Happy Father's Day to all of the Fathers, you have a very important job. This newsletter will be relatively short with a weekly review from Vanguard, weekly observations, and finally Father's Day facts.
Vanguard Weekly Review.
The Conference Board's latest report on leading economic indicators suggests that the U.S. economy continues to expand, but at a subdued pace. Meanwhile, prices fell for both consumers and producers in May, signaling that inflation is likely a distant threat at this point. Housing starts also slipped last month after the government ceased offering tax credits to first-time home buyers. On a positive note, production in our nation's factories continues to surge. For the week ending June 18, the S&P 500 Index rose 2.4% to 1,117.50 (for a year-to-date total return—including price change plus dividends—of about 1.2%). The yield of the 10-year U.S. Treasury note stayed at 3.24% again for the week (for a year-to-date decrease of 61 basis points).
Weekly Observations:
This week the Volatility Index, VIX, returned to a normal range. Because of this the potential for large downside moves has been removed and accounts have been returned to a normal position. Last week, on my trip to Chicago it has become obvious that business has improved and people are travelling, a very bullish sign.
The most important news this week was the right people are talking about reducing the national debt. While this is very important for the long term future, it does indicate an upcoming reduction in government employment keeping the unemployment rate stubbornly high. With ths said, the jobs statistic to focus on will be hours worked and job growth in the manufacturing and service sectors.
Father's Day Trivia:
The idea of Father’s Day was conceived by Sonora Dodd of Spokane, Wash., while she listened to a Mother’s Day sermon in 1909. Dodd wanted a special day to honor her father, William Smart, a widowed Civil War veteran who was left to raise his six children on a farm. A day in June was chosen for the first Father’s Day celebration — June 19, 1910, proclaimed by Spokane’s mayor because it was the month of Smart’s birth.
The first presidential proclamation honoring fathers was issued in 1966 when President Lyndon Johnson designated the third Sunday in June as Father’s Day. Father’s Day has been celebrated annually since 1972 when President Richard Nixon signed the public law that made it permanent.
Sunday, June 20, 2010
Saturday, June 12, 2010
Volatility Subsides
This newsletter will be relatively brief. The first section will be a weekly recap provided by Vanguard. In the middle, is a brief section on the news that I thought was the most important. Finally, a section with some timely philosophical comments that I found related to government policy.
Weekly Recap from Vanguard:
The latest reports showed that the economy was continuing to take steady steps out of recession—although May retail sales seemed to be following a different script. The U.S. stock market had a volatile week: The S&P 500 Index rose 2.5% to about 1,092 (for a year-to-date total return—including price change plus dividends—of about –1.3%). The yield of the 10-year U.S. Treasury note rose 4 basis points to 3.24% (for a year-to-date decrease of 61 basis points).
The Most Important Things This Past Week:
This week the 2 most important things were the comments by Federal Reserve Chairman Ben Bernanke and the subsiding of volatility. My summary of Mr. Bernanke's statements are that the recovery is proceeding, interest rates will remain low for awhile and little chance exists for a double dip recession. The volatility index, VIX, dropped this week below 29, the best level in about 1 month, as the amount of fear subsided. This means that investors will turn attention back to the economy and performance of individual companies.
Both of these are critical as it shows that we remain in the consolidation stage of the Economic Business Cycle and the fear that has been moving the markets has subsided. They indicate that since the economic recovery continues and the amount of fear has subsided, accounts that have been put into a more conservative portfolio should return to the normal portfolio.
Comments on Government Policy:
1. You cannot legislate the poor into prosperity by legislating the wealthy out of prosperity.
2. What one person receives without working for, another person must work for without receiving.
3. The government cannot give to anybody anything that the government does not first take from somebody else.
4. When half of the people get the idea that they do not have to work because the other half is going to take care of them, and when the other half gets the idea that it does no good to work because somebody else is going to get what they work for - that is the beginning of the end of any nation.
