity to purchase stocks for the long term investor. Since this crisis is being fed by the news media it is hard to predict what happens in the short term.

REPUBLICANS VS. DEMOCRATS – US President Dwight D. Eisenhower

“It is quite clear that the Federal government cannot avoid or escape responsibilities which the mass of the people firmly believe should be undertaken by it. The political processes of our country are such that if a rule of reason is not applied in this effort, we will lose everything – even to a possible and drastic change in the Constitution.

“This is what I mean by my constant insistence upon moderation in government. Should any political party attempt to abolish social security, unemployment insurance, and eliminate labor laws and farm programs, you would not hear of that party again in our political history. “There is a tiny splinter group, of course, that believes you can do these things. Among them are H. L. Hunt…a few other Texas oil millionaires, and an occasional politician or businessman...Their number is negligible and they are stupid.”

– From a letter from former US President Dwight D. Eisenhower (Republican) to his brother, Edgar - November 8, 1954

Friday, July 29, 2011

Unexpected Outcomes From Debt Ceiling Debate

First, I want to congratulate all of you for keeping your calm about the debt ceiling debate. I did get 2 calls about it from someone who is not on the distribution list. With the news media on hyper-drive covering this topic staying calm was exceptional on your part, good job!!!

The first paragraph is the weekly recap from Vanguard. In the middle, are some unexpected outcomes from the debt ceiling debate. Lastly, is some trivia to lighten the mood.

Vanguard

With the federal debt ceiling debate serving as a shadowy backdrop, the latest economic reports continued to paint a picture of an economy struggling to sustain a recovery. The first estimate of second-quarter gross domestic product was lower than hoped, but the figure for the previous quarter was revised downward so much that the latest number represented an uptick. The Federal Reserve's latest survey confirmed a slowing economy, while new-home sales and durable-goods orders also retreated a bit. For the week ended July 29, the S&P 500 Index fell 3.9% to 1,292 (for a year-to-date total return—including price change plus dividends—of about 3.9%). The yield on the 10-year U.S. Treasury note fell 17 basis points to 2.82% (for a year-to-date decrease of 48 basis points).

Unexpected Outcomes From Debt Ceiing Debate

Remember last Sunday night, it was stated that if a vote was not passed on the debt ceiling that the "markets would go into a panic. The first unexpected outcome was that even with all of the politicians, news commentators, and financial experts telling that the "markets" would panic and have a dramatic fall it did not occur, down 3.9%. The reason for this is the very positive economic news this week such as earnings reports, and jobless claims.

The second unexpected outcome was that long term interest rates went down this week by 0.17%. Remember that the experts stated that this default uncertainty would have cause long term rates to have a huge rise. If you are a bond trader, you would want another week like this last one. The reason these rates went down is because of the principles of supply versus demand. Since the U.S. Treasury is at the limit of issuing new bonds the supply has dried up. With reduced supply, the price goes up and interest rates fall. When interest rates go up after this deficit debate is over it will be because of supply and demand, not because of a potential credit rating scare.

Here is the bottom line: The experts can not predict the outcome in the short-term from this deficit debate. If you avoid the hype and keep you focus on the bigger financial picture of improving corporate earnings and an improving economy, as Japan recovers and we rebuild from the disasters of the spring, an investor has a better long-term result.

July 29 Trivia

1890
Artist Vincent van Gogh died of a self-inflicted gunshot wound in Auvers, France.

1958
President Eisenhower signed the congressional act that created the National Aeronautics and Space Administration (NASA) was authorized by Congress.

1968
In Humanae Vitae (of Human Life), Pope Paul VI reaffirmed the Catholic Church's prohibition on artificial methods of birth control.

1981
Prince Charles, heir to the British throne, married Lady Diana Spencer.

2003
Red sox switch hitter Bill Mueller became the first baseball player to hit grand slam home runs from both sides of the plate in the same game.

Just thought you would like to know some real history on this date.

