The first significant snow of the season, as seen in South Whitehall. Photo taken 12/6/2009.
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THE MARKETS |
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Could November go down in history
as a major turning point in the U.S.
economy?
The shocking (in a positive way)
unemployment report released last Friday by the Labor Department showed the
economy lost only 11,000 jobs in November. The markets were bracing for a
number well in excess of 100,000, according to CNBC. On top of that, revisions to
the previous two months showed 159,000 fewer
jobs were lost than initially reported. And, to complete the trifecta, the
unemployment rate dropped to 10.0% in November, down from 10.2% in October. On
the surface, this is extremely good news for the economy as it suggests the
economy is healing nicely.
Initially, the stock market roared
higher on the news. However, as the day wore on, prices started to fade as investors
realized that if the economy is too strong, it will cause interest rates to
rise sooner than expected. As interest rates rise, it may cause the economy to
slow down. So, in the (almost) comical way that Wall Street works, investors
like good news - but not too good of news!
Gold prices plunged on the
unemployment report and interest rates and the U.S. dollar soared. True to
form, whenever there is major market moving news, we tend to see some asset
classes that benefit and some that lose out. This complex and ever-shifting
interrelationship among various asset classes was on full display after the
unemployment news broke. Of course, we do our best to stay on top of these
relationships and seek to profit from them on your behalf.
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Data
as of 12/4/09
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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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1.3%
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22.4%
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26.2%
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-7.8%
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-1.5%
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-2.5%
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DJ Global ex US (Foreign Stocks)
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3.2
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40.4
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55.6
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-5.0
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4.1
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1.2
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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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2.6
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4.4
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4.2
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6.1
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Gold (per ounce)
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2.0
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36.9
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53.9
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22.6
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21.3
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15.7
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DJ-UBS Commodity Index
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-0.4
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15.0
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21.9
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-7.7
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-1.5
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3.9
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DJ Equity All REIT TR Index
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9.0
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25.6
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56.8
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-13.6
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0.4
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11.1
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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.
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THERE IS A DIFFERENCE BETWEEN LUCK AND SKILL
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There is a difference between luck and skill and
knowing when you are just lucky and when you are successful due to skill is of
paramount importance as an investor. Let's say you correctly called the flip of
a coin five times in a row. What are the odds that you will correctly call the
next flip? Correctly calling five flips in a row might be considered a "hot
streak" and lead you to believe that chances are high you can correctly call the
next flip. Well, assuming it is a fair flip, there is, of course, only a 50/50
chance that you will be correct because flipping a coin is a game of known
probability. The fact is the coin flip has no memory of your hot streak.
An investor who
is on a "hot streak" may or may not be lucky. Let's take John Paulson as an
example. He was a faceless hedge fund manager toiling in obscurity until he
came upon an idea. He became convinced several years ago that the housing
market was a bubble ready to burst. He put his money where his thesis was and
he made billions of dollars for himself and his clients, according to a new
book, The Greatest Trade Ever, by
Gregory Zuckerman.
Today, Paulson
is the toast of the hedge fund world and his latest "big bet" is that gold
prices will continue to rise. This is not a recommendation from us to either
buy or sell gold; rather, we want to make a point.
With millions of
investors, odds are that some of them will make winning investments numerous
times in a row. If these winning investors were, in reality, just lucky, but they think they were actually skillful,
then that is when the situation turns problematic. The lucky investor may start
to think they are infallible and get stubborn when the market turns against
them. Eventually, when the lucky streak ends, it will likely mean serious
losses for the investor. Only time will tell whether John Paulson got lucky or
whether he has substantial investment skill.
The best
antidote we know of to the danger of confusing luck and skill is to remain
humble. When our investment strategy performs well, we are very thankful. When
it doesn't perform well, we try to learn from it. The investment business has
an uncanny way of turning hubris into painful losses. We think humility is a
safer route.
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THINK ABOUT IT
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"If we become
increasingly humble about how little we know, we may be more eager to search."
-- John
Templeton
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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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