5. You cannot multiply wealth by dividing it.
6. The government does not make a profit on anything they do – it is strictly a cost center.
Weekly Recap from Vanguard:
The latest reports showed that the economy was continuing to take steady steps out of recession—although May retail sales seemed to be following a different script. The U.S. stock market had a volatile week: The S&P 500 Index rose 2.5% to about 1,092 (for a year-to-date total return—including price change plus dividends—of about –1.3%). The yield of the 10-year U.S. Treasury note rose 4 basis points to 3.24% (for a year-to-date decrease of 61 basis points).
The Most Important Things This Past Week:
This week the 2 most important things were the comments by Federal Reserve Chairman Ben Bernanke and the subsiding of volatility. My summary of Mr. Bernanke's statements are that the recovery is proceeding, interest rates will remain low for awhile and little chance exists for a double dip recession. The volatility index, VIX, dropped this week below 29, the best level in about 1 month, as the amount of fear subsided. This means that investors will turn attention back to the economy and performance of individual companies.
Both of these are critical as it shows that we remain in the consolidation stage of the Economic Business Cycle and the fear that has been moving the markets has subsided. They indicate that since the economic recovery continues and the amount of fear has subsided, accounts that have been put into a more conservative portfolio should return to the normal portfolio.
Comments on Government Policy:
1. You cannot legislate the poor into prosperity by legislating the wealthy out of prosperity.
2. What one person receives without working for, another person must work for without receiving.
3. The government cannot give to anybody anything that the government does not first take from somebody else.
4. When half of the people get the idea that they do not have to work because the other half is going to take care of them, and when the other half gets the idea that it does no good to work because somebody else is going to get what they work for - that is the beginning of the end of any nation.
5. You cannot multiply wealth by dividing it.
6. The government does not make a profit on anything they do – it is strictly a cost center.
Sunday, June 6, 2010
Continued Volatillity
This week volatility continued with things moving like a yo-yo.This newsletter includes a weekly recap from Vanguard, my recap on volatility and economic information, and finally some trivia facts you can use to amuse and amaze others.
Vanguard Information:
The highly anticipated release of May's employment data was disappointing—even though the unemployment rate did fall. But optimists found encouraging signs for the labor market as manufacturing expanded, albeit at a slower pace, and productivity gains suggested that businesses will need to hire more workers. The service sector employment index crossed over into growth territory for the first time in more than two years. On Friday, investors became more anxious about fiscal problems in Europe and their implications for global growth. For the week ended June 4, the S&P 500 Index fell 2.3% to 1,065 (for a year-to-date total return—including price change plus dividends—of about –3.7%). The yield of the 10-year U.S. Treasury note fell 11 basis points to 3.20% (for a year-to-date decrease of 65 basis points).
Volatility and Economic Information:
The volatility index, VIX, moved in a range from 30-35. This is above the normal range of 20-25 and quite a bit lower from a few weeks ago when the range was 40-48. Having this elevated VIX value suggests that things will continue to move about with little chance of having any like what we went through during 2007-2009 when the VIX hit about 85. So please relax about it a little bit.
The value of the US Dollar relative to the Euro hit a 4 year low at about $1.20/Euro and people stressed out. If you go back in time, the normal range has been about $1.10 - $1.30/Euro so having this return to a normal historic range is not a big concern to me. In fact, I am glad to have it back in the normal range because this means that commodity prices will be relatively stable that are lower from a few years ago. Having stable commodity prices will help reduce VIX values in the future.
Some Minister in the Hungarian government reported that the country could go bankrupt and people stressed out. Later it was reported that this is not be true. It is just another example that when a country is not fiscally responsible bad things happen. The good thing that happen this week is that the leaders of the top 20 countries, aka the G-20, met and agreed that debt control is the number one priority, ALLELUIA. We will see if Mr. Geitner remember this statement when he returns. So please relax about Hungary.
Last but not least was employment data on Friday was not good enough and people stressed out. When the economy is in a consolidation phase, spring, of the business cycle the hours worked indicator is of more value as companies are waiting for growth before hiring more people. Employment data is a better indicator when the economy is in a growth phase, summer, of the business cycle. The hours worked indicator is showing the economy is growing at a 3-5% growth rate, this is about where the Federal Reserve want it. So relax about the employment data already.
