This is an update on the current economic recovery. A recent Wall Street Journal article stated that half of us Americans think the Economic Recovery has not occurred. I am with the half that thinks a recovery has occurred and that conditions continue to improve. The first section is a business confidence Index, ECBI, that shows 6 months out businesses anticipate strong growth. This is followed by information from the Wall Street Journal.
North American Business Conditions Continue to Advance - ECBI
Electroindustry Business Confidence Index (EBCI) for current North American conditions topped 50 points
for the seventh consecutive month in May 2011, signaling continued improvement in the business environment.
The index measured 52.3 in May, down from 57.1 in April 2011, and from a year-to-date high of 69.6 in February
2011.
The six month outlook remains optimistic. EBCI for future North American conditions also dipped in May 2011, declining to 81.8 from 85.7. Still, readings above 80 are exceptionally strong, having been recorded in only 23 months in the decade-long history of the survey. In May, more than 68% of panelists said they expected conditions to improve during the next six months, while less than 5% anticipated deterioration during that time period.
Wall Street Journal Article, June 15, 2011
From the firm Manpower: In the 3rd Quarter, 20% of US businesses expect to add workers while 8% expect to cut them. The 12% difference is the largest since 2008. (This seems like a recovery to me)
Wall Street Journal Article, June 13, 2011
Tracking the Recovery: The article compares the current economic recovery to the economic recovery starting in March 1991, November 2001, and July 1980. The metrics for comparison are Gross Domestic Product(GDP) Growth, Job Growth, and Inflation. Here is the data:
GDP Growth: The current recovery matches the recoveries of March 1991, November 2001, and is better than July 1980.
Jobs: All of the data is similar, not much job growth after 22 months. Only the March 1991 data is slightly better.
Inflation as measured by the Consumer Price Index: The current recovery is consistent with the November 2001 recovery which are below the July 1980 and March 1991 recoveries.
To summarize the data for this economic recovery: GDP growth is normal, job growth is normal (slow), and inflation is less than normal. This sounds like a normal recovery rather than the doom and gloom in the news media.
Based upon this data some predictions can be made:
1) 2012 Election: Based upon data from Chris Matthews, MSNBC Hardball, when the unemployment rate is more than 7% the incumbent President loses. This suggests that a Republican wins in November 2012. If you are a Democrat, you better help President Obama now.
2) Commodity Prices: The data suggests that in general commodity prices stay flat. So anticipate that the price of gas, oil, gold, silver, copper, etc. stays relatively flat.
3) News Media: Since we had a deep recession, and all of us want a faster recovery, expect the news media to focus on the negative rather on the positive. Keep this in mind as you watch the experts.
Trivia
Here is a trivia question and answer from the 2011 College World Series in Omaha, NE. The question is who is the first pitcher in the new T.D. Ameritrade Stadium and what High School did he attend? Answer: Patrick Johnson, Saint Stephens High School in Hickory, NC. The same school that Rachel and Becca attended.
Saturday, June 18, 2011
Father's Day
It is time to remember our fathers. I would like to thank my father, father-in-law, and older brothers for positive influences in my life. The first paragraph is from Vanguard. The last section is Father's Day trivia. In the middle is my section. HAPPY FATHER'S DAY!!!
Vanguard
Inflation showed signs of decelerating and the pace of retail sales weakened, giving more evidence that economic growth has slowed recently. At the same time, some data (including the widely followed leading economic indicators and new housing starts) suggested that the economy is still making headway despite the challenges it has faced in recent months. For the week ended June 17, the S&P 500 Index rose less than one-hundredth of a percentage point to finish at 1,272 (for a year-to-date total return, including price change plus dividends, of about 2.0%). The yield of the 10-year U.S. Treasury note fell 5 basis points to 2.94% (for a year-to-date decline of 36 basis points).
Happy Father's Day
If you have been following the debt ceiling negotiations, you have seen that retirement benefits are being looked at very intently. One of the best gifts you can give this year is a contribution to a retirement account. I made the same statement about Mother's Day. Helping someone have more resources in retirement is a wonderful thing.
Father's Day Trivia
Father's Day is a celebration of fathers inaugurated in the early twentieth century to complement Mother's Day in celebrating fatherhood and male parenting. Father's Day is celebrated on a variety of dates worldwide and typically involves gift-giving, special dinners to fathers, and family-oriented activities.
The first observance of Father's Day actually took place in Fairmont, West Virginia on July 5, 1908. It was organized by Mrs. Grace Golden Clayton, who wanted to celebrate the lives of the 210 fathers who had been lost in the Monongah Mining disaster several months earlier in Monongah, West Virginia, on December 6, 1907. It's possible that Clayton was influenced by the first celebration of Mother's Day that same year, just a few miles away. Clayton chose the Sunday nearest to the birthday of her recently deceased father. Unfortunately, the day was overshadowed by other events in the city, West Virginia did not officially register the holiday, and it was not celebrated again. All the credit for Father's Day went to Sonora Dodd from Spokane, who invented independently her own celebration of Father's Day just two years later, also influenced by Jarvis' Mother's Day. Clayton's celebration was forgotten until 1972, when one of the attendants to the celebration saw Nixon's proclamation of Father's Day, and worked to recover its legacy.
