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