The Markets
After 14 summits in 21 months, have European leaders finally solved their sovereign debt problem? Judging by the stock market’s reaction, you might think the answer is yes.
In marathon sessions last week, European leaders agreed on a new, three-point deal to stave off a deeper debt crisis. The deal includes:
1) A commitment by banks and other private bondholders to accept a voluntary 50% writedown on Greek government debt.
2) A boost in the lending power of the euro-zone bailout fund.
3) A 106 billion euro ($148 billion) recapitalization of European banks.
Source: MarketWatch
Even though details were still a bit sketchy, investors threw caution to the wind and bid up stock prices. U.S. stock prices rose 3.8 percent last week and 14 percent for the month with just one trading day left, according to Bloomberg.
With Europe’s debt crisis tempered for the moment, attention now turns to the U.S. On the positive side, the U.S. economy grew at a 2.5 percent clip in the third quarter, which was the fastest pace in a year. In addition, third-quarter earnings are still coming in strong as about 75 percent of the companies reporting so far have beaten expectations, according to Bloomberg.
Looming on the horizon, the congressional supercommittee has about one month left before making its recommendations on how to cut at least $1.2 trillion from the federal budget. If the supercommittee fails, then across the board budget cuts of a like amount would ensue.
As of last week, investors were happy to breathe a sigh of relief that Europe seems to have dodged a disaster (at least for now) and the U.S. economy still has some life.
THE WEATHER AND THE STOCK MARKET HAVE A LOT IN COMMON – they’re both very unpredictable! This past weekend, the Northeast got walloped by a surprisingly strong snowstorm that dumped as much as two feet of snow in parts of Massachusetts. Central Park in New York City even set an October record with 1.3 inches of snow. And, this all happened before Halloween!
Likewise, the stock market has a habit of surprising investors with its ability to rise or fall dramatically in short periods of time. For example, remember the “Flash Crash?” On May 6, 2010, the U.S. stock market plunged for no apparent reason and briefly erased $862 billion from stock values in less than 20 minutes, according to Bloomberg. It then quickly rebounded.
As it relates to weather, we always know what season we’re in. One look at the calendar tells us whether its winter, spring, summer, or fall. And, depending on where you live, you have a pretty good idea – based on history – of what to expect for each day’s temperature. But, just like the Northeast experienced, you can have an “out of season” experience that messes up your best-laid plans.
The stock market doesn’t have four seasons, but it does have bull and bear markets, which are further divided into secular and cyclical. Market analysts have some general criteria that they use to categorize the markets into these buckets. Yet, like the weather, you could be in a bull market, but still have a nasty market drop that temporarily derails the path of the bull.
Bottom line, just like weather forecasters, market analysts may have a sense for general conditions in the market, but surprises still happen.
Weekly Focus – Think About It
“Sunshine is delicious, rain is refreshing, wind braces us up, snow is exhilarating; there is really no such thing as bad weather, only different kinds of good weather.”
--John Ruskin, leading English art critic of the Victorian era
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Monday, October 31, 2011
Friday, October 28, 2011
European Rescue Package
The European summit on October 26, the fourteenth in 21 months, finally produced a deal in a late-night negotiating session. European leaders announced a deal that was close to what had been carefully leaked over the prior weeks of deliberations and had helped the S&P 500 Index to rally off of the lows of the year. From the closing low on October 3, the Index has climbed nearly 17% in just three and a half weeks and is on pace for the largest monthly gain since 1987.
Overall, the statement confirms the view that the risk of a 2008-like financial crisis erupting in Europe, which has been the focus of global markets in recent months, has been taken off the table. However, over the long term, concerns remain about the outlook for economic growth in Europe and the ability of some peripheral countries to meet budget targets. While the statement does not clarify all the details, it does lay out the three most important aspects of the rescue package:
• Reducing Greece’s debt. The package cuts Greece’s debt burden with a 50% “haircut” on Greek bonds. Private investors, including banks, will swap their Greek bonds for those with half the face value, but higher quality given an additional 30 billion euro cushion provided against further losses.
• A bigger buffer against bank losses. Overall, European banks will be required to raise 106 billion euros to temporarily maintain a higher buffer against additional losses on their bond holdings. Banks will be given the opportunity to raise this capital on their own and plug any gaps with funding from their own government and the ability to tap the European Financial Stability Facility (EFSF) as a last resort.
• Insurance against loss on European government bonds. The EFSF will provide guarantees against the first 20-25% of losses on about one trillion euros of European government debt.
The concerns may be shifting from a crisis to a recession in Europe, as it is likely that Europe will experience a mild recession next year. However, European growth could be even weaker in light of the spending austerity and potential for less lending by the banks. The next step in a successful plan to stabilize Europe is for the European Central Bank to cut interest rates soon and reverse the two rate hikes they made earlier this year to promote growth and lending.