Saturday, July 23, 2011

Earnings Versus Debt Default

The news this past week was on the national debt and the threat of default, as virtually everyone in the world knows. What a mess, it has more drama than many movies. You can not make up stuff this dramatic. So this past week when the news was on the threat of default, stock markets around the world went up. What was not reported this week was that corporate earnings are better than anticipated by about 3% so far this quarter.

This week the tug of war between earnings and default was won by earnings. The reason is that our leaders are all saying the right things taking the threat of default off of the table. It is kind of like a dream that I had years ago, something bad was in a room and I was the only one that saw it, perhaps you have had a similar dream. In this dream I told people about it and nobody listened and then I awoke unharmed. This default issue is like this bad thing in the room that everyone is trying to ignore and I want to wake up in about 10 days unharmed.

First is the weekly update from Vanguard. At the end is a list of organizations in the U.S. that have people who are trying to influence tax law. In the middle is my view of why we will not have a default.

Vanguard

The scorching heat wave that set record temperatures across much of the nation didn't extend to the economy, which remains tepid at best according to the latest readings. There was a rise in the Conference Board's index of leading economic indicators and a bump in new residential construction. However, existing-home sales dropped for the third straight month as President Barack Obama and congressional leaders continued to negotiate over an increase in the nation's debt limit. For the week ending July 22, the S&P 500 Index rose 2.2% to 1,345 (for a year-to-date total—including price change plus dividends—return of about 8.1%). The yield on the 10-year U.S. Treasury note rose 5 basis points to 2.99% (for a year-to-date decrease of 31 basis points).

Reasons Why We Will Not Have a Default

1) We can not afford it - an increase in interest rates also increases the national debt because it increases the interest payment.
2) We have a bigger budget deficit because the Federal Reserve loses money - the monetary gains from the Federal Reserve go into the Treasury, about $78 Billion last year if my memory is correct, and so do the monetary loses. The Fed has $1.6 Trillion in U.S. Treasury bonds on their balance sheet and a default would result in a loss if these bonds are sold early.
3) The real financial power brokers have lots of people behind the scene are influencing our representatives, Treasury Secretary Tim Geitner and Federal Reserve Chair Ben Bernanke.
4) It would be political suicide for the party believed to be responsible for a default. Quite frankly, I think our politicians only really care about this point.
5) We have an election every 2 years and politicians want to get re-elected.

So what happens is something we can all speculate. My view is that a default is avoided. The Republican party wants this topic to continue until the 2012 election so I anticipate that a short term solution will be implemented. I think that the discussion on the national debt will be with us through the elections in 2012.

Here is the political quote of the day - Never Let a Good Crisis Go To Waste

In the tug of war between earnings and debt default focus on earnings.

U.S. Organizations Concerning Taxation

Americans for Responsible Taxes
Americans For Fair Taxation
Americans for Tax Reform
The Chartered Institute of Taxation
Citizens for an Alternative Tax System
Citizens for Tax Justice
Henry George Foundation of America
Kill Your Taxes
National Taxpayers Union
Tax Foundation

So we are paying taxes to support organizations concerning taxes, sounds like a conflict of interest because if the tax issue went away these people would not have a job. No wonder we have problems resolving taxes, we have too many cooks in the kitchen. Enjoy the good things of life!!!

Sunday, July 17, 2011

2011 US Debt Ceiling

The news last week and for the next few weeks is the negotiations to raise the 2011 US Debt Ceiling and avoid a "Crisis". At the end is an except from Wikipedia on this crisis for your reading pleasure. The first paragraph is a weekly recap from Vanguard. In the middle is my view on how to invest during this historic time period. My view is that this is like a yellow jacket sting that I got today, painful for the next little while and in the longer term probably not that significant of an issue.

