Jaindl Turkeys of Orefield, PA have been a fixture at the White House Thanksgiving for over forty years.
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THE MARKETS |
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Would you willingly give the
government your money and expect nothing in return? Last week, that is exactly
what happened.
Treasury bills maturing in January
2010 actually yielded -0.01% last Friday. The last time interest rates were
negative was at the height of the credit crisis in late 2008 as panicked
investors sought refuge in short-term government paper, according to The Wall Street Journal. Fortunately,
this time around, panicked investors were not the reason for the negative
rates.
Many large institutional investors
have reaped significant gains in this year's bull market and, rather than risk
giving back some of those gains in an end-of-the-year swoon, some of those
investors decided to park their cash in ultra-short Treasury bills. This strong
demand for the bills, plus a temporary shortage of T-bills available for
investment, helped drive the yields to effectively zero.
While the above explanation for the
zero interest rates makes sense, there is always the possibility that there is
more to the story. If large investors felt the rally would continue, would they
risk missing it? We are always mindful that what "makes sense" may not always
make money. Accordingly, we remain vigilant for any sign that the bull market
is tired and ready to take a nap.
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Data as of 11/20/09
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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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-0.2%
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20.8%
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36.4%
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-8.0%
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-1.5%
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-2.6%
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DJ Global ex US
(Foreign Stocks)
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-1.4
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37.0
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61.5
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-4.6
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4.2
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1.2
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10-year Treasury Note
(Yield Only)
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3.4
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N/A
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3.1
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4.6
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4.2
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6.1
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Gold (per ounce)
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3.3
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31.1
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54.5
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22.2
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20.5
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14.5
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DJ-UBS Commodity Index
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2.5
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15.1
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14.9
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-7.0
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-2.4
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3.8
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DJ Equity All REIT TR
Index
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-0.5
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18.7
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81.8
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-14.2
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0.3
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10.3
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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.
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A COMMON MISTAKE MADE BY INVESTORS
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A common mistake made by investors is to confuse
the performance of the economy with the performance of the stock market.
Logically, you would expect the economy and the stock market to move somewhat
in synch. That is, if the economy does well, the stock market should do well
and vice versa. Directionally, that is usually correct, but the degree of the
moves could vary significantly.
This year is a
great example of how the economy and the stock market are moving in the same
direction, but the degree of the moves in each are way out of proportion.
Specifically, the economy is slowly stumbling its way out of the recession
while the stock market has been on a tear with the S&P 500 index rising
more than 20% year-to-date.
How can stocks
rise so dramatically when the economy is still lethargic? In a word - earnings.
As the economy started to tank last year, corporate America quickly slashed costs. With
a lowered cost structure, it only took a small up-tick in business to produce
outsized earnings. In fact, Thomson Reuters said 80% of the S&P 500
companies reported third-quarter earnings that beat Wall Street estimates. To
be fair, the earnings were better than Wall Street expected, but they were
still generally down from all-time highs.
UBS stock-market
strategist Thomas Doerflinger came up with a clever way to describe this rapid
improvement in earnings against a slow moving economy. He called it a "'V'
shaped recovery in profits in a 'U' shaped economy." Major cost-cutting essentially
levered corporate earnings power so a small improvement in the economy could
translate into a much larger profit improvement.
For bulls, this
leverage means we could see record corporate profits before we see record
corporate revenue. Sadly, for employees, this could be a "jobless recovery,"
but for investors, it could be a profitable one.
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THINK ABOUT IT
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"Would our
disappearance leave the world poorer, or just less crowded?"
--Harold Kushner
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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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