While the devil of the European plan remains in the details, the deal could shift investor focus to U.S. markets where economic growth and corporate profits continue to chug along. Third-quarter economic growth, as measured by gross domestic product (GDP), was recently reported at 2.5%, nearly double the pace of growth witnessed in the first two quarters of the year combined. Within the S&P 500, 75% of the companies that have reported third-quarter earnings thus far have exceeded expectations and the companies, in aggregate, are tracking to 15% year-over-year earnings growth, surpassing the 12-13% growth rate that was forecast. Given the current backdrop, we adhere to our forecast of a moderate upside from current levels for the S&P 500 Index in 2011, though we expect the market to remain volatile between now and year-end. As always, I encourage you to contact me with any questions.
Best regards,
____________________________________________________________________________
The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. To determine which investment(s) may be appropriate for you, consult me prior to investing. All performance referenced is historical and is no guarantee of future results. All indices are unmanaged and cannot be invested into directly.
The economic forecasts set forth in the presentation may not develop as predicted and there can be no guarantee that strategies promoted will be successful.
The Standard & Poor’s 500 Index is a capitalization-weighted index of 500 stocks designed to measure performance of the broad domestic economy through changes in the aggregate market value of 500 stocks representing all major industries.
International and emerging markets investing involves special risks such as currency fluctuation and political instability and may not be suitable for all investors.
This research material has been prepared by LPL Financial.
Overall, the statement confirms the view that the risk of a 2008-like financial crisis erupting in Europe, which has been the focus of global markets in recent months, has been taken off the table. However, over the long term, concerns remain about the outlook for economic growth in Europe and the ability of some peripheral countries to meet budget targets. While the statement does not clarify all the details, it does lay out the three most important aspects of the rescue package:
• Reducing Greece’s debt. The package cuts Greece’s debt burden with a 50% “haircut” on Greek bonds. Private investors, including banks, will swap their Greek bonds for those with half the face value, but higher quality given an additional 30 billion euro cushion provided against further losses.
• A bigger buffer against bank losses. Overall, European banks will be required to raise 106 billion euros to temporarily maintain a higher buffer against additional losses on their bond holdings. Banks will be given the opportunity to raise this capital on their own and plug any gaps with funding from their own government and the ability to tap the European Financial Stability Facility (EFSF) as a last resort.
• Insurance against loss on European government bonds. The EFSF will provide guarantees against the first 20-25% of losses on about one trillion euros of European government debt.
The concerns may be shifting from a crisis to a recession in Europe, as it is likely that Europe will experience a mild recession next year. However, European growth could be even weaker in light of the spending austerity and potential for less lending by the banks. The next step in a successful plan to stabilize Europe is for the European Central Bank to cut interest rates soon and reverse the two rate hikes they made earlier this year to promote growth and lending.
While the devil of the European plan remains in the details, the deal could shift investor focus to U.S. markets where economic growth and corporate profits continue to chug along. Third-quarter economic growth, as measured by gross domestic product (GDP), was recently reported at 2.5%, nearly double the pace of growth witnessed in the first two quarters of the year combined. Within the S&P 500, 75% of the companies that have reported third-quarter earnings thus far have exceeded expectations and the companies, in aggregate, are tracking to 15% year-over-year earnings growth, surpassing the 12-13% growth rate that was forecast. Given the current backdrop, we adhere to our forecast of a moderate upside from current levels for the S&P 500 Index in 2011, though we expect the market to remain volatile between now and year-end. As always, I encourage you to contact me with any questions.
Best regards,
____________________________________________________________________________
The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. To determine which investment(s) may be appropriate for you, consult me prior to investing. All performance referenced is historical and is no guarantee of future results. All indices are unmanaged and cannot be invested into directly.
The economic forecasts set forth in the presentation may not develop as predicted and there can be no guarantee that strategies promoted will be successful.
The Standard & Poor’s 500 Index is a capitalization-weighted index of 500 stocks designed to measure performance of the broad domestic economy through changes in the aggregate market value of 500 stocks representing all major industries.
International and emerging markets investing involves special risks such as currency fluctuation and political instability and may not be suitable for all investors.
This research material has been prepared by LPL Financial.
Monday, October 24, 2011
Weekly Commentary October 24th, 2011
The Markets
“Good news is good and bad news is bad, but a lack of bad news can be good, at least for investors,” so wrote Vito Racanelli in the current issue of Barron’s.
Since the recent October 3 low, the S&P 500 index has risen 12.6 percent on the back of “a lack of bad news,” according to data from Yahoo! Finance.
Here’s what we could classify as a lack of bad news in the past few weeks:
• Corporate earnings are coming in okay so far this quarter as 75 percent of the 118 companies that reported earnings have beaten estimates, according to financial data provider FactSet.
• Economic news has generally supported the idea that the economy, while soft, is not collapsing.
• European leaders, after months of tough talk, but little action, may finally be on the verge of taking “comprehensive” action to quell (at least temporarily) the sovereign debt crisis, according to Phil Orlando, chief equity market strategist at Federated Investors.
