After the trading last week, it is safe to say that the rally that kept up speed since the beginning of March appears to have stalled out. While many people in the financial world still call March 2009 the market turn, they are now saying it much more quietly, as the market looks like it could be rolling over. There are many signs that the economy is much better than it once was, but just because the economy is better does not mean that the stock market will follow in lock-step. In fact, we might see the economy recover during a time in which the overall level of the stock market declines, due to greedy investors who jumped into the market hoping to make quick money. The recent string of events in the treasury auction markets, during which rates were increased in order to sell out the auction, seems to indicate that higher interest rates in the near future. The rates do not necessarily have to be imposed by the Federal Reserve’s policy; the rates could move higher because of supply and demand changes in the treasury market. Also on the treasury front, last week Russia announced that they are considering moving some of their reserves from US Treasuries to IMF Bonds, in order to diversify their holdings. This announcement came a week before the BRIC countries (Brazil, Russia, India and China) were to meet in Russia to discuss, among other things, their currencies and reserves as they relate to the US dollar. It looks like a few of the countries will push for fewer US dollar exchanges and more debt exchanges amongst themselves. This could provide more security to their countries’ financial health, should the US continue to have economic troubles. If the above mentioned moves materialize, it could spell a very difficult time for the US dollar, which in turn could greatly hamper the economic recovery in the US.
The automotive industry was in the news last week with the finalized merger/sale of Chrysler to Fiat. Now we play the wait-and-see game to find out if the merger will benefit either party, or if Chrysler will end up with a bigger headache than they were bargaining for. At least we know that the Dodge Viper line is still alive for the moment with the announcement of the Viper factory reopening in Detroit. GM also made the news recently with the announcement of their Saab vehicle line being sold to Swedish luxury Super Sports car manufacturer Koenigsegg.
On the political front many new revelations have occurred over the previous week both in US politics as well and global politics. In the US, more heated discussion about healthcare reform has sent the investable healthcare sector on a yo-yo ride with HMOs performing well one day, then tanking the next on speculation as to what the reform will look like. With the impending changes to the US system, investments in the space should be very cautious. Also in the US, the Banking industry appears to be in for some sweeping regulatory changes, which President Obama will outline on Wednesday the 17th. On the global front, Iran is in a real mess as their political system relates to the recent elections. The effect of the elections can be seen in the wide trading range of oil since the uncertainty over who won surfaced. In the end, the election results probably matter very little since the country on the whole is run by Grand Ayatollah Khomeini. Rounding out major political events impacting world markets is North Korea and the strong sanctions imposed on them by the United Nations last week. Again, we see the uncertainty of North Korea’s desires most directly in the recent upward move in the price of oil.
With all of this uncertainty, it makes the current investment risk very difficult to determine. Items such as gold, which are typically a safe haven in times of uncertainty, have recently come down in price; commodities (also considered relatively safe during uncertain times) have moved dramatically on the shifting value of world currencies, mainly the falling US dollar. There appears to be almost nowhere to hide on down days in the markets. Due to such circumstances we have decided to move back toward wealth preservation and have tightened up the stop out points on many of our holdings. While this may increase the number of trades placed in our models, it should greatly limit our downside exposure to a possible double-dip recession.
For the trading week ending 6/12/09, the returns in our portfolio models were as follows:
Last Week
Year to Date
S&P 500 WD (benchmark)
1.08 %
6.08 %
Aggressive Model
0.44 %
9.07 %
Growth Model
0.29 %
6.89 %
Moderate Model
0.12 %
3.19 %
Stable Model
0.20 %
5.82 %
We made one change in the portfolio models last week and that was to start moving out of our holding in Westcore Colorado Tax Exempt Fund (WTCOX). With the current situation of many government auctions pushing up the yields in order to sell out, the current outstanding fixed income instruments are losing face value. While this loss of face value would be recouped in the future if the instrument was held until maturity, between now and maturity the investment could continue to sustain losses. WTCOX for the most part performed exactly as expected over the five plus months during which we used the fund. The coming week could be very volatile for a variety of reasons and we are closely watching all of our holdings to see if we need to sell any in order to preserve the gains we have in many of our holdings.
Economic Wrap Up: Slow is a very good way to describe last week’s economic news releases. Over the course of the week very few releases had any measurable effect on the broad markets: the most impactful release was the initial jobless claims for the previous week because it came in better than expected. Retail sales figures from Thursday delivered exactly what the markets expected, having increased by 0.5 percent during the month of May. One item that we found of interest but the market did not react to was how large the Treasury budget deficit was during May of 2009: $189.7 billion dollars. The Treasury deficit is the difference between what the treasury took in during a given month and what they laid out (represented by the chart below).