The celebration is now held every year in the Central United Methodist Church – the Williams Memorial Methodist Episcopal Church, South, was torn down in 1922. Fairmont is now promoted as the "Home of the First Father's Day Service". A bill to accord national recognition of the holiday was introduced in Congress in 1913. In 1916, President Woodrow Wilson went to Spokane to speak in a Father's Day celebration and wanted to make it official, but Congress resisted, fearing that it would become commercialized. US President Calvin Coolidge recommended in 1924 that the day be observed by the nation, but stopped short of issuing a national proclamation. Two earlier attempts to formally recognize the holiday had been defeated by Congress. In 1957, Maine Senator Margaret Chase Smith wrote a proposal accusing Congress of ignoring fathers for 40 years while honoring mothers, thus "[singling] out just one of our two parents" In 1966, President Lyndon B. Johnson issued the first presidential proclamation honoring fathers, designating the third Sunday in June as Father's Day. Six years later, the day was made a permanent national holiday when President Richard Nixon signed it into law in 1972.In addition to Father's Day, International Men's Day is celebrated in many countries on November 19 for men and boys who are not fathers.
Vanguard
Inflation showed signs of decelerating and the pace of retail sales weakened, giving more evidence that economic growth has slowed recently. At the same time, some data (including the widely followed leading economic indicators and new housing starts) suggested that the economy is still making headway despite the challenges it has faced in recent months. For the week ended June 17, the S&P 500 Index rose less than one-hundredth of a percentage point to finish at 1,272 (for a year-to-date total return, including price change plus dividends, of about 2.0%). The yield of the 10-year U.S. Treasury note fell 5 basis points to 2.94% (for a year-to-date decline of 36 basis points).
Happy Father's Day
If you have been following the debt ceiling negotiations, you have seen that retirement benefits are being looked at very intently. One of the best gifts you can give this year is a contribution to a retirement account. I made the same statement about Mother's Day. Helping someone have more resources in retirement is a wonderful thing.
Father's Day Trivia
Father's Day is a celebration of fathers inaugurated in the early twentieth century to complement Mother's Day in celebrating fatherhood and male parenting. Father's Day is celebrated on a variety of dates worldwide and typically involves gift-giving, special dinners to fathers, and family-oriented activities.
The first observance of Father's Day actually took place in Fairmont, West Virginia on July 5, 1908. It was organized by Mrs. Grace Golden Clayton, who wanted to celebrate the lives of the 210 fathers who had been lost in the Monongah Mining disaster several months earlier in Monongah, West Virginia, on December 6, 1907. It's possible that Clayton was influenced by the first celebration of Mother's Day that same year, just a few miles away. Clayton chose the Sunday nearest to the birthday of her recently deceased father. Unfortunately, the day was overshadowed by other events in the city, West Virginia did not officially register the holiday, and it was not celebrated again. All the credit for Father's Day went to Sonora Dodd from Spokane, who invented independently her own celebration of Father's Day just two years later, also influenced by Jarvis' Mother's Day. Clayton's celebration was forgotten until 1972, when one of the attendants to the celebration saw Nixon's proclamation of Father's Day, and worked to recover its legacy.
The celebration is now held every year in the Central United Methodist Church – the Williams Memorial Methodist Episcopal Church, South, was torn down in 1922. Fairmont is now promoted as the "Home of the First Father's Day Service". A bill to accord national recognition of the holiday was introduced in Congress in 1913. In 1916, President Woodrow Wilson went to Spokane to speak in a Father's Day celebration and wanted to make it official, but Congress resisted, fearing that it would become commercialized. US President Calvin Coolidge recommended in 1924 that the day be observed by the nation, but stopped short of issuing a national proclamation. Two earlier attempts to formally recognize the holiday had been defeated by Congress. In 1957, Maine Senator Margaret Chase Smith wrote a proposal accusing Congress of ignoring fathers for 40 years while honoring mothers, thus "[singling] out just one of our two parents" In 1966, President Lyndon B. Johnson issued the first presidential proclamation honoring fathers, designating the third Sunday in June as Father's Day. Six years later, the day was made a permanent national holiday when President Richard Nixon signed it into law in 1972.In addition to Father's Day, International Men's Day is celebrated in many countries on November 19 for men and boys who are not fathers.
Sunday, June 12, 2011
Fraud Warning - Reverse Takeover, Especially Chinese Companies on U.S. Stock Exchanges
I hope you had a wonderful weekend, it is a very busy time of year. Please read the Thought of the Day at the end. The first paragraph is from Vanguard giving the weekly overview. The topic is about Chinese companies who are publicly traded on U.S. Stock Exchanges using a process called a reverse takeover or reverse merger. Please forward this to people who are traders of stocks.
Vanguard
On the heels of a dismal unemployment report last week, economic indicators showed slight improvement amid recent signs that the uneven recovery is beginning to slow. The U.S. trade deficit unexpectedly narrowed, consumer credit rose more than anticipated, and the Federal Reserve's Beige Book release reported overall economic growth. For the week ended June 10, the S&P 500 Index fell 2.2% to 1,270.98 (for a year-to-date total return—including price change plus dividends—of about 1.9%). The yield of the 10-year U.S. Treasury note was unchanged for the week at 2.99% (for a year-to-date decrease of 31 basis points).