Bottom Line: This volatity is giving us a great buying opportunity for the future. In the future, when the VIX returns to a normal level, accounts that went into a more conservative portfolio should be returned.
Trivia:
1. How long did the Hundred Years War last? • 116 years – 1337 - 1453
2. Which country makes Panama hats? • Ecuador
3. From which animals do we get catgut? • Sheep and horses
4. In which month do the Russians celebrate the October Revolution? • November 7th
5. What is a camel’s hair brush made of? • Squirrel fur – sometimes horsehair, wool & bear fur
6. The Canary Islands in the Pacific are named after what animal? • Dogs
7. What was King George VI’s first name? • Albert
8. What color is a purple Finch? • Male is crimson – Female is brown
9. Where are Chinese gooseberries from? • New Zealand – also known as Kiwi
10. What is the color of the black box in a commercial airplane? • Orange
Vanguard Information:
The highly anticipated release of May's employment data was disappointing—even though the unemployment rate did fall. But optimists found encouraging signs for the labor market as manufacturing expanded, albeit at a slower pace, and productivity gains suggested that businesses will need to hire more workers. The service sector employment index crossed over into growth territory for the first time in more than two years. On Friday, investors became more anxious about fiscal problems in Europe and their implications for global growth. For the week ended June 4, the S&P 500 Index fell 2.3% to 1,065 (for a year-to-date total return—including price change plus dividends—of about –3.7%). The yield of the 10-year U.S. Treasury note fell 11 basis points to 3.20% (for a year-to-date decrease of 65 basis points).
Volatility and Economic Information:
The volatility index, VIX, moved in a range from 30-35. This is above the normal range of 20-25 and quite a bit lower from a few weeks ago when the range was 40-48. Having this elevated VIX value suggests that things will continue to move about with little chance of having any like what we went through during 2007-2009 when the VIX hit about 85. So please relax about it a little bit.
The value of the US Dollar relative to the Euro hit a 4 year low at about $1.20/Euro and people stressed out. If you go back in time, the normal range has been about $1.10 - $1.30/Euro so having this return to a normal historic range is not a big concern to me. In fact, I am glad to have it back in the normal range because this means that commodity prices will be relatively stable that are lower from a few years ago. Having stable commodity prices will help reduce VIX values in the future.
Some Minister in the Hungarian government reported that the country could go bankrupt and people stressed out. Later it was reported that this is not be true. It is just another example that when a country is not fiscally responsible bad things happen. The good thing that happen this week is that the leaders of the top 20 countries, aka the G-20, met and agreed that debt control is the number one priority, ALLELUIA. We will see if Mr. Geitner remember this statement when he returns. So please relax about Hungary.
Last but not least was employment data on Friday was not good enough and people stressed out. When the economy is in a consolidation phase, spring, of the business cycle the hours worked indicator is of more value as companies are waiting for growth before hiring more people. Employment data is a better indicator when the economy is in a growth phase, summer, of the business cycle. The hours worked indicator is showing the economy is growing at a 3-5% growth rate, this is about where the Federal Reserve want it. So relax about the employment data already.
Bottom Line: This volatity is giving us a great buying opportunity for the future. In the future, when the VIX returns to a normal level, accounts that went into a more conservative portfolio should be returned.
Trivia:
1. How long did the Hundred Years War last? • 116 years – 1337 - 1453
2. Which country makes Panama hats? • Ecuador
3. From which animals do we get catgut? • Sheep and horses
4. In which month do the Russians celebrate the October Revolution? • November 7th
5. What is a camel’s hair brush made of? • Squirrel fur – sometimes horsehair, wool & bear fur
6. The Canary Islands in the Pacific are named after what animal? • Dogs
7. What was King George VI’s first name? • Albert
8. What color is a purple Finch? • Male is crimson – Female is brown
9. Where are Chinese gooseberries from? • New Zealand – also known as Kiwi
10. What is the color of the black box in a commercial airplane? • Orange
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