Whether this “lack of bad news” turns into good news or bad news going forward, remains to be seen. Either way, we’ll work hard to profit from it.
THE WORLD’S POPULATION IS EXPECTED TO HIT 7 BILLION on October 31, according to the United Nations’ population division. That’s up from 2.5 billion in 1950. To put 7 billion people in perspective, see if you can correctly answer the following question.
If 7 billion people stood shoulder to shoulder, which of the following geographic areas is the smallest that could accommodate them?
A) Zanzibar (about 650 square miles)
B) Maui (about 727 square miles)
C) Rhode Island (about 1,033 square miles)
D) Sicily (about 9,925 square miles)
E) Cuba (about 42,845 square miles)
F) New Zealand (about 103,733 square miles)
The answer… in a moment.
Here are some interesting facts regarding the rate of growth of the world’s population.
It took…
• 250,000 years for the world to reach a population of 1 billion (hit in 1804)
• 123 years for the next billion (2 billion in 1927)
• 33 years to reach the next billion (3 billion in 1960)
• 14 years to reach the next billion (4 billion in 1974)
• 13 years to reach the next billion (5 billion in 1987)
• 12 years to reach the next billion (6 billion in 1999)
Sources: The Economist; United Nations World Population Prospects: The 2000 Revision, Volume III: Analytical Report
And, the growth continues… we’re projected to hit 9.3 billion by 2050.
For decades, experts have argued over whether or not our planet can handle this growth. What is not up for debate, though, is the fact that a growing population will affect the demand for goods and services. Food, of course, is high on the list.
The World Bank says, “Between 2005 and 2055 agricultural productivity will have to increase by two-thirds to keep pace with rising population and changing diets.” Okay, this is interesting, but why should we pay attention to this type of information?
As financial advisors, we want to monitor trends that could impact the demand for goods and services, which, in turn, may suggest areas ripe (no pun intended!) for investment. By keeping a finger on the pulse of long-term trends -- like the rising world population -- we might get an early read on investment opportunities.
Getting back to the population/geography question, The Economist says the answer is A) Zanzibar. Does that surprise you?
Weekly Focus – Think About It
“The investor of today does not profit from yesterday's growth.” --Warren Buffett
“Good news is good and bad news is bad, but a lack of bad news can be good, at least for investors,” so wrote Vito Racanelli in the current issue of Barron’s.
Since the recent October 3 low, the S&P 500 index has risen 12.6 percent on the back of “a lack of bad news,” according to data from Yahoo! Finance.
Here’s what we could classify as a lack of bad news in the past few weeks:
• Corporate earnings are coming in okay so far this quarter as 75 percent of the 118 companies that reported earnings have beaten estimates, according to financial data provider FactSet.
• Economic news has generally supported the idea that the economy, while soft, is not collapsing.
• European leaders, after months of tough talk, but little action, may finally be on the verge of taking “comprehensive” action to quell (at least temporarily) the sovereign debt crisis, according to Phil Orlando, chief equity market strategist at Federated Investors.
Whether this “lack of bad news” turns into good news or bad news going forward, remains to be seen. Either way, we’ll work hard to profit from it.
THE WORLD’S POPULATION IS EXPECTED TO HIT 7 BILLION on October 31, according to the United Nations’ population division. That’s up from 2.5 billion in 1950. To put 7 billion people in perspective, see if you can correctly answer the following question.
If 7 billion people stood shoulder to shoulder, which of the following geographic areas is the smallest that could accommodate them?
A) Zanzibar (about 650 square miles)
B) Maui (about 727 square miles)
C) Rhode Island (about 1,033 square miles)
D) Sicily (about 9,925 square miles)
E) Cuba (about 42,845 square miles)
F) New Zealand (about 103,733 square miles)
The answer… in a moment.
Here are some interesting facts regarding the rate of growth of the world’s population.
It took…
• 250,000 years for the world to reach a population of 1 billion (hit in 1804)
• 123 years for the next billion (2 billion in 1927)
• 33 years to reach the next billion (3 billion in 1960)
• 14 years to reach the next billion (4 billion in 1974)
• 13 years to reach the next billion (5 billion in 1987)
• 12 years to reach the next billion (6 billion in 1999)
Sources: The Economist; United Nations World Population Prospects: The 2000 Revision, Volume III: Analytical Report
And, the growth continues… we’re projected to hit 9.3 billion by 2050.
For decades, experts have argued over whether or not our planet can handle this growth. What is not up for debate, though, is the fact that a growing population will affect the demand for goods and services. Food, of course, is high on the list.
The World Bank says, “Between 2005 and 2055 agricultural productivity will have to increase by two-thirds to keep pace with rising population and changing diets.” Okay, this is interesting, but why should we pay attention to this type of information?
