Posted by: financiallyspeakinginc | September 29, 2009
Weekly Commentary September 28th, 2009
Last week, the major world markets performed almost the opposite of the way they did the week before. The three major indexes in the US gave back nearly all of their gains from the previous week, while the sectors that performed well two weeks ago turned in the worst performances. Many of the real estate, construction and materials ETFs fell in excess of 5 percent, giving a possible signal that the housing market is still in the woods and that the current stage of the economic cycle could last longer than many pundits expect. The overall trend in the markets has weakened some; from a technical standpoint it broke through several commonly followed moving averages, leading many knowledgeable investors to consider another correction in the market’s near-term future. The volume on the three major US indexes was lower last week than the previous week. As expected with such a decline in the market, the overall volatility jumped upward more than seven percent. While this represents a large increase in volatility over the course of just one week (especially when movements have been so benign in the recent months) it is a much smaller increase than was experienced during the last half of 2008.
All of the major commodities saw their values decline over the course of last week, oil leading the decline with a fall of almost eight percent due to further speculation that world economies will recover more slowly than expected (thus having a lower current demand for oil). Gold pulled back a little from its lofty heights over $1,000 per ounce, settling for the close of the week at $990.70. We will be interested to see if gold can hold up at the current levels or if it will decline back to the mid $800 range. Much of the movement of gold will depend on what China decides to do about its hefty US dollar reserves. If they continue to purchase dollars at the same rate they have historically, then gold may continue to decline. If, on the other hand, they decide to buy more gold instead of dollars, then the value of gold could quickly move up much higher than its current levels.
On the political front it was a very busy week, with the United Nations meeting in New York and the G-20 meeting in Pittsburg. The United Nations met to discuss climate change amongst all of the member countries and to come up with ideas that could be implemented in attempt to slow climate change. Instead, much of the meeting seems off track, with leaders such as Qadhafi taking over the microphone for long stretches of time and rambling about anything but climate change. China did outline some of the steps they are willing to take to combat climate change – a change from their usual “what is in it for us” policy, and a signal that they could play a productive role in the upcoming Copenhagen meeting to hammer out a treaty on climate change. The G-20 meeting in Pittsburg at the end of last week focused on the financial recovery of the world markets and the role that the US dollar should play in the future as the reserve currency of the world. Precious little was resolved at the meeting, as it seemed more like a brainstorming session at which countries conveyed their concerns about the future of the world’s financial health. The leaders ended up promising that they would continue to support economies that need financial help in these difficult economic times. The US seemed to be trying to feel out how close some of the member countries were to moving reserves away from the US dollar into other assets, but other countries played their cards close to the vest, displaying little information about their plans.
For the trading week ending 9/25/09, the returns in our portfolio models were as follows:
Last Week
Year to Date
S&P 500 WD (benchmark)
-2.20 %
17.79 %
Aggressive Model
-1.35 %
7.14 %
Growth Model
-0.94 %
6.85 %
Moderate Model
-0.25 %
5.03 %
Stable Model
-0.42 %
6.94 %
We made no changes to the models over the course of last week and continue to watch all of our holdings closely for any major changes in direction. We have experienced a small pull-back on some of our tradable funds, but not to the level that would trigger us to sell any of the positions. We currently maintain an almost fully invested position in our models.
Economic Wrap Up: Last week was slow for economic news releases, and the news that came out was mostly negative. The US housing price index rose by 0.3 percent during July – an improvement over June’s reading but beneath expectation. The existing home sales figure showed a smaller-than-expected number of homes sold during August. The new home sales figure for the month of August came in lower than expected as well. While both of the housing figures were not a positive signal for the housing market, they were not terrible, and seem to indicate that the housing market is flattening out and building a solid base from which it could appreciate in the future. The figure for durable goods orders for the month of August was surprising in that it declined by 2.4 percent while many analysts were expecting an increase of 0.4 percent. A decline of 2.4 percent indicates that the manufacturing industry in the US has a long way to go before returning to levels seen prior to the recent correction. One bright spot in the economic news releases was that the Michigan Sentiment indicator for the month of September showed that US consumers are gaining confidence about the future. Now, if only we could get them spending like they used to.
