1930 Oakland Eight, as featured at Das Awkscht Fescht in Macungie, PA.
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Greetings!
Each week we use our banner photo to spotlight life in the Lehigh Valley. This week's photo was submitted by a client that attended Das Awkscht Fescht on Saturday, August 1, 2009. Please continue submitting your photos and we will continue sharing them.
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THE MARKETS |
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Here we go again
making another comparison to The Great Depression. Only this time, it's a
positive comparison.
For the five
months ending last Friday, the S&P
500 had its best performance streak since The Great Depression year of 1938,
according to Reuters. During these five months, the S&P 500 index rallied
34%. Yet, despite this tremendous rise, losses between January and early March
of this year limited the S&P's year-to-date gain to 9.3%, according to data
from Yahoo! Finance.
Several factors
helped propel this rally including a normal bounce back from a deep correction,
better than expected quarterly earnings, and "less bad" economic news. Rallies
like this also tend to feed on themselves as trend followers jump on board and
help push prices higher.
Interestingly,
corporate insiders have been big sellers during this rally. According to
Vickers Weekly Insider Report as reported by MarketWatch, the ratio of insider
selling to insider buying over the past few weeks was at its highest level
since the fall of 2007 - right before the bear market began. Although not
foolproof, this suggests corporate insiders are less sanguine about the future
of this rally.
Corporate
insiders notwithstanding, this has been a powerful rally. Only time will tell
if it continues into the fall or rolls over into a new leg down. Either way,
we're doing our best to help you preserve capital and generate profits as
appropriate.
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Data as of 7/31/09
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1WK
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YTD
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1 YR
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3 YR
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5 YR
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10 YR
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Standard & Poor's
500 (Domestic Stocks)
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0.8%
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9.3%
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-21.7%
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-8.2%
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-2.3%
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-2.9%
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DJ Global ex US
(Foreign Stocks)
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2.5
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24.1
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-23.2
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-5.6
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4.5
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1.3
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10-year Treasury Note
(Yield Only)
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3.5
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N/A
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4.0
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5.0
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4.5
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5.9
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Gold (per ounce)
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-1.3
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8.3
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2.3
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14.1
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19.1
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13.9
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DJ-UBS Commodity Index
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2.6
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7.9
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-38.3
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-10.8
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-2.8
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4.1
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DJ Equity All REIT TR
Index
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3.6
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-2.7
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-39.2
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-16.0
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-1.0
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N/A
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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 available.
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ARE WE HEADING TOWARD INFLATION OR DEFLATION
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Are we heading toward inflation or deflation over the next
few years? The answer to this question may have significant portfolio
implications.
With the economy
having just completed four consecutive quarters of negative GDP growth, it's
hard to imagine that inflation could be a potential problem - but it is. Thanks
to the government's massive monetary and fiscal stimulus, all this money
sloshing through our economy has the potential to juice it so much that we end
up with double-digit inflation and a weak dollar.
Deflation, on
the other hand, is possible, too. With unemployment near double-digits,
consumer spending subdued, banks being tightfisted, and our industrial complex
operating way below capacity, we could end up in a vicious circle of declining
prices that overwhelms the government's stimulus efforts.
From a portfolio
standpoint, here's the rub. Investments that have historically performed well
in an inflationary environment may not necessarily do well in a deflationary
environment and vice versa.
So, what's an
investor to do?
Ben Bernanke,
Chairman of the Federal Reserve, is on the record as saying the government,
"...would take whatever means necessary to prevent significant deflation in the United States."
From a political standpoint, some inflation is preferable because it allows the
government to pay back its debts with cheaper dollars. Given the government's
comments and the political benefit to inflation, it's reasonable to conclude
that if the government errors, they are more likely to error on the side of
inflation rather than deflation.
However, from an
investment standpoint, putting all your eggs in an inflation-based portfolio
would be risky. A more prudent strategy may be to include some asset classes
that could benefit from inflation and some that could benefit from deflation
and then monitor those assets closely to see which scenario unfolds.
Successful
investing is never easy and it is issues like the inflation/deflation question
that are especially vexing. While you may find this issue boring, it excites us
and is an example of what you have hired us to help you navigate. Please be
assured that we are doing all we can to find the smoothest route possible
through this potential white water issue.
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THINK ABOUT IT
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"And now let's
go hand in hand, not one before another."
-- William
Shakespeare, The Comedy of Errors
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Mary L. Nothelfer, CFP® Emilio
J. Morrone, CPA, CFP®
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Securities
offered through LPL Financial, Member FINRA/SIPC.
*
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.
* This
newsletter was prepared by PEAK.
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in the subject line.
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