As financial advisors, we want to monitor trends that could impact the demand for goods and services, which, in turn, may suggest areas ripe (no pun intended!) for investment. By keeping a finger on the pulse of long-term trends -- like the rising world population -- we might get an early read on investment opportunities.
Getting back to the population/geography question, The Economist says the answer is A) Zanzibar. Does that surprise you?
Weekly Focus – Think About It
“The investor of today does not profit from yesterday's growth.” --Warren Buffett
Tuesday, October 18, 2011
Weekly Commentary October 18th, 2011
The Markets
What happened to the economy?
Less than three weeks ago, it seemed like the economy was falling off a cliff. Firms like the Economic Cycle Research Institute were saying a new recession was on its way and there’s nothing the government could do to stop it, according to MarketWatch. The stock market was sensing economic weakness, too, as it slumped to its lowest level in a year on October 3.
But, now, just two weeks later, the S&P 500 stock index is up a whopping 11 percent since October 3 and trading at the top end of a range that it’s been stuck in for more than two months, according to Bloomberg.
Has the economy suddenly turned the corner? Well, economic reports in the last couple weeks came in better than expected. According to The Wall Street Journal, “Auto sales rebounded to their highest level since April. Chain-store sales posted year-on-year growth of 5.5 percent. The economy added 103,000 jobs, and manufacturing sentiment improved a bit.” On top of that, the Commerce Department said retail sales rose 1.1 percent in September -- above the 0.8 percent expected by economists surveyed by MarketWatch.
While the recent positive economic data is encouraging, it would be premature to ring the metaphorical bell for an all-clear signal. The economy still has lots of repairs to make before happy days are here again. In the meantime, we’ll keep doing our job which is to help you meet your financial goals and objectives.
LOOKING BACK ON THE DECADE OF THE 1930s, which includes the Great Depression, it’s hard to imagine that it may have been, “the most technologically progressive decade of the century,” according to economic historian Alexander Field. And, those advancements -- in the midst of our country’s worst economic slump -- may have set the stage for our post-World War II boom.
Like our Great Depression experience, could the current economic downturn be laying the seeds for a new American renaissance in the coming years?
In his recent book, A Great Leap Forward, Field argues that technological advancement and innovation flourished during the Great Depression. In a New York Times interview he said, “There is evidence that for some organizations and industries, just as for some individuals, adversity summons reservoirs of initiative and creativity that have long-term positive consequences. And, based on Depression experience, we can be optimistic that when exciting technological paradigms are ripe for exploitation, work will continue on them, slump or no slump.”
If necessity is indeed the mother of invention, then right now there may be exciting new technologies and innovation growing under the radar that will bear fruit in the years to come. As David Leonhardt wrote in The New York Times, the U.S. has several advantages over other countries including, “The world’s best venture-capital network, a well-established rule of law, a culture that celebrates risk taking, (and) an unmatched appeal to immigrants.” Those advantages may be working overtime now creating the next “big thing.”
Don’t forget that 20 years ago, the internet was only known to scientists and academics. Today, it’s ubiquitous and would be hard to live without. Twenty years from now we could be writing about something entirely new that changes the way we work and live -- and employs millions of people.
It’s easy to throw up your arms in frustration about the challenges our world faces. And, yes, we do have challenges and many people are experiencing economic hardship. Yet, there is reason for hope. Seeds were sown during the adversity of the Great Depression that bore fruit in the decades to follow. It could be happening again.
It’s never wise to bet against the United States.
Weekly Focus – Think About It
“The American, by nature, is optimistic. He is experimental, an inventor, and a builder who builds best when called upon to build greatly.” --John F. Kennedy
What happened to the economy?
Less than three weeks ago, it seemed like the economy was falling off a cliff. Firms like the Economic Cycle Research Institute were saying a new recession was on its way and there’s nothing the government could do to stop it, according to MarketWatch. The stock market was sensing economic weakness, too, as it slumped to its lowest level in a year on October 3.
But, now, just two weeks later, the S&P 500 stock index is up a whopping 11 percent since October 3 and trading at the top end of a range that it’s been stuck in for more than two months, according to Bloomberg.
Has the economy suddenly turned the corner? Well, economic reports in the last couple weeks came in better than expected. According to The Wall Street Journal, “Auto sales rebounded to their highest level since April. Chain-store sales posted year-on-year growth of 5.5 percent. The economy added 103,000 jobs, and manufacturing sentiment improved a bit.” On top of that, the Commerce Department said retail sales rose 1.1 percent in September -- above the 0.8 percent expected by economists surveyed by MarketWatch.
While the recent positive economic data is encouraging, it would be premature to ring the metaphorical bell for an all-clear signal. The economy still has lots of repairs to make before happy days are here again. In the meantime, we’ll keep doing our job which is to help you meet your financial goals and objectives.
LOOKING BACK ON THE DECADE OF THE 1930s, which includes the Great Depression, it’s hard to imagine that it may have been, “the most technologically progressive decade of the century,” according to economic historian Alexander Field. And, those advancements -- in the midst of our country’s worst economic slump -- may have set the stage for our post-World War II boom.
