Friday, December 17, 2010

Merry Christmas!

MIXED ECONOMIC NEWS GAVE MARKETS little direction last week, with most domestic equity indices up slightly. By the numbers, for the week ended Friday December 10, 2011, the Dow Jones Industrial Average closed at 11,410, up 28 points, or 0.25%. The Standard & Poor’s 500 closed at 1240, up 16 points, or 1.2%, and the NASDAQ Composite closed at 2637, up 46 points, or 1.8%.
On the economic front, data indicates a slow recovery. The U.S. trade deficit fell in October to $38.7 billion, due primarily to increased exports and reduced gasoline consumption. Consumer borrowing increased by $3.4 billion in October, most of which was student loans. Credit card use fell for the 26th consecutive month, and jobless claims were down to 421,000.

While there are encouraging short term signs of economic recovery, long term challenges are real, and must be addressed. The Congressional Budget Office,, estimates that the U.S. will add another $7 trillion in debt by 2020, bringing our total indebtedness to $20 trillion, whatever that is. Either we print this money and devalue the dollar, which is the current approach, or we find other countries willing to purchase our debt. Either path brings lousy results.

Steve Jobs has been named CEO of the Decade by MarketWatch, a Dow Jones service. Tim Solso of Cummins Engine, among others, was a finalist.

The last building of Chicago’s Cabrini-Green housing project is being torn down. CG is one more case study in the string of failed attempts by government to do good. Any assistance requires buy-in by those being helped. Without this participation, a sense of futility and ultimately entitlement prevails.

Physical and fiscal health top the list of New Year’s resolutions. A few thoughts regarding fiscal health. Affluence, or discretionary cash flow, has very little correlation to wealth. Economic wealth can be described as control of assets. Affluence indicates that you have learned how to make money, or have available credit. Wealth indicates you have learned how to properly deploy the money you make. These are two entirely separate skills.

The wealthy among us have lived in the same town most of their lives, own a business, have been married once and remain that way, and live next to people with a fraction of their wealth. Here are seven common denominators we have discovered among the wealthy.

1. They live well below their means.
2. They allocate time, energy, and money efficiently.
3. They prefer financial independence to social status.
4. Their parents did not provide economic outpatient care.
5. Their adult children are economically self-sufficient.
6. They are proficient in targeting market opportunities.
7. They chose the right occupation.

What have we learned? Building wealth takes discipline, sacrifice, and hard work.

Christopher Buckley offers a Santa’s Wish List for World Leaders. Hugo Chavez - a karaoke machine with 100 anti-U.S. rants. Olafur Grimsson – 10 trillion kronur debt relief, Mahmoud Ahmadinejad – leather-bound copy of Protocols of the Elders of Zion, Nicolas Sarkozy – custom shoe lifts, Kim Jong Il – economy size tube of styling gel.

The last few weeks of each year are times of reflection and celebration. In the U.S., we start the fall holiday season with Thanksgiving, to remember God’s grace and provision to some of the early settlers of our great country. Moving into December, many celebrate Hanukkah, or the Festival of Lights, a memorial to the Jews’ victory over very oppressive rulers in the 2nd century, B.C.

In our home, we celebrate Christmas, when we pause to give thanks for the freedom, salvation, and restoration found in Christ, our Saviour. However you celebrate, make time before the new year starts to reflect on the goodness of life, the gifts of friends and family, and whatever other blessings are around you.

Friday, December 10, 2010

Apple at $1000?

DOMESTIC EQUITY INDICES WERE up for the week, following a batch of positive economic reports, and in spite of hiring softness. By the numbers, for the week ended Friday, December 3, 2010, the Dow Jones Industrial Average closed at 11,382, up 290 points, or 2.6%. The S&P 500 closed at 1224, up 35 points, or 2.9%, and the NASDAQ Composite closed at 2591, up 57 points, or 2.2%.

On the economic front, nonfarm payrolls grew by 39,000 jobs in November, substantially less than the 155,000 forecast, sending the official unemployment rate from 9.6% in October to 9.8% in November. Construction spending gained 0.7% in October, fueled primarily by stimulus financed projects, and reminiscent of the WPA days. Manufacturing activity expanded for the 16th straight month, with auto sales leading the charge. Consumer confidence is at its highest level since June, and productivity growth was revised upward for the third quarter from 1.9% to 2.3%.

The U.S. continues to lose manufacturing jobs, as skilled labor and government services have both priced themselves out of the global market. In some of the best economic news in a long time, local governments reduced unemployment during October by 14,000 jobs. While this is a small start, it is a large step in the right direction.

On the tax front, Congress and the White House are attempting to come to terms on a tax bill before year end. Look for a special year-end tax update from us, delivered to your inbox by the 15th of December.

The European Union agreed to a $112 billion bailout of Ireland over the weekend. We will be surprised if the EU survives in its current form for another five years. Germany and its work ethic will agree to carry the rest of Europe only so long, and I suspect Germany is nearing the end of the line with its neighbors.

China is attempting to figure out what to do with its new found power. The current announcements are a tightening of the money supply and the importation of gold. It will be interesting to see if the old Communist lions can transition to their version of a capitalist economy or free market in a manner that allows them to sustain their current growth rates.

In China’s favor is a large and growing underground church, whose presence and impact is missed completely by almost all political and economic analysts and commentators. It is my understanding that China now leads the world in the number of Christian missionaries sent to other countries, surpassing both the U.S., and South Korea.

Cody Willard is suggesting that Apple stock will trade at $1000 a share by 2015. Pepsi has announced plans to purchase 66% of Russia’s Wimm-Bill-Dann foods, in a continuing effort to expand its global footprint.

Uncertainty is always with us. Often, it is masked behind what we see as good times. One approach to life is to separate our view of good and bad times from macro or micro economic circumstances. This is easier said than done, but it can be a useful exercise.

Quotes of the week:

“Alexander Hamilton started the U.S. Treasury with nothing, and that was the closest our country has been to being even.”

“I don’t make jokes. I just watch the government and report the facts.”
                                                             -Both quotes courtesy of Will Rogers