Tuesday, June 21, 2011

SpaceShip Apple

EQUITY MARKETS APPEAR to be tired of late, seemingly burdened with the worry of the world. By the numbers, for the two weeks ended Friday, June 17, 2011, the Dow Jones Industrial Average closed at 12004, down 147 points, or 1.2%. The Standard & Poor’s 500 closed at 1271, down 29 points, or 2.2%, and the NASDAQ Composite closed at 2616, down 116 points, or 4.2%.

George Soros sold $800 million of his gold holdings during the first quarter of 2011. Citigroup suffered a security breach at the hands of online hackers. Expect the security breach stories to become more common.

One more step in the move toward a nationalized economy is a Federal Reserve proposal to make annual decisions regarding whether the country’s largest banks can pay dividends or repurchase stock. The rest of the financial services industry – everything from mortgage brokers to independent advisory firms such as ours – will simply be regulated out of existence.

Steve Jobs plans to build an earthbound space ship as Apple’s new headquarters. I’ve always admired creativity and originality. Here’s hoping this investment also represents a solid return for Apple shareholders. In the meantime, Ron Johnson, head of Apple’s retail store operations, has joined JC Penney as its new CEO.

It appears that Greek debt holders are about to be stiffed. U.S. banks would take about a $41 billion hit. Some question whether this could happen in the States. Some are certain it will, with our elected federal officials apparently oblivious to the long term consequences of their actions. Others aren’t prepared to give up on the resiliency, sense of fairness, and love of freedom of the American people. Personally, I don’t expect the end of our country. It seems to me though, that the Golden Age of America is behind us. Here’s hoping I am completely wrong on that last count.

Some cities are realizing that they must get their financial lives under control. Brea and San Francisco California are both reducing pensions and benefits for their employees as a way to cut costs. Illinois is choosing to deal with massive budget deficits by increasing a wide range of personal and business taxes. Camden NJ recently laid off more than a third of its firefighters and police force, as voters refused to raise taxes.

In economic news, both the PPI and CPI showed modest signs of inflation. Residential construction grew more than expected in May, though annualized housing starts are about 600,000, compared to 2 million in 2006.

Larry Elliot, economics editor of The Guardian newspaper in the U.K., recently penned an article titled “Decline and Fall of the American Empire”. It makes for interesting reading, and can be found in the Guardian’s June 6th edition. In the article, Elliot draws parallels between America in 2011, and Rome in 200AD. Some of the warning signs he cites include military overstretch, a widening gulf between rich and poor, a hollowed-out economy, consumers using debt to live beyond their means, and more.

The news isn’t all bad. In fact, the good news is that within and in spite of what may seem like trying times, there is always opportunity. There is certainly economic and business opportunity, as one person or company’s problem is someone else’s profitable solution. Even more, there is the opportunity to show by example and counsel how to live an abundant, joyous, and peaceful life in the face of what many consider overwhelming challenges. I suspect this may be one of the greatest opportunities of all, as so many are simply looking for one person to show them how to live.

Even when we don’t understand, or have no clarity about what’s actually going on, God has not abandoned us. Neither has He forgotten us, or turned His back on us. Lean hard into Him, and trust His character. He is good for His word.

Quote of the week:

“…what does the Lord require of you? To act justly, and to love mercy, and to walk humbly with your God.”
                                                                                                  Micah 6:8

Monday, June 13, 2011

May Investment Review

The mood shifted sharply in May from one of optimism about a self-sustaining recovery to one in which the myriad concerns about which we’ve been writing for some time weighed increasingly heavily on stocks and other risk assets around the globe. These concerns include Eurozone debt problems, the significant fiscal problems of our own government, weakness in both the housing and labor markets, and signs that the economy is again slowing. A final-day rally trimmed May losses a bit, but markets have continued their slide into June. Large-cap U.S. stocks lost 1.2% in May, while small-cap stocks lost closer to 2%. Mid-cap stocks held up best, losing only about 0.4% (see back cover table for benchmarks and returns). Domestic fixed-income delivered good returns, with the broad high-quality bond index up 1.3%.

Both foreign-developed and emerging-market stocks were down close to 3% in May. Emerging-market bonds were down a little over 1%, while developed-market foreign bonds were close to flat. Where does that leave us through the first five months of the year? Stocks still have good gains for the year to date, from the high single digits for U.S. equities, to the mid-single digits for developed foreign markets and low single digits for emerging markets, though those gains have been further trimmed through the early part of June.

Monday, June 6, 2011

Turned Tables

A DESCRIPTION OF LAST week’s market performance offered by one journalist was “June Swoon”. By the numbers, for the week ended Friday, June 3, 2011, the Dow Jones Industrial Average closed at 12,151, down 290 points, or 2.3%. The Standard & Poor’s 500 closed at 1300, down 31 points, or 2.3%, and the NASDAQ Composite closed at 2732, down 2.3%.

Nokia is having a rough go of it. Last Tuesday, they warned that second quarter revenue would miss targets due to sliding sales and prices. In addition, they suspended their full year forecast for 2011.

Microsoft is showing off Windows 8, which appears to be heavy on touch-screen features, and is running on devices using ARM-based chips. Microsoft appears serious about catching rivals Google and Apple.

Groupon has filed for an IPO, saying it expects to raise as much as $750 million. The company will need to do better than its first quarter loss of $146 million, in order to continue to impress investors.

It appears that doctors across the country will spend an average of $40,000 on software to build digital databases of patient records, responding to government led efforts tied to the 2009 economic stimulus plan. Questions remain as to whether these efforts will allow doctors to send patient records to other doctors who could benefit from having rapid access to medical histories. Altruism aside, one key business question is how one physician directly benefits from being able to forward this information on a timely basis to another physician.

Japan’s Prime Minister Naoto Kan survived a no-confidence vote in parliament. The European Central Bank and the IMF are attempting to determine what to do with Greece. Portugal’s elections have given the winning edge to a fiscal conservative, Pedro Coelho, of the Social Democratic Party, with the Socialist government of Jose Socrates admitting defeat.

Other economic news remains consistent, with new unemployment claims staying just over 400,000 from one week to the next, official unemployment just north of 9%, and home prices very soft. This continued uncertainty is reflected in the lack of direction in the publicly traded markets.

In spite of news that could be considered disheartening, life is good for most of us, especially compared to conditions of many around the world. In addition, there is always opportunity, especially if we are inclined to look for and prepare for it.

According to CBS News, the Nyergers of Collier County Florida paid cash for their home. About five months ago, Bank of America filed foreclosure papers on their home. In court, the homeowners were able to prove they didn’t owe BofA anything on the house, and were able to confirm that they had never had a mortgage on the property.

A Collier County judge agreed with the Nyergers, and ordered BofA to pay the couple’s legal fees. Five months after the judge’s ruling, BofA still hadn’t paid the legal fees, so the couple’s attorney foreclosed on the bank. Sheriff’s deputies, movers, and the Nyergers attorney went to the bank, padlocked the doors, and began removing desks, computers, filing cabinets, and teller trays. About an hour after being locked out of the bank, the branch manager handed the attorney a check for the legal fees, with apologies for the misunderstanding.

Quote of the week:

“I don’t know what your destiny will be, but one thing I know: the only ones among you who will be really happy are those who have sought and found how to serve.”
                                                                                       Albert Schweitzer