Like our Great Depression experience, could the current economic downturn be laying the seeds for a new American renaissance in the coming years?
In his recent book, A Great Leap Forward, Field argues that technological advancement and innovation flourished during the Great Depression. In a New York Times interview he said, “There is evidence that for some organizations and industries, just as for some individuals, adversity summons reservoirs of initiative and creativity that have long-term positive consequences. And, based on Depression experience, we can be optimistic that when exciting technological paradigms are ripe for exploitation, work will continue on them, slump or no slump.”
If necessity is indeed the mother of invention, then right now there may be exciting new technologies and innovation growing under the radar that will bear fruit in the years to come. As David Leonhardt wrote in The New York Times, the U.S. has several advantages over other countries including, “The world’s best venture-capital network, a well-established rule of law, a culture that celebrates risk taking, (and) an unmatched appeal to immigrants.” Those advantages may be working overtime now creating the next “big thing.”
Don’t forget that 20 years ago, the internet was only known to scientists and academics. Today, it’s ubiquitous and would be hard to live without. Twenty years from now we could be writing about something entirely new that changes the way we work and live -- and employs millions of people.
It’s easy to throw up your arms in frustration about the challenges our world faces. And, yes, we do have challenges and many people are experiencing economic hardship. Yet, there is reason for hope. Seeds were sown during the adversity of the Great Depression that bore fruit in the decades to follow. It could be happening again.
It’s never wise to bet against the United States.
Weekly Focus – Think About It
“The American, by nature, is optimistic. He is experimental, an inventor, and a builder who builds best when called upon to build greatly.” --John F. Kennedy
Monday, October 10, 2011
Weekly Commentary October 10th, 2011
The Markets
Sometimes a little spark is all you need.
At one point last Tuesday, October 4, the S&P 500 index dropped below 1,091, which represented a 20 percent decline from the April 29 closing high, according to MarketWatch. That’s a key number because many investors consider a 20 percent decline to signify a bear market. But, lo and behold, just when it looked like the market might go from bad to worse, the Financial Times (FT) published a story that hit the internet that afternoon and the U.S. stock market staged a massive positive reversal.
The FT story said, “European Union finance ministers are examining ways of coordinating recapitalizations of financial institutions after they agreed that additional measures were urgently needed to shore up the region’s banks.”
That story prompted a huge 3.7 percent rally in the S&P 500 index in the last hour of trading on Tuesday, according to Bespoke Investment Group. Interestingly, the reversal propelled the index well above the key 1,091 level and prevented us from starting a new bear market in the U.S.
The key point about the late day reversal on October 4 is not so much that it saved us from printing a new bear market – although that’s good! Rather, the amazing thing is the key reversal was prompted by mere “talk” of another plan to help save the euro-zone from sovereign debt abyss.
Last week’s market action reinforced the notion that macro issues like the sovereign debt problem – rather than company-specific news – are still a significant driver of the overall stock market.
Until the macro issues get resolved, we should be prepared for major market moves – both up and down – based on the latest headlines.
THREE KEY IDEAS FROM STEVE JOBS
With the passing of Steve Jobs, we wanted to share three of his ideas that you may find helpful.
Steve Jobs' business career is remarkable by any standard. His ability to go from boy wonder co-founder of Apple Computer, to Chairman and CEO of Pixar, to the largest individual shareholder of The Walt Disney Company, to ousted executive who returned to save Apple and turn it into a seemingly unbeatable brand, is simply amazing. While he made plenty of mistakes in his youth, he matured into a very successful businessman with some insightful thoughts on success. Here are three of his ideas worth sharing:
“Connect the dots.”
Over time, all of us have incredible life experiences – some positive, and some not. Regardless of the outcome, they ultimately shaped the person you are today. Everything that has happened to you in your past has the ability to positively affect you in the present – if you connect the dots.
At a 2005 Commencement address at Stanford University, Jobs told a story about how on a whim, he dropped in on a calligraphy class while attending Reed College back in the early 1970s. At the time, he found the class utterly fascinating, but totally useless. It wasn’t until 10 years later, when he was designing the Macintosh computer, that he was able to connect the dots. The result: the Macintosh became the first computer with beautiful typography and it became a huge hit in the desktop publishing industry.
Think for a moment about some of your life experiences. What lessons have you learned? What stories can you create from these lessons that you can share with your family, friends, or business associates? Stories are one of the best ways to connect with people so consider connecting the dots of your life experiences and turn them into a meaningful message.
“Say no.”
There is no shortage of opportunities in life. However, there is often a shortage of conviction. Rather than trying a little bit of everything and successfully completing nothing, Jobs did the opposite. He was an obsessive focuser on a small number of things that were truly important to him.