*Data from the Financial Management Services (A Bureau of the US Department of Treasury) webpage.
In looking back to 1981, the current deficit is one of the largest we have ever seen in the US. It really indicates just how vigorously the Treasury has poured money into the current economic situation. The main question is: Can the Treasury continue spending in this manner with the current low levels of receipts? We do not think that they can continue at the current rate without major consequences in the future when they have to unwind their positions.
This week will be moderately busy with many releases that could significantly impact the markets. First up on Tuesday (6/16) is the building permits, housing starts and the Producer Price Index for May. We will further see if the US housing market is turning around or if some of the past couple of months’ releases were anomalies. On Wednesday the Consumer Price Index (CPI) for the month of May will be released. This news release will provide a glimpse into the current inflationary event going on in the US; the Fed will watch this figure to see if any action will be needed on the inflation front. Finally the initial jobless claims figure (6/18) could impact the markets, which expect a high level of claims this week relative to last week.
Financial Planning Tip: Bank and Credit Union Insurance Extended
It was recently announced that the $250,000 insurance coverage for FDIC covered bank accounts and NCUA covered credit union accounts will extend through December 31, 2013. Previously, this level of coverage was set to expire December 31, 2009.
The $250,000 limit is permanent for IRAs and other certain retirement accounts. On January 1, 2014, the standard insurance amount will return to $100,000 per depositor for all account categories except IRAs and other certain retirement accounts, which will remain at $250,000 per depositor.
Insurance coverage can be increased if accounts are held in different categories of ownership, such as single owner accounts, retirement accounts, joint accounts, and revocable trust accounts. Some account types can also provide increased insurance coverage. For example, joint accounts (two or more persons) currently have $250,000 insurance coverage for each individual on the account.
The Federal Deposit Insurance Corporation (FDIC) is an independent agency of the federal government and insures more than $4 trillion of deposits in U.S. banks and thrift institutions. The National Credit Union Administration (NCUA) is an independent federal agency that insures nearly 90 million account holders in all federally chartered credit unions and most state-chartered credit unions.
After the trading last week, it is safe to say that the rally that kept up speed since the beginning of March appears to have stalled out. While many people in the financial world still call March 2009 the market turn, they are now saying it much more quietly, as the market looks like it could be rolling over. There are many signs that the economy is much better than it once was, but just because the economy is better does not mean that the stock market will follow in lock-step. In fact, we might see the economy recover during a time in which the overall level of the stock market declines, due to greedy investors who jumped into the market hoping to make quick money. The recent string of events in the treasury auction markets, during which rates were increased in order to sell out the auction, seems to indicate that higher interest rates in the near future. The rates do not necessarily have to be imposed by the Federal Reserve’s policy; the rates could move higher because of supply and demand changes in the treasury market. Also on the treasury front, last week Russia announced that they are considering moving some of their reserves from US Treasuries to IMF Bonds, in order to diversify their holdings. This announcement came a week before the BRIC countries (Brazil, Russia, India and China) were to meet in Russia to discuss, among other things, their currencies and reserves as they relate to the US dollar. It looks like a few of the countries will push for fewer US dollar exchanges and more debt exchanges amongst themselves. This could provide more security to their countries’ financial health, should the US continue to have economic troubles. If the above mentioned moves materialize, it could spell a very difficult time for the US dollar, which in turn could greatly hamper the economic recovery in the US.
The automotive industry was in the news last week with the finalized merger/sale of Chrysler to Fiat. Now we play the wait-and-see game to find out if the merger will benefit either party, or if Chrysler will end up with a bigger headache than they were bargaining for. At least we know that the Dodge Viper line is still alive for the moment with the announcement of the Viper factory reopening in Detroit. GM also made the news recently with the announcement of their Saab vehicle line being sold to Swedish luxury Super Sports car manufacturer Koenigsegg.
On the political front many new revelations have occurred over the previous week both in US politics as well and global politics. In the US, more heated discussion about healthcare reform has sent the investable healthcare sector on a yo-yo ride with HMOs performing well one day, then tanking the next on speculation as to what the reform will look like. With the impending changes to the US system, investments in the space should be very cautious. Also in the US, the Banking industry appears to be in for some sweeping regulatory changes, which President Obama will outline on Wednesday the 17th. On the global front, Iran is in a real mess as their political system relates to the recent elections. The effect of the elections can be seen in the wide trading range of oil since the uncertainty over who won surfaced. In the end, the election results probably matter very little since the country on the whole is run by Grand Ayatollah Khomeini. Rounding out major political events impacting world markets is North Korea and the strong sanctions imposed on them by the United Nations last week. Again, we see the uncertainty of North Korea’s desires most directly in the recent upward move in the price of oil.