This week is a very busy week for economic news releases because we have both a month and quarter ending during the week. Starting off on Tuesday, the Case Shiller housing price index for July is officially released, and is expected to show a decline of more than 14 percent, lending support to the theory that the housing market is leveling out. Also on Tuesday, the Consumer Confidence figures for the month of September are released and if last week’s Michigan figures are any indication, we could see an increase. On Wednesday, the final GDP figure for the second quarter of 2009 is released, and is expected to show a contraction of 1.2 percent. On Thursday, we see if US consumers are putting their money where their mouths are with the release of personal spending and personal income for the month of August. With consumer confidence on an upward trend, expectations are high that the consumer has, in fact, started to spend. We are a little skeptical and will believe it when we see it. If consumers are spending, then they are doing so on much less credit since the credit markets have only contracted for the past few months. Also on Thursday, we see the release of auto and truck sales as well as pending home sales and construction spending. Auto sales will probably be delightfully dismal (since Cash for Clunkers ended, few car dealerships have moved much inventory). Rounding out the week on Friday is the release of the official unemployment rate in the US for the month of September, which could move the market. Most expect that the figure will come in between 9.8 and 9.9 percent. If this is the case, then the market should not react much, but if the figure is released to show 10 percent or higher it could psychologically impact the market. For some reason 9.9 does not seem as bad as 10 percent when it comes to unemployment, so we will have to wait and see what happens.
Financial Planning Tip: 2010 Tax-Year Changes
Based on recent low inflation, several tax-related numbers (including tax brackets and deductions) are expected to remain almost completely unchanged for the 2010 tax year. The personal exemption amount, standard deduction, federal income-tax brackets, and many other figures will barely change for 2010 according to data released earlier this month by the Department of Labor. These figures will affect tax returns filed in early 2011, after the annual adjustments required by law.
One of the only notable changes will be a $50 increase in the standard deduction for heads of household. Everyone else will keep their current deductions of $5,700 for single and married taxpayers filing separately and $11,400 for joint filers. The 2010 personal exemption will be $3,650, unchanged from 2009.
The annual gift-tax exclusion of $13,000 will not change either. This means a person can give away as much as $13,000 per individual to anyone he or she wishes without any tax considerations. Many wealthy people take advantage of this provision each year as part of their estate-planning strategy. One can give away even more than the exclusion amount by paying someone else’s tuition or medical bills, but those payments must be made directly to the medical or educational provider.
Indexing brackets lowers tax bills when there is inflation by including more of one’s income in a lower bracket, such as the 15% rather than the 25% bracket. Taxpayer savings from inflation adjustments can vary tremendously, depending on an individual’s circumstances.
Last week, the major world markets performed almost the opposite of the way they did the week before. The three major indexes in the US gave back nearly all of their gains from the previous week, while the sectors that performed well two weeks ago turned in the worst performances. Many of the real estate, construction and materials ETFs fell in excess of 5 percent, giving a possible signal that the housing market is still in the woods and that the current stage of the economic cycle could last longer than many pundits expect. The overall trend in the markets has weakened some; from a technical standpoint it broke through several commonly followed moving averages, leading many knowledgeable investors to consider another correction in the market’s near-term future. The volume on the three major US indexes was lower last week than the previous week. As expected with such a decline in the market, the overall volatility jumped upward more than seven percent. While this represents a large increase in volatility over the course of just one week (especially when movements have been so benign in the recent months) it is a much smaller increase than was experienced during the last half of 2008.
All of the major commodities saw their values decline over the course of last week, oil leading the decline with a fall of almost eight percent due to further speculation that world economies will recover more slowly than expected (thus having a lower current demand for oil). Gold pulled back a little from its lofty heights over $1,000 per ounce, settling for the close of the week at $990.70. We will be interested to see if gold can hold up at the current levels or if it will decline back to the mid $800 range. Much of the movement of gold will depend on what China decides to do about its hefty US dollar reserves. If they continue to purchase dollars at the same rate they have historically, then gold may continue to decline. If, on the other hand, they decide to buy more gold instead of dollars, then the value of gold could quickly move up much higher than its current levels.
On the political front it was a very busy week, with the United Nations meeting in New York and the G-20 meeting in Pittsburg. The United Nations met to discuss climate change amongst all of the member countries and to come up with ideas that could be implemented in attempt to slow climate change. Instead, much of the meeting seems off track, with leaders such as Qadhafi taking over the microphone for long stretches of time and rambling about anything but climate change. China did outline some of the steps they are willing to take to combat climate change – a change from their usual “what is in it for us” policy, and a signal that they could play a productive role in the upcoming Copenhagen meeting to hammer out a treaty on climate change. The G-20 meeting in Pittsburg at the end of last week focused on the financial recovery of the world markets and the role that the US dollar should play in the future as the reserve currency of the world. Precious little was resolved at the meeting, as it seemed more like a brainstorming session at which countries conveyed their concerns about the future of the world’s financial health. The leaders ended up promising that they would continue to support economies that need financial help in these difficult economic times. The US seemed to be trying to feel out how close some of the member countries were to moving reserves away from the US dollar into other assets, but other countries played their cards close to the vest, displaying little information about their plans.