Apple sells essentially just four products: the Macintosh computer, the iPod, the iPhone, and the iPad. With just four main product lines, Jobs led Apple to the world’s most valuable company with a $350 billion market value, according to The Wall Street Journal. Despite the temptation, Jobs resisted the call to offer a multitude of lower-end products and milk the company’s great brand. He said, “It’s only by saying no that you can concentrate on the things that are really important.”
Ask yourself, what can you say “no” to in your personal or business life so you have room to say “yes” with complete conviction to something else that’s more important?
“Quality, not quantity.”
At Pixar, where Jobs built the firm from peanuts into a company that he sold to The Walt Disney Company for $7.4 billion, there is no 80/20 rule. It’s more like the rule of 100—every effort gets 100 percent support. Accordingly, Pixar delivered an average of only one movie every 18 months; a weak pace by major movie studio standards. However, the result was anything but weak. Pixar has generated more than $7.0 billion in worldwide box office receipts since 1995 – and they’ve had no bombs, according to The Numbers.
Like Pixar, life is not about quantity. It’s about quality. When you spend more time focusing on quality – such as in relationships – life satisfaction will multiply.
In a 2004 BusinessWeek interview, Jobs reflected on his personal growth that resulted from him successfully bouncing back from cancer. He said, “I realized that I loved my life. I really do. I’ve got the greatest family in the world, and I’ve got my work. I love my family, and I love running Apple, and I love Pixar. And I get to do that. I’m very lucky.”
By following these simple ideas – connecting the dots, saying no to the unimportant and focusing on quality, not quantity – you, too, can end up with a life you love. Do that and you’ll be one of the lucky few in this life who can look back at the end of their days and say with great conviction, “It was a life well lived.” RIP.
Weekly Focus – Think About It
“I want to put a ding in the universe.” --Steve Jobs
Sometimes a little spark is all you need.
At one point last Tuesday, October 4, the S&P 500 index dropped below 1,091, which represented a 20 percent decline from the April 29 closing high, according to MarketWatch. That’s a key number because many investors consider a 20 percent decline to signify a bear market. But, lo and behold, just when it looked like the market might go from bad to worse, the Financial Times (FT) published a story that hit the internet that afternoon and the U.S. stock market staged a massive positive reversal.
The FT story said, “European Union finance ministers are examining ways of coordinating recapitalizations of financial institutions after they agreed that additional measures were urgently needed to shore up the region’s banks.”
That story prompted a huge 3.7 percent rally in the S&P 500 index in the last hour of trading on Tuesday, according to Bespoke Investment Group. Interestingly, the reversal propelled the index well above the key 1,091 level and prevented us from starting a new bear market in the U.S.
The key point about the late day reversal on October 4 is not so much that it saved us from printing a new bear market – although that’s good! Rather, the amazing thing is the key reversal was prompted by mere “talk” of another plan to help save the euro-zone from sovereign debt abyss.
Last week’s market action reinforced the notion that macro issues like the sovereign debt problem – rather than company-specific news – are still a significant driver of the overall stock market.
Until the macro issues get resolved, we should be prepared for major market moves – both up and down – based on the latest headlines.
THREE KEY IDEAS FROM STEVE JOBS
With the passing of Steve Jobs, we wanted to share three of his ideas that you may find helpful.
Steve Jobs' business career is remarkable by any standard. His ability to go from boy wonder co-founder of Apple Computer, to Chairman and CEO of Pixar, to the largest individual shareholder of The Walt Disney Company, to ousted executive who returned to save Apple and turn it into a seemingly unbeatable brand, is simply amazing. While he made plenty of mistakes in his youth, he matured into a very successful businessman with some insightful thoughts on success. Here are three of his ideas worth sharing:
“Connect the dots.”
Over time, all of us have incredible life experiences – some positive, and some not. Regardless of the outcome, they ultimately shaped the person you are today. Everything that has happened to you in your past has the ability to positively affect you in the present – if you connect the dots.
At a 2005 Commencement address at Stanford University, Jobs told a story about how on a whim, he dropped in on a calligraphy class while attending Reed College back in the early 1970s. At the time, he found the class utterly fascinating, but totally useless. It wasn’t until 10 years later, when he was designing the Macintosh computer, that he was able to connect the dots. The result: the Macintosh became the first computer with beautiful typography and it became a huge hit in the desktop publishing industry.
Think for a moment about some of your life experiences. What lessons have you learned? What stories can you create from these lessons that you can share with your family, friends, or business associates? Stories are one of the best ways to connect with people so consider connecting the dots of your life experiences and turn them into a meaningful message.
“Say no.”
There is no shortage of opportunities in life. However, there is often a shortage of conviction. Rather than trying a little bit of everything and successfully completing nothing, Jobs did the opposite. He was an obsessive focuser on a small number of things that were truly important to him.