Fraud Warning - Chinese Companies and Reverse Takeovers
The Securities and Exchange Commission, SEC, has issued a statement concerning Chinese Companies that are publicly traded. The primary method being used is called a reverse takeover or reverse merger. First I will explain a reverse takeover followed by more specific information.
In a reverse takeover, shareholders of the private company purchase control of the public shell company and then merge it with the private company. The publicly traded corporation is called a "shell" since all that exists of the original company is its organizational structure. The private company shareholders receive a substantial majority of the shares of the public company and control of its board of directors. The transaction can be accomplished within weeks. If the shell is an SEC-registered company, the private company does not go through an expensive and time-consuming review with state and federal regulators because this process was completed beforehand with the public company. However, a comprehensive disclosure document containing audited financial statements and significant legal disclosures is required by the Securities Exchange Commission for reporting issuers. The disclosure is filed on Form 8-K and is filed immediately upon completion of the reverse merger transaction.
The transaction involves the private and shell company exchanging information on each other, negotiating the merger terms, and signing a share exchange agreement. At the closing, the shell company issues a substantial majority of its shares and board control to the shareholders of the private company. The private company's shareholders pay for the shell company by contributing their shares in the private company to the shell company that they now control. This share exchange and change of control completes the reverse takeover, transforming the formerly privately held company into a publicly held company.
The Wall Street Journal has been providing information on this issue. From January 1, 2007 through May 31, 2011 a total of 1036 stocks were listed on the U.S. Stock Exchanges. Of this group, 603 were through the reverse takeover method and 433 were through the IPO method. Of this group, 159 Chinese companies were listed through a reverse takeover and 56 were listed through the IPO method. This means that Chinese companies are using the easy method 3 times more often.
So why is the fraud occurring in the U.S.? For starters if the fraud was done in China the culprits would probably be executed. Also, a lack of due dilegence occurs during the reverse takeover method. The companies do not have to sound Chinese such as Longtop Financial Technologies, Focus Media, or Air Media.
The bottom line is that an approved method for a company to get listed is the reverse takeover or reverse merger method. You need to research a stock before you buy it and if it was listed using this method, you should be concerned. If it is a Chinese company that used this method, you should avoid it. My opinion is to avoid purchasing the stock of any Chinese company in any U.S. stock exchange. Avoid the hype/media buzz about China and avoid investing in something where the intrinsic value of a company is in question.
Thought for the Day
Today is the oldest you have ever been, yet the youngest you will ever be – so, enjoy this day while it lasts.
Vanguard
On the heels of a dismal unemployment report last week, economic indicators showed slight improvement amid recent signs that the uneven recovery is beginning to slow. The U.S. trade deficit unexpectedly narrowed, consumer credit rose more than anticipated, and the Federal Reserve's Beige Book release reported overall economic growth. For the week ended June 10, the S&P 500 Index fell 2.2% to 1,270.98 (for a year-to-date total return—including price change plus dividends—of about 1.9%). The yield of the 10-year U.S. Treasury note was unchanged for the week at 2.99% (for a year-to-date decrease of 31 basis points).
Fraud Warning - Chinese Companies and Reverse Takeovers
The Securities and Exchange Commission, SEC, has issued a statement concerning Chinese Companies that are publicly traded. The primary method being used is called a reverse takeover or reverse merger. First I will explain a reverse takeover followed by more specific information.
In a reverse takeover, shareholders of the private company purchase control of the public shell company and then merge it with the private company. The publicly traded corporation is called a "shell" since all that exists of the original company is its organizational structure. The private company shareholders receive a substantial majority of the shares of the public company and control of its board of directors. The transaction can be accomplished within weeks. If the shell is an SEC-registered company, the private company does not go through an expensive and time-consuming review with state and federal regulators because this process was completed beforehand with the public company. However, a comprehensive disclosure document containing audited financial statements and significant legal disclosures is required by the Securities Exchange Commission for reporting issuers. The disclosure is filed on Form 8-K and is filed immediately upon completion of the reverse merger transaction.
The transaction involves the private and shell company exchanging information on each other, negotiating the merger terms, and signing a share exchange agreement. At the closing, the shell company issues a substantial majority of its shares and board control to the shareholders of the private company. The private company's shareholders pay for the shell company by contributing their shares in the private company to the shell company that they now control. This share exchange and change of control completes the reverse takeover, transforming the formerly privately held company into a publicly held company.
The Wall Street Journal has been providing information on this issue. From January 1, 2007 through May 31, 2011 a total of 1036 stocks were listed on the U.S. Stock Exchanges. Of this group, 603 were through the reverse takeover method and 433 were through the IPO method. Of this group, 159 Chinese companies were listed through a reverse takeover and 56 were listed through the IPO method. This means that Chinese companies are using the easy method 3 times more often.
So why is the fraud occurring in the U.S.? For starters if the fraud was done in China the culprits would probably be executed. Also, a lack of due dilegence occurs during the reverse takeover method. The companies do not have to sound Chinese such as Longtop Financial Technologies, Focus Media, or Air Media.