Vanguard

Producer and consumer prices both fell substantially in June while sales output and inventory reports continue to point to an economic soft patch. For the week ended July 15, the S&P 500 Index declined 2.1% to 1,316.14 (for a year-to-date total return, including price change plus dividends, of about 5.7%). The yield on the 10-year U.S. Treasury note fell 9 basis points to 2.94% (for a year-to-date decrease of 36 basis points).

Investing and the US Debt Ceiling

This is a historic time period for our country and quite frankly I do not know of anyone who has the correct answer on the path forward out of this mess. We are talking about raising the debt ceiling to a level above the annual Gross Domestic Product (GDP) of our country, this has not been done before. So no magic roadmap exists from here. I will avoid adding to the list of experts my opinion and stick to investing. The most important person in the US right now is the Treasury Secretary who controls this massive amount of debt.

For an investor the key indicator to watch is long term interest rates, in particular the 10 year US Treasury Bond. You notice that last week the yield on the 10 year bond went down 0.09% to 2.94%. We have 3 possible outcomes to this crisis: default, a slowing economy, or no impact. If a concern exists of default on bonds then interest rates should be rising. If the concern is a slowing economy due to less Federal spending then interest rates should be falling. If the crisis is resolved on time then it should have no impact. The falling interest rate last week shows that the majority of investors are not concerned about a default and view it as shelter in the time of a storm, curious.

My view is that nobody wants a default, this is like dropping a huge bomb on ourselves. If we default, then the amount of interest payments on the debt rise and the cost to make the interest payment goes up causing a bigger hole. If interest rates go up 1% it costs us about $150 Billion more a year, as we actually have about $14.6 Trillion in debt at this point.

If an investor thinks that a default is coming then they should sell all US Treasury Bonds now. The question is where will the money go; will it go to cash like a money market, stocks, or commodities? Remember that stocks do well as interest rates go up. My view is that the money goes into either stocks or cash.

If an investor thinks that a slow economy is coming then they should hold US Treasury Bonds now. At the current interest rate, I do not see interest rates going much lower.

At the end this crisis, whenever this occurs, we know it is good for the news media. For a long term investor, I do not think it is a crisis at all since the thing that really matters is long term growth of the economy not this short term panic. For a short term investor this is a really big deal as nobody knows how it will end. If you are nervous about this issue you should call me to discuss how to proceed.

2011 US Debt Ceiling Crisis (From Wikipedia)

The 2011 US debt ceiling crisis is the ongoing debate over whether the debt ceiling should be increased and, if so, by how much. Rather than pass a stop-gap measure that would fund the government without solving the structural problems ("kicking the can down the road"), the leadership of both parties decided to address these budgetary problems as part of this debate. The Democrats in the US Congress and the President wanted the decrease in the deficit to be funded by a combination of spending and revenue adjustments. The Republicans held the view that the deficit reduction should be based solely on spending.

As of July 2011, the United States was effectively at the limit of Congressionally authorized debt. Congress is now considering whether and by how much to extend the debt ceiling. An issue of note is that failure to extend the limit may leave the federal government unable to pay all its obligations, including paying interest on existing debt, a default that could have serious repercussions.

In a May 16, 2011 letter to Congress, U.S. Treasury Secretary Timothy Geithner declared a “debt issuance suspension period,” which provides the Secretary authority to sell assets from the Civil Service Retirement and Disability Fund. Geithner had previously sent letters to Congress requesting an increase in the debt ceiling on January 6, April 4, and May 2, 2011.

When the debt ceiling is reached, the U.S. Treasury has methods to acquire funds other than issuing new debt to meet federal obligations. Several of these methods are described in detail in an Appendix attached to Secretary Geithner's April 4, 2011 letter to Congress These "extraordinary measures" include using federal employee payroll deductions directed to the G-Fund, which is part of a 401(k)-like program known as the Thrift Savings Program (TSP), and to the Civil Service Retirement and Disability trust fund. These methods have been used in several previous episodes in which federal debt neared its statutory limit.