Apple sells essentially just four products: the Macintosh computer, the iPod, the iPhone, and the iPad. With just four main product lines, Jobs led Apple to the world’s most valuable company with a $350 billion market value, according to The Wall Street Journal. Despite the temptation, Jobs resisted the call to offer a multitude of lower-end products and milk the company’s great brand. He said, “It’s only by saying no that you can concentrate on the things that are really important.”
Ask yourself, what can you say “no” to in your personal or business life so you have room to say “yes” with complete conviction to something else that’s more important?
“Quality, not quantity.”
At Pixar, where Jobs built the firm from peanuts into a company that he sold to The Walt Disney Company for $7.4 billion, there is no 80/20 rule. It’s more like the rule of 100—every effort gets 100 percent support. Accordingly, Pixar delivered an average of only one movie every 18 months; a weak pace by major movie studio standards. However, the result was anything but weak. Pixar has generated more than $7.0 billion in worldwide box office receipts since 1995 – and they’ve had no bombs, according to The Numbers.
Like Pixar, life is not about quantity. It’s about quality. When you spend more time focusing on quality – such as in relationships – life satisfaction will multiply.
In a 2004 BusinessWeek interview, Jobs reflected on his personal growth that resulted from him successfully bouncing back from cancer. He said, “I realized that I loved my life. I really do. I’ve got the greatest family in the world, and I’ve got my work. I love my family, and I love running Apple, and I love Pixar. And I get to do that. I’m very lucky.”
By following these simple ideas – connecting the dots, saying no to the unimportant and focusing on quality, not quantity – you, too, can end up with a life you love. Do that and you’ll be one of the lucky few in this life who can look back at the end of their days and say with great conviction, “It was a life well lived.” RIP.
Weekly Focus – Think About It
“I want to put a ding in the universe.” --Steve Jobs
Monday, October 3, 2011
Weekly Commentary October 3rd, 2011
The Markets
The word “volatile” has been so overused in the media, but it’s hard to find a better way to describe recent movements in the financial markets. On any given day, the markets can rise or fall based on the latest thinking about euro-zone sovereign debt problems, a possible U.S. or Chinese recession, weak banks, inflation, deflation, or poor job numbers.
In the just completed third quarter, uncertainty (there’s another overused word!) was in full bloom as the three major U.S. stock market indices posted double-digit declines, according to Barron’s. Was the market sniffing out a new recession? Possibly. Last week, the respected Economic Cycle Research Institute was quoted in MarketWatch as saying, “The U.S. economy is headed for another recession that government intervention cannot prevent.”
Along those same lines, Goldman Sachs said we may be moving from the 2007-2009 “Great Recession” to an upcoming “Great Stagnation.” As quoted by Bloomberg, Goldman Sachs said a “Great Stagnation” would be characterized by “‘high and sticky’ unemployment, an average 0.5 percent growth rate in per capita gross domestic product, and stock markets that underperform historical averages.”
But, not everyone agrees with that assessment. Warren Buffett told CNBC last week, “it’s very, very unlikely we’ll go back into a recession.”
So, who are you going to believe? The market’s jumpiness may reflect the fact that smart people have completely different views of the economy.
WHAT TO WATCH IN THE FOURTH QUARTER
Here are a few things that made the headlines in the third quarter and may affect the markets over the final three months of the year:
• The S&P 500 index dropped 14.3 percent in the third quarter and is now down 10.0 percent for the year.
What to Watch: Third quarter corporate earnings will start rolling in soon and investors will scour them for any sign of weakness. For the past few quarters, strong earnings helped the market recover from the Great Recession. While some earnings weakness may already be priced in the market, we have to wait for the actual earnings to see how the market reacts.
• Commodities and precious metals experienced significant price movements during the quarter. Gold prices finished the quarter up 8 percent, while silver dropped 14 percent, according to MarketWatch. Oil prices declined 17 percent for the quarter, while copper dropped a stunning 26 percent. On the agricultural side, corn prices finished the quarter down 25 percent from their June 10 all-time high, according to The Wall Street Journal.
What to Watch: Recent declines in oil and copper prices are particularly noteworthy because they may presage a slowing worldwide economy. If the declines continue, it may not bode well for stock prices.
• The housing market is still weak and that puts a significant drag on economic growth. According to the most recent S&P/Case-Shiller Home Price Indices, housing prices around the country are back to where they were in the summer of 2003.
What to Watch: Mortgage rates are at a record low yet the housing market is still in the doldrums, according to Bloomberg. Any sign that housing is turning the corner could bode well for the economy and the markets.
• Interest rates on U.S. government securities dropped significantly in the third quarter as the flight to safety continued. The yield on the 10-year Treasury note recently hit a paltry 1.67 percent -- the lowest yield since the 1940s. While low rates are good for businesses and our indebted government, it’s bad for savers who rely on interest income to support their living expenses.
What to Watch: If interest rates keep dropping in the fourth quarter, it may suggest investors are still in a fearful state. Ironically, it could be a good thing to see interest rates rise -- as long as it’s due to economic growth and not due to money printing by the Federal Reserve.