The bottom line is that an approved method for a company to get listed is the reverse takeover or reverse merger method. You need to research a stock before you buy it and if it was listed using this method, you should be concerned. If it is a Chinese company that used this method, you should avoid it. My opinion is to avoid purchasing the stock of any Chinese company in any U.S. stock exchange. Avoid the hype/media buzz about China and avoid investing in something where the intrinsic value of a company is in question.
Thought for the Day
Today is the oldest you have ever been, yet the youngest you will ever be – so, enjoy this day while it lasts.
Sunday, June 5, 2011
US Economy
The top financial story this past week was the slowing U.S. economy. This tries to explain the drivers for this economic slowdown and the path forward. First is the paragraph from Vanguard. At the end is some trivia for your enjoyment.
Vanguard
Consumers and investors looking for good news this week were largely disappointed as the effects of the tragic natural disasters in Japan reverberated through the global economy. The U.S. unemployment rate ticked up, job creation was weak, manufacturing growth slowed, and consumer confidence slid—even before the latest releases. For the week ended June 3, the S&P 500 Index fell 2.3% to 1300 (for a year-to-date total return of about 4.2%). The yield of the 10-year U.S. Treasury note fell 8 basis points to 2.99% (for a year-to-date decrease of 31 basis points).
What is Going on with the Economy?
The data this week showed that job growth for May was not as good as anticipated. While job growth was good in the service sector it was not as strong in the manufacturing sector. I had 3 interactions this week that I think will answer the question.
My first interaction was with a very large global company that supplies commodity grade plastics around the world. The information was that business is going very well, even better than last year. Combining this information with the growth in the service sector suggests that the overall economy is growing more than is being reported in the press.
My second interaction concerns a company that makes plastic in the U.S. and Japan. Because of the March 15th earthquake and tsunami in Japan, the ability to supply a high end plastic used primarily in the U.S. has indeed hurt output and impacted hiring of people for the companies that use this plastic. If Japan is the reason for reduced hiring what is the timing for when things will get back to normal?
It takes about 6 weeks by ship from receipt of order in Japan to arrival in the U.S. So the March 15th tragedy in Japan showed up about May 1st, giving a full month of impact. It has been reported that Japan GDP lost about 16% because of this event. It was reported that industrial production in Japan is increasing with about an 8% increase in May and an 8% in June. By the end of June, Japan will essentially be back to normal production, an extremely fast recovery. This means that by the end of August the U.S. manufacturing sector should also be back to normal. Because of pent-up demand related to this shortage this means that September through December should have higher than normal manufacturing output.
The laat interaction has to do with the impact on manufacturing from the recent record of tornadoes in the U.S. Orders for infrastructure related products have started in late May. The rebuilding of these areas, as insurance companies settle claims, is a positive for manufacturing companies and the U.S. economy that is starting to show up now.
Bottom Line: The rebuilding of the areas hit by tornadoes is a short-term positive for the U.S. manufacturing sector and the U.S. economy. Japan returning to normal about the end of June is a longer-term positive for the U.S. manufacturing sector and the U.S. economy. The recent drop in the U.S. stock market represents a buying opportunity. Please do not listen to all of the doom and gloom in the news.
Trivia
• Antarctica is the only land on our planet that is not owned by any country. Ninety percent of the world's ice covers Antarctica. This ice also represents seventy per-cent of all the fresh water in the world. As strange as it sounds, however, Antarctica is essentially a desert. The average yearly total precipitation is approximately two inches. Although covered with ice - (all but 0.4% of it) - Antarctica is the driest place on the planet, with an abso-lute humidity lower than the Gobi desert.
• The smallest sovereign entity in the world is the Sove-reign Military Order of Malta (S.M.O.M.) It is located in the city of Rome , Italy and has a land area the size of two tennis courts. As of 2001, it has a population of 80. This is 20 less people than the Vatican. It is a sovereign entity under international law, the same as the Vatican.
Vanguard
Consumers and investors looking for good news this week were largely disappointed as the effects of the tragic natural disasters in Japan reverberated through the global economy. The U.S. unemployment rate ticked up, job creation was weak, manufacturing growth slowed, and consumer confidence slid—even before the latest releases. For the week ended June 3, the S&P 500 Index fell 2.3% to 1300 (for a year-to-date total return of about 4.2%). The yield of the 10-year U.S. Treasury note fell 8 basis points to 2.99% (for a year-to-date decrease of 31 basis points).
What is Going on with the Economy?
The data this week showed that job growth for May was not as good as anticipated. While job growth was good in the service sector it was not as strong in the manufacturing sector. I had 3 interactions this week that I think will answer the question.
My first interaction was with a very large global company that supplies commodity grade plastics around the world. The information was that business is going very well, even better than last year. Combining this information with the growth in the service sector suggests that the overall economy is growing more than is being reported in the press.
My second interaction concerns a company that makes plastic in the U.S. and Japan. Because of the March 15th earthquake and tsunami in Japan, the ability to supply a high end plastic used primarily in the U.S. has indeed hurt output and impacted hiring of people for the companies that use this plastic. If Japan is the reason for reduced hiring what is the timing for when things will get back to normal?