Section 4 of the Fourteenth Amendment to the United States Constitution, passed in the context of the Civil War Reconstruction, prohibits questioning the validity of all lawfully authorized United States public debt. Bruce Bartlett, a columnist and blogger for The Fiscal Times, argues that Section 4 renders the debt ceiling unconstitutional, and that the President should disregard the debt limit. In July 2011, The Nation editor Katrina vanden Heuvel argued that the President could use the public debt section of the Fourteenth Amendment to force the Treasury to continue paying its debts if an agreement to raise the debt ceiling is not reached.

Keep remembering the important things of life,

Saturday, July 9, 2011

Corporate Earnings

This week was a week of gyrations just before companies start announcing earnings next week. This will discuss how to interpret a corporate earnings report. At the end is some interesting food facts, one of my favorite subjects. I have included the weekly recap from Vanguard.

I did run the 5 mile Bear Run this year up to the top of Grandfather Mountain. My time was 57 minutes which is better than the 60 minute target. In the movie Forrest Gump, Tom Hanks is running up a mountain. This scene was filmed on the road up to Grandfather Mountain. The curve on the road is now called the Forrest Gump curve. Watch this portion of the movie and see what you think about running up an 11% grade.

Vanguard

The second month in a row of much-lower-than-expected job creation dimmed hopes that the economic recovery will soon pick up speed. Manufacturing showed signs of strength—orders picked up and factory employment rose modestly—but consumers, small businesses, and the public sector remained constrained by concerns ranging from the housing market to the debt and deficit struggles of governments at home and abroad. "The extremely weak job numbers are a real concern," said Vanguard economist Roger Aliaga-Díaz. "With so much uncertainty on the labor market front, it'll be difficult for consumers to become an important driver of the economic recovery during the second half of this year, as had been expected." For the week ending July 8, the S&P 500 Index rose 0.3% to 1,344 (for a year-to-date total return—including price change plus dividends—of about 8%). The yield on the 10-year U.S. Treasury note fell 19 basis points to 3.03% (for a year-to-date decrease of 27 basis points).

Earning Announcement

Every quarter has about 6 weeks where most publicly traded report a quarterly earnings report. This starts about the second full week of the first month in a new quarter, such as July. You will see headlines that sound really good and the stock goes down and vice versa so what is going on?

The important section of the announcement is typically not reported, which is guidance for the next quarter. A stock analyst will make a buy or sell recommendation based upon future performance and any positive or negative changes in key metrics that are normal for the company. The information about the current quarter is used to help support the picture for the future.

The bottom line is go to the section on guidance for the next quarter and go beyond the headlines.

Food Facts

• Celery has negative calories — it takes more calories to eat and digest a piece of celery than the celery has in it.
• One of every 11 boxes of cereal sold in the United States is Cheerios.
• In ancient Rome, oysters were so highly prized that they were sold for their weight in gold.
• Herring is the most widely eaten fish in the world.
• Potato chips are the number 1 selling snack in the United States. Potatoes are also the most popular vegetable among Americans.
• White chocolate does not contain caffeine.
• Raw broccoli, cup for cup, has twice as much vitamin C as an orange and almost as much calcium as milk.

Saturday, July 2, 2011

End of QE2

Happy July 4th Holiday, I hope you enjoy your time with family and friends. This upcoming week I participate in the Bear Run which is a 5 mile event to the top of Grandfather Mountain in North Carolina with an elevation change from about 3700 feet to about 5200 feet. The goal is to complete it in less than an hour.

The headlines this past week was about Greece: austerity program, IMF funding, riots, etc. While this might have been the headline it was not significant for the average U.S. investor. The main event was the end of the Federal Reserve program of purchasing $600 Billion in U.S. Treasury Bonds which has been called Quantitative Easing #2 or QE2. It has been this event that has driven investment decisions for the last few months and all of my clients are well positioned to take advantage of it.