• Sovereign debt woes in Europe and budget wrangling in the U.S. weighed on the financial markets in the third quarter.
What to Watch: Continued bad news here could be very problematic. However, if there’s any concrete resolution to the Euro-zone debt problems or a credible bi-partisan budget solution in Washington -- look out. The financial markets could rally strongly on that kind of news.
With the above issues looming, you can see why the markets are a bit nervous. Yet, even if the market swoons in the fourth quarter, it could make valuations so compelling that it sets the stage for the next bull market.
Weekly Focus – Think About It
“I wanted a perfect ending. Now I’ve learned, the hard way, that some poems don’t rhyme, and some stories don’t have a clear beginning, middle, and end. Life is about not knowing, having to change, taking the moment and making the best of it, without knowing what’s going to happen next. Delicious Ambiguity.” --Gilda Radner
The word “volatile” has been so overused in the media, but it’s hard to find a better way to describe recent movements in the financial markets. On any given day, the markets can rise or fall based on the latest thinking about euro-zone sovereign debt problems, a possible U.S. or Chinese recession, weak banks, inflation, deflation, or poor job numbers.
In the just completed third quarter, uncertainty (there’s another overused word!) was in full bloom as the three major U.S. stock market indices posted double-digit declines, according to Barron’s. Was the market sniffing out a new recession? Possibly. Last week, the respected Economic Cycle Research Institute was quoted in MarketWatch as saying, “The U.S. economy is headed for another recession that government intervention cannot prevent.”
Along those same lines, Goldman Sachs said we may be moving from the 2007-2009 “Great Recession” to an upcoming “Great Stagnation.” As quoted by Bloomberg, Goldman Sachs said a “Great Stagnation” would be characterized by “‘high and sticky’ unemployment, an average 0.5 percent growth rate in per capita gross domestic product, and stock markets that underperform historical averages.”
But, not everyone agrees with that assessment. Warren Buffett told CNBC last week, “it’s very, very unlikely we’ll go back into a recession.”
So, who are you going to believe? The market’s jumpiness may reflect the fact that smart people have completely different views of the economy.
WHAT TO WATCH IN THE FOURTH QUARTER
Here are a few things that made the headlines in the third quarter and may affect the markets over the final three months of the year:
• The S&P 500 index dropped 14.3 percent in the third quarter and is now down 10.0 percent for the year.
What to Watch: Third quarter corporate earnings will start rolling in soon and investors will scour them for any sign of weakness. For the past few quarters, strong earnings helped the market recover from the Great Recession. While some earnings weakness may already be priced in the market, we have to wait for the actual earnings to see how the market reacts.
• Commodities and precious metals experienced significant price movements during the quarter. Gold prices finished the quarter up 8 percent, while silver dropped 14 percent, according to MarketWatch. Oil prices declined 17 percent for the quarter, while copper dropped a stunning 26 percent. On the agricultural side, corn prices finished the quarter down 25 percent from their June 10 all-time high, according to The Wall Street Journal.
What to Watch: Recent declines in oil and copper prices are particularly noteworthy because they may presage a slowing worldwide economy. If the declines continue, it may not bode well for stock prices.
• The housing market is still weak and that puts a significant drag on economic growth. According to the most recent S&P/Case-Shiller Home Price Indices, housing prices around the country are back to where they were in the summer of 2003.
What to Watch: Mortgage rates are at a record low yet the housing market is still in the doldrums, according to Bloomberg. Any sign that housing is turning the corner could bode well for the economy and the markets.
• Interest rates on U.S. government securities dropped significantly in the third quarter as the flight to safety continued. The yield on the 10-year Treasury note recently hit a paltry 1.67 percent -- the lowest yield since the 1940s. While low rates are good for businesses and our indebted government, it’s bad for savers who rely on interest income to support their living expenses.
What to Watch: If interest rates keep dropping in the fourth quarter, it may suggest investors are still in a fearful state. Ironically, it could be a good thing to see interest rates rise -- as long as it’s due to economic growth and not due to money printing by the Federal Reserve.
• Sovereign debt woes in Europe and budget wrangling in the U.S. weighed on the financial markets in the third quarter.
What to Watch: Continued bad news here could be very problematic. However, if there’s any concrete resolution to the Euro-zone debt problems or a credible bi-partisan budget solution in Washington -- look out. The financial markets could rally strongly on that kind of news.
With the above issues looming, you can see why the markets are a bit nervous. Yet, even if the market swoons in the fourth quarter, it could make valuations so compelling that it sets the stage for the next bull market.
Weekly Focus – Think About It
“I wanted a perfect ending. Now I’ve learned, the hard way, that some poems don’t rhyme, and some stories don’t have a clear beginning, middle, and end. Life is about not knowing, having to change, taking the moment and making the best of it, without knowing what’s going to happen next. Delicious Ambiguity.” --Gilda Radner
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