It takes about 6 weeks by ship from receipt of order in Japan to arrival in the U.S. So the March 15th tragedy in Japan showed up about May 1st, giving a full month of impact. It has been reported that Japan GDP lost about 16% because of this event. It was reported that industrial production in Japan is increasing with about an 8% increase in May and an 8% in June. By the end of June, Japan will essentially be back to normal production, an extremely fast recovery. This means that by the end of August the U.S. manufacturing sector should also be back to normal. Because of pent-up demand related to this shortage this means that September through December should have higher than normal manufacturing output.
The laat interaction has to do with the impact on manufacturing from the recent record of tornadoes in the U.S. Orders for infrastructure related products have started in late May. The rebuilding of these areas, as insurance companies settle claims, is a positive for manufacturing companies and the U.S. economy that is starting to show up now.
Bottom Line: The rebuilding of the areas hit by tornadoes is a short-term positive for the U.S. manufacturing sector and the U.S. economy. Japan returning to normal about the end of June is a longer-term positive for the U.S. manufacturing sector and the U.S. economy. The recent drop in the U.S. stock market represents a buying opportunity. Please do not listen to all of the doom and gloom in the news.
Trivia
• Antarctica is the only land on our planet that is not owned by any country. Ninety percent of the world's ice covers Antarctica. This ice also represents seventy per-cent of all the fresh water in the world. As strange as it sounds, however, Antarctica is essentially a desert. The average yearly total precipitation is approximately two inches. Although covered with ice - (all but 0.4% of it) - Antarctica is the driest place on the planet, with an abso-lute humidity lower than the Gobi desert.
• The smallest sovereign entity in the world is the Sove-reign Military Order of Malta (S.M.O.M.) It is located in the city of Rome , Italy and has a land area the size of two tennis courts. As of 2001, it has a population of 80. This is 20 less people than the Vatican. It is a sovereign entity under international law, the same as the Vatican.
Investing Philosophy
Since some new clients have come aboard since the last time I wrote on this topic, I thought it important to write about it once again. I need to state up-front that I can not predict the future and can not predict a short term move in an investment. What I can do is understand major events and the potential impact.
Investing is done by a strategy knows as business cycle investing and investment cycle investing. To execute a business cycle investing strategy, I watch the US Treasury yield curve that shows the interest rate for all US debt as well as follow the information published by the US Federal Reserve and Warren Buffet/Berkshire Hathaway. The reason Warren Buffet is selected is because of the number and diversity of businesses that are owned by Berkshire Hathaway.
Investment cycle investing looks at the amount of fear by investors as tracked by the Volatility Index, ^VIX. This is a coincidental indicator and confirms a major market move. If investors get afraid, they move from risky securities and purchase safe investments. The ^VIX measures the shift in emotion and rises when investors are afraid.
When the economy is growing, as it is now, it is in the growth phase of the economic business cycle. An analysis of historical data tells us which investments do well in this phase and which to avoid. Investors want to own mutual funds that invest in stocks and corporate bonds and avoid mutual funds that invest in long term US Treasury bonds. This strategy is maintained unless an event occurs that scares investors as shown by a rising ^VIX.
So here we are in May and the stock market has gone down a little. A few weeks ago, I said to avoid timing the stock market and not follow the saying sell in May and Go Away. The reasons for making this statement is because of the reasons mentioned above: growth phase of the business cycle, comments by the US Federal Reserve, comments by Warren Buffet/Berkshire Hathaway, and a low ^VIX.
One thing that I have found is that it is not possible to make money playing short term moves in the stock, bond, or commodity market. By the time one realizes the top or bottom has arrived and can make the appropriate investment changes the majority of the move is over and the individual investor is left paying transaction fees.
My philosophy is to understand the major moves, avoid playing the minor moves, and minimize the amount of transaction fees. Please let me know if you have a question on this topic.
Memorial Day History
By 1865 the practice of decorating soldiers' graves had become widespread in the North. The first known observance was in Waterloo, New York on May 5, 1866, and each year thereafter. The friendship between General John Murray, a distinguished citizen of Waterloo, and General John A. Logan, who helped bring attention to the event nationwide, was likely a factor in the holiday's growth. On May 5, 1868, in his capacity as commander-in-chief of the Grand Army of the Republic – the organization for Northern Civil War veterans – Logan issued a proclamation that "Decoration Day" should be observed nationwide. It was observed for the first time on May 30 of the same year; the date was chosen because it was not the anniversary of a battle.
There were events in 183 cemeteries in 27 states in 1868, and 336 in 1869. The northern states quickly adopted the holiday; Michigan made "Decoration Day" an official state holiday in 1871 and by 1890 every northern state followed suit. The ceremonies were sponsored by the Women's Relief Corps, which had 100,000 members. By 1870, the remains of nearly 300,000 Union dead had been buried in 73 national cemeteries, located mostly in the South, near the battlefields. The most famous are Gettysburg National Cemetery in Pennsylvania and Arlington National Cemetery, near Washington.
