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Market Commentary
Economic Updates
Recent News |
Weekly Commentary
August 23, 2010
The
Markets
"We
don't think the world has ended."
With
so much doom and gloom being published these days, it's refreshing to hear a
respected leader of a global, blue-chip company make a positive statement. Doug
Oberhelman, the chief executive officer of Caterpillar, met with analysts last
week and painted a rather bright picture of the world economy, including the
quote above.
Oberhelman
went on to say that Caterpillar does not expect a double-dip recession because
the world's central bankers are staying on top of the situation and the global
economy is improving -- especially in the developing world. As the world's
largest maker of construction and mining equipment, Caterpillar is considered a
good indicator of worldwide economic health, according to Associated Press.
One
question that many analysts and economists are struggling with is, "Can the
world recover without the United States?" As the world's largest economy,
there's an old saying that when our economy sneezes, the world catches a cold.
Well, we've certainly done more than sneeze in the past three years. Optimists
say that yes, the U.S. is still important in the world economy, but other
countries, most notably China, India, and Brazil, can still prosper even if the
U.S. is down for a few counts. They call this "decoupling."
Underscoring
this idea of decoupling is the fact that China just passed Japan as the world's
second largest economy, according to The
New York Times. Forecasters are predicting that China will surpass the U.S.
as the largest economy by as early as 2030.
Caterpillar,
for one, thinks the world will continue recovering even if the U.S. is a bit
weak. And the stunning growth of China makes that idea plausible.
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Data as
of 8/20/10
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1-Week
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Y-T-D
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1-Year
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3-Year
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5-Year
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10-Year
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Standard
& Poor's 500 (Domestic Stocks)
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-0.7%
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-3.9%
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4.4%
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-9.5%
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-2.6%
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-3.3%
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DJ
Global ex US (Foreign Stocks)
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-0.5
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-5.5
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5.0
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-8.5
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1.2
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0.9
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10-year
Treasury Note (Yield Only)
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2.6
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N/A
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3.4
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4.6
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4.2
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5.8
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Gold
(per ounce)
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0.8
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10.8
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30.1
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22.9
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22.7
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16.1
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DJ-UBS
Commodity Index
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-1.0
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-5.6
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4.3
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-6.7
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-4.4
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2.2
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DJ
Equity All REIT TR Index
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-0.5
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11.9
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35.2
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-6.0
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1.3
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10.1
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Notes:
S&P 500, DJ Global ex US, Gold, DJ-UBS Commodity Index returns exclude
reinvested dividends (gold does not pay a dividend) and the three-, five-, and
10-year returns are annualized; the DJ Equity All REIT TR Index does include
reinvested dividends and the three-, five-, and 10-year returns are annualized;
and the 10-year Treasury Note is simply the yield at the close of the day on
each of the historical time periods.
Sources:
Yahoo! Finance, Barron's, djindexes.com, London Bullion Market Association.
Past performance is no guarantee
of future results. Indices are unmanaged
and cannot be invested into directly. N/A means not applicable or not available.
YOU MAY NOT HAVE HEARD OF
STANLEY DRUCKENMILLER,but he will be remembered as one of
the most successful investors (speculators?) of all time. Since 1986,
Druckenmiller has
generated
average annual returns of 30%, according to an August 18 article by Bloomberg. Incredibly, in 30 years of
managing money, he's never had a losing year, according to Bloomberg.
Perhaps
his most famous moment came in 1992 when he was working for famed investor
George Soros. Together, they made a multi-billion dollar bet that the Bank of
England would be forced to devalue the pound. Sure enough, that occurred and
the duo made a $1 billion profit for their investors -- in a single day -- according to Forbes.
Over the years, Druckenmiller did well personally, too, as Forbes magazine estimated his net worth at $3.5 billion in 2009.
When
it comes to making money, Druckenmiller said, "It is not whether you are right
or wrong that's important, but how much money you make when you're right and how
much you lose when you're wrong."
Last
week, Druckenmiller announced that he was retiring from managing client money.
The
fact that he was retiring was not unusual, rather, as it was the reasons he
gave for the retirement. According to The
New York Times, Druckenmiller said, "I have had to recognize that competing
in the markets over such a long timeframe imposes heavy personal costs." He
went on to say, "While the joy of winning for clients is immense, for me the
disappointment of each interim drawdown over the years has taken a cumulative
toll that I cannot continue to sustain."
Two
days after Druckenmiller announced his retirement, another famous investor,
Paolo Pellegrini, said he was getting out of the business of managing other
people's money. Pellegrini is famous for betting against risky mortgages and
helping his former boss, John Paulson, score a $15 billion profit a few years
back, according to The Wall Street
Journal. This coup was chronicled in the bestselling book, The Greatest Trade Ever, by Gregory
Zuckerman.
Why
should you care that these two famous investors are exiting the business of
managing other people's money? It's important because of the possible signal
that it sends.
Back
in August 1979, BusinessWeek magazine
ran a cover story titled, "The Death of Equities." It concluded by saying, "The
old attitude of buying solid stocks as a cornerstone for one's life savings and
retirement has simply disappeared...The stock market is just not where the
action's at." Exactly three years later -- in August 1982 -- the stock market
took off on an 18-year bull run that was one of the greatest in history. That
story, in hindsight, served as an early inverse
indicator of the future direction of the market.
Could
the disappearance of Druckenmiller and Pellegrini be a signal similar to the
infamous BusinessWeek story?
A
stretch, perhaps, and there's no way of knowing what the market will do until
after it happens. But it's interesting to consider what non-traditional clues
like this might mean. Food for thought.
Weekly
Focus - Think About It
"If
investing is entertaining, if you're having fun, you're probably not making any
money. Good investing is boring." --George Soros
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Warm Regards,
Jim Forcella, CFP®, CFS®
LPL Branch Manager
LPL Investment Adviser Representative
CA Insurance License #0635256
P.S. - Please feel free to forward this commentary to family, friends, or colleagues. If you would like us to add them to the list, please reply to this e-mail with their e-mail address and we will ask for their permission to be added.
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Forcella Wealth Management
1600 Victor Ave ● Redding, CA 96003
Phone 530.222.6301 ● Toll Free 800.546.5573 ● Fax 530.226.1677
jim.forcella@lpl.com ● www.forcellawealth.com
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* This newsletter was prepared by PEAK.
* The Standard & Poor's 500
(S&P 500) is an unmanaged group of securities considered to be
representative of the stock market in general.
* The DJ Global ex US is an unmanaged
group of non-U.S. securities designed to reflect the performance of the global
equity securities that have readily available prices.
* The 10-year Treasury Note represents
debt owed by the United States Treasury to the public. Since the U.S.
Government is seen as a risk-free borrower, investors use the 10-year Treasury
Note as a benchmark for the long-term bond market.
* Gold represents the London afternoon
gold price fix as reported by the London Bullion Market Association.
* The DJ Commodity Index is designed to
be a highly liquid and diversified benchmark for the commodity futures market.
The Index is composed of futures contracts on 19 physical commodities and was
launched on July 14, 1998.
* The DJ Equity All REIT TR Index
measures the total return performance of the equity subcategory of the Real
Estate Investment Trust (REIT) industry as calculated by Dow Jones.
* Yahoo! Finance is the source for any
reference to the performance of an index between two specific periods.
* Opinions expressed are subject to
change without notice and are not intended as investment advice or to predict
future performance.
* Past performance does not guarantee
future results.
* You cannot invest directly in an
index.
* Consult your financial professional
before making any investment decision.
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Securities Offered Through LPL Financial Member FINRA/SIPC
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