With all of this uncertainty, it makes the current investment risk very difficult to determine. Items such as gold, which are typically a safe haven in times of uncertainty, have recently come down in price; commodities (also considered relatively safe during uncertain times) have moved dramatically on the shifting value of world currencies, mainly the falling US dollar. There appears to be almost nowhere to hide on down days in the markets. Due to such circumstances we have decided to move back toward wealth preservation and have tightened up the stop out points on many of our holdings. While this may increase the number of trades placed in our models, it should greatly limit our downside exposure to a possible double-dip recession.
For the trading week ending 6/12/09, the returns in our portfolio models were as follows:
Year to Date
S&P 500 WD (benchmark)
1.08 %
6.08 %
Aggressive Model
0.44 %
9.07 %
Growth Model
0.29 %
6.89 %
Moderate Model
0.12 %
3.19 %
Stable Model
0.20 %
5.82 %
We made one change in the portfolio models last week and that was to start moving out of our holding in Westcore Colorado Tax Exempt Fund (WTCOX). With the current situation of many government auctions pushing up the yields in order to sell out, the current outstanding fixed income instruments are losing face value. While this loss of face value would be recouped in the future if the instrument was held until maturity, between now and maturity the investment could continue to sustain losses. WTCOX for the most part performed exactly as expected over the five plus months during which we used the fund. The coming week could be very volatile for a variety of reasons and we are closely watching all of our holdings to see if we need to sell any in order to preserve the gains we have in many of our holdings.
Economic Wrap Up: Slow is a very good way to describe last week’s economic news releases. Over the course of the week very few releases had any measurable effect on the broad markets: the most impactful release was the initial jobless claims for the previous week because it came in better than expected. Retail sales figures from Thursday delivered exactly what the markets expected, having increased by 0.5 percent during the month of May. One item that we found of interest but the market did not react to was how large the Treasury budget deficit was during May of 2009: $189.7 billion dollars. The Treasury deficit is the difference between what the treasury took in during a given month and what they laid out (represented by the chart below).
*Data from the Financial Management Services (A Bureau of the US Department of Treasury) webpage.
In looking back to 1981, the current deficit is one of the largest we have ever seen in the US. It really indicates just how vigorously the Treasury has poured money into the current economic situation. The main question is: Can the Treasury continue spending in this manner with the current low levels of receipts? We do not think that they can continue at the current rate without major consequences in the future when they have to unwind their positions.
This week will be moderately busy with many releases that could significantly impact the markets. First up on Tuesday (6/16) is the building permits, housing starts and the Producer Price Index for May. We will further see if the US housing market is turning around or if some of the past couple of months’ releases were anomalies. On Wednesday the Consumer Price Index (CPI) for the month of May will be released. This news release will provide a glimpse into the current inflationary event going on in the US; the Fed will watch this figure to see if any action will be needed on the inflation front. Finally the initial jobless claims figure (6/18) could impact the markets, which expect a high level of claims this week relative to last week.
Financial Planning Tip: Bank and Credit Union Insurance Extended
It was recently announced that the $250,000 insurance coverage for FDIC covered bank accounts and NCUA covered credit union accounts will extend through December 31, 2013. Previously, this level of coverage was set to expire December 31, 2009.
The $250,000 limit is permanent for IRAs and other certain retirement accounts. On January 1, 2014, the standard insurance amount will return to $100,000 per depositor for all account categories except IRAs and other certain retirement accounts, which will remain at $250,000 per depositor.
Insurance coverage can be increased if accounts are held in different categories of ownership, such as single owner accounts, retirement accounts, joint accounts, and revocable trust accounts. Some account types can also provide increased insurance coverage. For example, joint accounts (two or more persons) currently have $250,000 insurance coverage for each individual on the account.
The Federal Deposit Insurance Corporation (FDIC) is an independent agency of the federal government and insures more than $4 trillion of deposits in U.S. banks and thrift institutions. The National Credit Union Administration (NCUA) is an independent federal agency that insures nearly 90 million account holders in all federally chartered credit unions and most state-chartered credit unions.
Posted in Weekly Commentary