The Memorial Day speech became an occasion for veterans, politicians and ministers to commemorate the war – and at first to recall the atrocities of the enemy. They mixed religion and celebratory nationalism and provided a means for the people to make sense of their history in terms of sacrifice for a better nation, one closer to their God. People of all religious beliefs joined together, and the point was often made that the German and Irish soldiers had become true Americans in the "baptism of blood" on the battlefield. By the end of the 1870s the rancor was gone and the speeches praised the soldiers of both the Union and Confederacy. By the 1950s, the theme was American exceptionalism and duty to uphold freedom in the world. Ironton, Ohio lays claim to the nation's oldest continuously running Memorial Day parade, since 1869.
In Charleston, South Carolina in 1865, freedmen (freed enslaved Africans) celebrated at the Washington Race Course, today the location of Hampton Park. The site had been used as a temporary Confederate prison camp for captured Union soldiers in 1865, as well as a mass grave for Union soldiers who died there. Immediately after the cessation of hostilities, freedmen exhumed the bodies from the mass grave and reinterred them in individual graves. They built a fence around the graveyard with an entry arch and declared it a Union graveyard. On May 1, 1865, a crowd of up to ten thousand, mainly black residents, including 2800 children, proceeded to the location for events that included sermons, singing, and a picnic on the grounds, thereby creating the first Decoration Day-type celebration.
Beginning in 1866 the Southern states had their own Memorial Days, ranging from April 26 to mid June. The birthday of Confederate President Jefferson Davis, June 3, became a state holiday in 10 states by 1916. Across the South associations were founded after the war to establish and care for permanent cemeteries for Confederate soldiers, organize commemorative ceremonies, and sponsor impressive monuments as a permanent way of remembering the Confederate tradition. Women provided the leadership in these associations, paving the way to establish themselves as capable of public leadership.
The earliest Confederate Memorial Day celebrations were simple, somber occasions for veterans and their families to honor the day and attend to local cemeteries. Around 1890, there was a shift from this consolatory emphasis on honoring specific soldiers to public commemoration of the Confederate "Lost Cause". Changes in the ceremony's hymns and speeches reflect an evolution of the ritual into a symbol of cultural renewal and conservatism in the South. By 1913, however, the theme of American nationalism shared equal time with the Lost Cause. Columbus, Mississippi at its Decoration Day on April 25, 1866, commemorated both the Union and Confederate casualties buried in its cemetery.
Investing is done by a strategy knows as business cycle investing and investment cycle investing. To execute a business cycle investing strategy, I watch the US Treasury yield curve that shows the interest rate for all US debt as well as follow the information published by the US Federal Reserve and Warren Buffet/Berkshire Hathaway. The reason Warren Buffet is selected is because of the number and diversity of businesses that are owned by Berkshire Hathaway.
Investment cycle investing looks at the amount of fear by investors as tracked by the Volatility Index, ^VIX. This is a coincidental indicator and confirms a major market move. If investors get afraid, they move from risky securities and purchase safe investments. The ^VIX measures the shift in emotion and rises when investors are afraid.
When the economy is growing, as it is now, it is in the growth phase of the economic business cycle. An analysis of historical data tells us which investments do well in this phase and which to avoid. Investors want to own mutual funds that invest in stocks and corporate bonds and avoid mutual funds that invest in long term US Treasury bonds. This strategy is maintained unless an event occurs that scares investors as shown by a rising ^VIX.
So here we are in May and the stock market has gone down a little. A few weeks ago, I said to avoid timing the stock market and not follow the saying sell in May and Go Away. The reasons for making this statement is because of the reasons mentioned above: growth phase of the business cycle, comments by the US Federal Reserve, comments by Warren Buffet/Berkshire Hathaway, and a low ^VIX.
One thing that I have found is that it is not possible to make money playing short term moves in the stock, bond, or commodity market. By the time one realizes the top or bottom has arrived and can make the appropriate investment changes the majority of the move is over and the individual investor is left paying transaction fees.
My philosophy is to understand the major moves, avoid playing the minor moves, and minimize the amount of transaction fees. Please let me know if you have a question on this topic.
Memorial Day History
By 1865 the practice of decorating soldiers' graves had become widespread in the North. The first known observance was in Waterloo, New York on May 5, 1866, and each year thereafter. The friendship between General John Murray, a distinguished citizen of Waterloo, and General John A. Logan, who helped bring attention to the event nationwide, was likely a factor in the holiday's growth. On May 5, 1868, in his capacity as commander-in-chief of the Grand Army of the Republic – the organization for Northern Civil War veterans – Logan issued a proclamation that "Decoration Day" should be observed nationwide. It was observed for the first time on May 30 of the same year; the date was chosen because it was not the anniversary of a battle.
There were events in 183 cemeteries in 27 states in 1868, and 336 in 1869. The northern states quickly adopted the holiday; Michigan made "Decoration Day" an official state holiday in 1871 and by 1890 every northern state followed suit. The ceremonies were sponsored by the Women's Relief Corps, which had 100,000 members. By 1870, the remains of nearly 300,000 Union dead had been buried in 73 national cemeteries, located mostly in the South, near the battlefields. The most famous are Gettysburg National Cemetery in Pennsylvania and Arlington National Cemetery, near Washington.