For the trading week ending 9/25/09, the returns in our portfolio models were as follows:
Year to Date
S&P 500 WD (benchmark)
-2.20 %
17.79 %
Aggressive Model
-1.35 %
7.14 %
Growth Model
-0.94 %
6.85 %
Moderate Model
-0.25 %
5.03 %
Stable Model
-0.42 %
6.94 %
We made no changes to the models over the course of last week and continue to watch all of our holdings closely for any major changes in direction. We have experienced a small pull-back on some of our tradable funds, but not to the level that would trigger us to sell any of the positions. We currently maintain an almost fully invested position in our models.
Economic Wrap Up: Last week was slow for economic news releases, and the news that came out was mostly negative. The US housing price index rose by 0.3 percent during July – an improvement over June’s reading but beneath expectation. The existing home sales figure showed a smaller-than-expected number of homes sold during August. The new home sales figure for the month of August came in lower than expected as well. While both of the housing figures were not a positive signal for the housing market, they were not terrible, and seem to indicate that the housing market is flattening out and building a solid base from which it could appreciate in the future. The figure for durable goods orders for the month of August was surprising in that it declined by 2.4 percent while many analysts were expecting an increase of 0.4 percent. A decline of 2.4 percent indicates that the manufacturing industry in the US has a long way to go before returning to levels seen prior to the recent correction. One bright spot in the economic news releases was that the Michigan Sentiment indicator for the month of September showed that US consumers are gaining confidence about the future. Now, if only we could get them spending like they used to.
This week is a very busy week for economic news releases because we have both a month and quarter ending during the week. Starting off on Tuesday, the Case Shiller housing price index for July is officially released, and is expected to show a decline of more than 14 percent, lending support to the theory that the housing market is leveling out. Also on Tuesday, the Consumer Confidence figures for the month of September are released and if last week’s Michigan figures are any indication, we could see an increase. On Wednesday, the final GDP figure for the second quarter of 2009 is released, and is expected to show a contraction of 1.2 percent. On Thursday, we see if US consumers are putting their money where their mouths are with the release of personal spending and personal income for the month of August. With consumer confidence on an upward trend, expectations are high that the consumer has, in fact, started to spend. We are a little skeptical and will believe it when we see it. If consumers are spending, then they are doing so on much less credit since the credit markets have only contracted for the past few months. Also on Thursday, we see the release of auto and truck sales as well as pending home sales and construction spending. Auto sales will probably be delightfully dismal (since Cash for Clunkers ended, few car dealerships have moved much inventory). Rounding out the week on Friday is the release of the official unemployment rate in the US for the month of September, which could move the market. Most expect that the figure will come in between 9.8 and 9.9 percent. If this is the case, then the market should not react much, but if the figure is released to show 10 percent or higher it could psychologically impact the market. For some reason 9.9 does not seem as bad as 10 percent when it comes to unemployment, so we will have to wait and see what happens.
Financial Planning Tip: 2010 Tax-Year Changes
Based on recent low inflation, several tax-related numbers (including tax brackets and deductions) are expected to remain almost completely unchanged for the 2010 tax year. The personal exemption amount, standard deduction, federal income-tax brackets, and many other figures will barely change for 2010 according to data released earlier this month by the Department of Labor. These figures will affect tax returns filed in early 2011, after the annual adjustments required by law.
One of the only notable changes will be a $50 increase in the standard deduction for heads of household. Everyone else will keep their current deductions of $5,700 for single and married taxpayers filing separately and $11,400 for joint filers. The 2010 personal exemption will be $3,650, unchanged from 2009.
The annual gift-tax exclusion of $13,000 will not change either. This means a person can give away as much as $13,000 per individual to anyone he or she wishes without any tax considerations. Many wealthy people take advantage of this provision each year as part of their estate-planning strategy. One can give away even more than the exclusion amount by paying someone else’s tuition or medical bills, but those payments must be made directly to the medical or educational provider.
Indexing brackets lowers tax bills when there is inflation by including more of one’s income in a lower bracket, such as the 15% rather than the 25% bracket. Taxpayer savings from inflation adjustments can vary tremendously, depending on an individual’s circumstances.
Posted in Weekly Commentary