This e-newsletter has 3 parts, a weekly summary from Vanguard, a short section on the end of QE2, and facts about the July 4th holiday. Again, I hope you have a great holiday.

Vanguard

As the economic news turned grim in recent weeks, confidence dipped and consumers gripped their wallets more tightly, as illustrated by the past week's economic reports. Despite the week's bleak economic news, the stock market recorded impressive results. For the week ended July 1, the S&P 500 Index rose 5.6% to 1,340 (for a year-to-date total return of about 7.6%). The yield of the 10-year U.S. Treasury note rose 34 basis points to 3.22% (for a year-to-date decrease of 8 basis points).

End of QE2

The Vanguard weekly summary shown above states: grim economic news, rising stock market, and rising interest rates. These 3 points do not make any sense because grim economic news should have the opposite effect, a declining stock market and lowering interest rates. So what caused the stock market to rise an impressive 5.6% and the 10 year U.S. Treasury bond to rise 34 basis points or 0.34%? The answer is the end of QE2.

The average investor has 3 main categories to invest: stocks, bonds, and commodities and money moves between these categories. Each category has different parts such as bonds are comprised of different types such as U.S. Treasury, Corporate, Municipal, etc.

This past week, we had more sellers than buyers of U.S. Treasury Bonds. This is because the largest buyer, the Federal Reserve, has stopped buying. Due to how U.S. Treasury Bonds are priced, this means that interest rates will go up. Remember that the Federal Reserve has been purchasing about $1.7 Trillion of these bonds during the last 2 years which has driven interest rates down. Well now the Federal Reserve is no longer buying and has to ultimately sell them or let them mature. So the number of sellers goes up and the number of buyers go down.

The economic news that was given was not that important because they are lagging indicators instead of leading indicators. So do not place a lot of emphasis on this data.

Here is the bottom line. The trend of rising interest rates and a rising stock market should continue, the pace will is unknown. We did not see a significant change in commodity prices last week. Money from the sale of U.S. Treasury Bonds has a greater probability of going to purchase stocks rather than commodities.

4th of July by the Numbers

31 places nationwide have "liberty" in their name. The most populous one is Liberty, Missouri (29,149). Iowa has more of these places than any other state: four (Libertyville, New Liberty, North Liberty and West Liberty).

Eleven places have "independence" in their name. The most populous of these is Independence, Missouri, with 116,830 residents.

Five places adopted the name "freedom." New Freedom, Pennsylvania with 4,464 residents, has the largest population among these.

There is one place named "patriot" — Patriot, Indiana, with a population of 209.

And what could be more fitting than spending the day in a place called "America"? There are five such places in the country, with the most populous being American Fork, Utah, with 26,263 residents.

Fourth of July Barbecue

As with many holidays, the 4th of July celebration includes food, drink and the realization of how fortunate we are as a nation. Although we do not have a fixed menu for the celebration of the Fourth, you can almost count on traditional favorites such as hamburgers and hot dogs, chicken, ribs, garden salads, potato salad, chips and watermelon. Following is a summary of where these foods come from:

There's a 1-in-6 chance the beef on your backyard grill came from Texas. The Lone Star State is the leader in the production of cattle and calves.

The chicken on your barbecue grill probably came from one of the top broiler-producing states: Georgia, Arkansas, Alabama, North Carolina and Mississippi.

The lettuce in your salad or on your hamburger probably was grown in California, which accounts for nearly three-quarters of USA lettuce production.

Fresh tomatoes in your salad most likely came from Florida or California, which, combined, produced more than two-thirds of U.S. tomatoes. The ketchup on your hamburger or hot dog probably came from California, which accounts for 95 percent of processed tomato production.

As to potato salad or potato chips or fries, Idaho and Washington produces about one-half of the nation's spuds.
For dessert, six states — California, Florida, Texas, Georgia, Arizona and Indiana — combined to produce about 80 percent of watermelons last year.

And the apples in your apple pie? They most likely came from Washington or New York, the two top apple producing states.