The Memorial Day speech became an occasion for veterans, politicians and ministers to commemorate the war – and at first to recall the atrocities of the enemy. They mixed religion and celebratory nationalism and provided a means for the people to make sense of their history in terms of sacrifice for a better nation, one closer to their God. People of all religious beliefs joined together, and the point was often made that the German and Irish soldiers had become true Americans in the "baptism of blood" on the battlefield. By the end of the 1870s the rancor was gone and the speeches praised the soldiers of both the Union and Confederacy. By the 1950s, the theme was American exceptionalism and duty to uphold freedom in the world. Ironton, Ohio lays claim to the nation's oldest continuously running Memorial Day parade, since 1869.
In Charleston, South Carolina in 1865, freedmen (freed enslaved Africans) celebrated at the Washington Race Course, today the location of Hampton Park. The site had been used as a temporary Confederate prison camp for captured Union soldiers in 1865, as well as a mass grave for Union soldiers who died there. Immediately after the cessation of hostilities, freedmen exhumed the bodies from the mass grave and reinterred them in individual graves. They built a fence around the graveyard with an entry arch and declared it a Union graveyard. On May 1, 1865, a crowd of up to ten thousand, mainly black residents, including 2800 children, proceeded to the location for events that included sermons, singing, and a picnic on the grounds, thereby creating the first Decoration Day-type celebration.
Beginning in 1866 the Southern states had their own Memorial Days, ranging from April 26 to mid June. The birthday of Confederate President Jefferson Davis, June 3, became a state holiday in 10 states by 1916. Across the South associations were founded after the war to establish and care for permanent cemeteries for Confederate soldiers, organize commemorative ceremonies, and sponsor impressive monuments as a permanent way of remembering the Confederate tradition. Women provided the leadership in these associations, paving the way to establish themselves as capable of public leadership.
The earliest Confederate Memorial Day celebrations were simple, somber occasions for veterans and their families to honor the day and attend to local cemeteries. Around 1890, there was a shift from this consolatory emphasis on honoring specific soldiers to public commemoration of the Confederate "Lost Cause". Changes in the ceremony's hymns and speeches reflect an evolution of the ritual into a symbol of cultural renewal and conservatism in the South. By 1913, however, the theme of American nationalism shared equal time with the Lost Cause. Columbus, Mississippi at its Decoration Day on April 25, 1866, commemorated both the Union and Confederate casualties buried in its cemetery.
US Debt Limit
This week the top story was the USA reaching its debt limit of about $14.3 Trillion and the fear of default. While lots of experts have already provided insight on this topic, I want to provide input on the impact for holders of US Treasury Bonds. The first section is from Vanguard. The last section is some trivia for your enjoyment.
Vanguard
While recent reports provided reasons to pause and ponder the condition of the U.S. economy, the gradual recovery doesn't seem to be in danger. Somewhat negative news came from the index of leading economic indicators, existing-home sales, and new residential construction. While economists expected better from all three, there were explanations rather than alarms. The Federal Reserve Board's release of meeting minutes indicated that care must be taken when it eventually weans the economy off its support. For the week ended May 20, the S&P 500 Index fell 0.3% to 1,333 (for a year-to-date total return—including price change plus dividends—of about 6.8%). The yield of the 10-year U.S. Treasury note fell 3 basis points to 3.15% (for a year-to-date decrease of 15 basis points).
US Debt Limit and US Treasury Bonds
If you an investor, this is the main event for the year. The best way to watch this unfold is to watch the US Treasury yield curve that shows the interest rate for all debt issued by the US Treasury. If you are an investor that has purchased these bonds and plan to hold onto these bonds until maturity this has less of an impact than someone who is now purchasing these bonds. The foundation for all investing strategies is that all US Treasury debt has no risk of default so that this is a really, really, really big deal.
Since this is the main event, let's introduce the players like a boxing match. In this corner is the Republican party who say cut spending to reduce future debt obligations. In the other corner is the Democratic party who says that the debt limit should be extended so that it has minimal impact on the economy so that jobs can be created and spending cuts could put our country back into a recession. Who wins? I hope that us citizens eventually win.
Each view has its merits and your view of who is right depends on your perspective. If you are getting a check from the US government you probably are rooting for the Democratic party. If you are the one paying so that another person gets a check you are probably rooting for the Republican party. Everyone wants a balanced budget as long as it does not impact them directly.
Two main points exist in this debate: risk of default and a slowing economy and both impact the interest rates for US Treasury bonds. If a risk of a default exists, then investors will stop buying US Treasury bonds reducing prices and raising interest rates. If the economy slows then investors will start buying US Treasury bonds raising prices and reducing interest rates. You can determine which side is winning by watching the 10 year US Treasury bond interest rate. Since the US Treasury is the largest issuer of bonds this will control the interest rate for the entire economy including mortgages, corporate bonds, car loans, etc.
My perspective is that we will not default on the US debt and we will not slow down the economy. This is high stakes politics and sets fiscal policy for many years and we are the spectators. If we have a risk of default then interest rates go up creating a much larger problem. To illustrate, if interest rates go up by 1% because of this risk on $14.3 Trillion the impact on our budget is $143 Billion annually in higher interest payments. The last thing we need is a $143 Billion rock and the cost of credit for everything we buy will go up. Anyone who is borrowing money wants interest rates to stay low. As far as the impact on the economy, given that the Gross Domestic Product, GDP, for the USA is $20 Trillion if government spending is reduced it will have an impact of a few percent on the economy. I believe that private spending continue to increase regardless of US government spending.
