Volatility

JAPAN’S TRAGEDY, AND CONTINUING VIOLENCE IN THE Middle East combined to give the markets pause this last week. By the numbers, for the week ended Friday, March 18, 2011, the Dow Jones Industrial Average closed at 11,858, down 186 points, or 1.5%. The Standard & Poor’s 500 closed at 1279, down 25 points, or 1.9%, and the NASDAQ Composite closed at 2643, down 72 points, or 2.7%.

Japanese authorities have upgraded the severity of the nuclear crisis at the Fukushima nuclear plant. Many commentators around the world are questioning the viability of nuclear power. Areva, the 90% French government owned nuclear production entity, is working hard to maintain its profitability and viability in this environment.

According to the Federal Reserve, 19 banks have added $25 billion in earnings since 2008. This from a recent stress test, or Comprehensive Capital Analysis and Review, report. As a result, several banks, including Wells Fargo, JP Morgan Chase, BBT, and US Bancorp, have announced share buybacks, repayment of TARP funds, increased dividends, or some combination of the three. This whole marriage thing between the large banks and the federal government still leads to more questions than answers.

Berkshire Hathaway has announced plans to buy Lubrizol for $9.7 billion in cash and debt. With $38 billion in cash, Buffet & Co. are still shopping. ATT plans to drop about $39 billion in cash and stock on T-Mobile.

Federal Open Market Committee notes suggest that the Fed doesn’t believe a run-up in commodity prices will result in a sustained increase in inflation. Action by the FOMC is to leave current rates unchanged, and to continue to buy government bonds. Additional comments are that the economy is on firmer footing, the labor market is improving gradually, and underlying inflation is subdued. Guess we will see how all this works out.

Cisco Systems has announced its first ever dividend. The board of directors approved a six cents a share dividend for shareholders of record as of March 31, 2011. In-N-Out Burger has announced plans to open retail locations in Texas, primarily in the Dallas/Ft. Worth MetroPlex. To maintain the standards of fresh ground beef for which it’s famous, the company will be opening a beef processing facility in Texas.

In economic news, food and energy prices are up, though I question whether this tidbit is actually news to most of us. Housing construction permits are at their lowest levels since 1959, new jobless claims are lower, at 385,000, and leading economic indicators are up 0.8%, the eighth monthly increase in a row.

The Mid-March rate for six month CD’s was 4.39% in 2001, 1.14% in 2003, 2.05% in 2005, 3.63% in 2007, 1.14% in 2009, and 0.30% in 2011.

Historically the price ratios between gold and silver have been about twelve or fifteen to one. These ratios date back to the Greek and Roman empires, and as recently as the late 19th century, the gold/silver ratio was fifteen. This ratio peaked at 98 in 1991, and currently stands at about 40. Some speculate whether a gold/silver ratio has any meaning in the current environment. We reference it primarily to raise awareness.

Gold hasn’t served well as an investment, but has generally been held as an inflation hedge. This is especially true of the last thirty years, as in 1980 gold hit $850/oz. On an inflation adjusted basis, this is $2100/oz, compared to a current price of a bit over $1400.

Quote of the week:

"Adversity is the foundation of virtue"
                                                              Japanese Proverb