What is the bottom line? The threat of a default risk will take the price for US Treasury bonds higher lowering interest rates. This means that investors should avoid buying US Treasury bonds and any mutual fund that invests in US Treasury bonds right now. Also, if the default risk becomes serious, my recommendation is to get out of all mutual funds that invest in any type of bond and go into cash until this blow over.
This is a fairly complicated topic. Please contact me if you have a question or a concern.
Trivia,
“The taxpayer - That's someone who works for the federal government but doesn't have to take the civil service examination.” Ronald Reagan
"If you put the federal government in charge of the Sahara Desert, in five years there would be a shortage of sand.” Milton Friedman
More than half of the coastline of the entire United States is in Alaska.
The Amazon rainforest produces more than 20% of the world's oxygen supply. The Amazon River pushes so much water into the Atlantic Ocean that, more than one hundred miles at sea off the mouth of the river; one can dip fresh water out of the ocean. The volume of water in the Amazon River is greater than the next eight largest rivers in the world combined and three times the flow of all rivers in the United States.
Istanbul, Turkey, is the only city in the world located on two continents.
Vanguard
While recent reports provided reasons to pause and ponder the condition of the U.S. economy, the gradual recovery doesn't seem to be in danger. Somewhat negative news came from the index of leading economic indicators, existing-home sales, and new residential construction. While economists expected better from all three, there were explanations rather than alarms. The Federal Reserve Board's release of meeting minutes indicated that care must be taken when it eventually weans the economy off its support. For the week ended May 20, the S&P 500 Index fell 0.3% to 1,333 (for a year-to-date total return—including price change plus dividends—of about 6.8%). The yield of the 10-year U.S. Treasury note fell 3 basis points to 3.15% (for a year-to-date decrease of 15 basis points).
US Debt Limit and US Treasury Bonds
If you an investor, this is the main event for the year. The best way to watch this unfold is to watch the US Treasury yield curve that shows the interest rate for all debt issued by the US Treasury. If you are an investor that has purchased these bonds and plan to hold onto these bonds until maturity this has less of an impact than someone who is now purchasing these bonds. The foundation for all investing strategies is that all US Treasury debt has no risk of default so that this is a really, really, really big deal.
Since this is the main event, let's introduce the players like a boxing match. In this corner is the Republican party who say cut spending to reduce future debt obligations. In the other corner is the Democratic party who says that the debt limit should be extended so that it has minimal impact on the economy so that jobs can be created and spending cuts could put our country back into a recession. Who wins? I hope that us citizens eventually win.
Each view has its merits and your view of who is right depends on your perspective. If you are getting a check from the US government you probably are rooting for the Democratic party. If you are the one paying so that another person gets a check you are probably rooting for the Republican party. Everyone wants a balanced budget as long as it does not impact them directly.
Two main points exist in this debate: risk of default and a slowing economy and both impact the interest rates for US Treasury bonds. If a risk of a default exists, then investors will stop buying US Treasury bonds reducing prices and raising interest rates. If the economy slows then investors will start buying US Treasury bonds raising prices and reducing interest rates. You can determine which side is winning by watching the 10 year US Treasury bond interest rate. Since the US Treasury is the largest issuer of bonds this will control the interest rate for the entire economy including mortgages, corporate bonds, car loans, etc.
My perspective is that we will not default on the US debt and we will not slow down the economy. This is high stakes politics and sets fiscal policy for many years and we are the spectators. If we have a risk of default then interest rates go up creating a much larger problem. To illustrate, if interest rates go up by 1% because of this risk on $14.3 Trillion the impact on our budget is $143 Billion annually in higher interest payments. The last thing we need is a $143 Billion rock and the cost of credit for everything we buy will go up. Anyone who is borrowing money wants interest rates to stay low. As far as the impact on the economy, given that the Gross Domestic Product, GDP, for the USA is $20 Trillion if government spending is reduced it will have an impact of a few percent on the economy. I believe that private spending continue to increase regardless of US government spending.
What is the bottom line? The threat of a default risk will take the price for US Treasury bonds higher lowering interest rates. This means that investors should avoid buying US Treasury bonds and any mutual fund that invests in US Treasury bonds right now. Also, if the default risk becomes serious, my recommendation is to get out of all mutual funds that invest in any type of bond and go into cash until this blow over.
This is a fairly complicated topic. Please contact me if you have a question or a concern.
Trivia,
“The taxpayer - That's someone who works for the federal government but doesn't have to take the civil service examination.” Ronald Reagan
"If you put the federal government in charge of the Sahara Desert, in five years there would be a shortage of sand.” Milton Friedman
More than half of the coastline of the entire United States is in Alaska.
The Amazon rainforest produces more than 20% of the world's oxygen supply. The Amazon River pushes so much water into the Atlantic Ocean that, more than one hundred miles at sea off the mouth of the river; one can dip fresh water out of the ocean. The volume of water in the Amazon River is greater than the next eight largest rivers in the world combined and three times the flow of all rivers in the United States.
Istanbul, Turkey, is the only city in the world located on two continents.
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