Kevin Kroskey's Market Commentary: 2010

December 20, 2010 Weekly Market Commentary

OBAMA SIGNS TAX DEAL INTO LAW
President Obama signed the 2010 Tax Relief Act into law on December 17 after overwhelming passage in the House and Senate. The Bush-era tax cuts are thereby extended. Through 2012, the federal income tax tops out at 35% and taxes on dividends and capital gains top out at 15%. The 0% rate for long term gains realized in the 15% tax bracket is still in place and presents a tremendous tax planning opportunity, particularly for retirees that haven't yet started receiving Social Security and/or pension income.

Next year, the estate tax returns at 35% with a $5 million dollar exemption, effectively permitting couples to pass estates as large as $10 million to heirs; tax-free charitable IRA donations also come back in 2011. Employee payroll taxes will drop from 6.2% to 4.2% next year.1,2,3,4,5

A POSITIVE SIGNAL FOR THE FUTURE
The Conference Board’s leading economic indicators index (designed to be a gauge of economic momentum or lack thereof) jumped by 1.1% in November – the biggest gain in eight months. This follows a revised 0.4% advance in the index for October.6

PRODUCER PRICES OUTPACE CONSUMER PRICES
Consumer prices inched up 0.1% in November according to the Labor Department’s Consumer Price Index. The core CPI rose 0.1%. The Producer Price Index, on the other hand, rose by 0.8% last month. Consensus polls of economists at Briefing.com had projected a 0.2% rise in the CPI and a 0.5% gain in wholesale prices.7

HOUSING STARTS TURN NORTH
They improved for the first time in three months. The Commerce Department said November’s housing starts were up 3.9% from October levels. The 555,000 annual pace topped the 559,000 consensus projected in a Bloomberg News survey.8

STOCKS ADVANCE
It was a pretty quiet week on Wall Street, and major index performance across the five trading days was as follows: Dow, +0.72% to 11,491.91; S&P 500, +0.28% to 1,243.91; NASDAQ, +0.21% to 2,642.97. As of Friday, the DJIA had traded within a range of 100 points for six straight market days – that hadn’t occurred since January 2006. All three indices ended the week at +10% or better for 2010.9

COMING NEXT WEEK: No notable releases on Monday or Tuesday. Wednesday, we have the latest existing home sales figures and the final estimate of 3Q GDP. Thursday, we get data on consumer spending and durable goods orders for November, new home sales figures for November, the final University of Michigan consumer sentiment survey for December, and the latest initial and continuing claims numbers. That’s it for the week.

WEEKLY QUOTE
“It is not the years in your life but the life in your years that counts.”
– Adlai Stevenson

WEEKLY TIP
With the new year coming, one of your resolutions can be reviewing and/or rebalancing your portfolio, to see that your investments are in sync with your objectives.

Happy Holidays,

Kevin Kroskey

Citations.

1 edition.cnn.com/2010/POLITICS/12/17/tax.deal/ [12/17/10]
2 – online.wsj.com/article/SB10001424052748703296604576005430598327972.html [12/7/10]
3 –tax.cchgroup.com/downloads/files/pdfs/legislation/bush-taxcuts.pdf [12/16/10]
4 – businessweek.com/ap/financialnews/D9K5IEN81.htm [12/17/10]
5 – npr.org/2010/12/10/131969824/some-worry-payroll-tax-cut-threatens-social-security [12/17/10]
6 - bloomberg.com/news/2010-12-17/u-s-leading-indicators-index-gains-most-in-eight-months-in-recovery-sign.html [12/17/10]
7 - thestreet.com/story/10947594/1/inflation-remains-subdued-in-november.html [12/15/10]
8 - bloomberg.com/news/2010-12-16/u-s-futures-fluctuate-starbucks-bank-of-america-climb-freeport-slides.html [12/16/10]
9 - cnbc.com/id/40722779 [12/17/10]
10 - bigcharts.marketwatch.com/historical/default.asp?detect=1&symbol=DJIA&close_date=12%2F17%2F09&x=0&y=0 [12/17/10]
10 - bigcharts.marketwatch.com/historical/default.asp?detect=1&symbol=COMP&close_date=12%2F17%2F09&x=0&y=0 [12/17/10]
10 - bigcharts.marketwatch.com/historical/default.asp?detect=1&symbol=SPX&close_date=12%2F17%2F09&x=0&y=0 [12/17/10]
10 - bigcharts.marketwatch.com/historical/default.asp?detect=1&symbol=DJIA&close_date=12%2F16%2F05&x=0&y=0 [12/17/10]
10 - bigcharts.marketwatch.com/historical/default.asp?detect=1&symbol=COMP&close_date=12%2F16%2F05&x=0&y=0 [12/17/10]
10 - bigcharts.marketwatch.com/historical/default.asp?detect=1&symbol=SPX&close_date=12%2F16%2F05&x=0&y=0 [12/17/10]
10 - bigcharts.marketwatch.com/historical/default.asp?detect=1&symbol=DJIA&close_date=12%2F18%2F00&x=0&y=0 [12/17/10]
10 - bigcharts.marketwatch.com/historical/default.asp?detect=1&symbol=COMP&close_date=12%2F18%2F00&x=0&y=0 [12/17/10]
10 - bigcharts.marketwatch.com/historical/default.asp?detect=1&symbol=SPX&close_date=12%2F18%2F00&x=0&y=0 [12/17/10]
11 - treasury.gov/resource-center/data-chart-center/interest-rates/Pages/TextView.aspx?data=realyield [12/17/10]
11 - ustreas.gov/offices/domestic-finance/debt-management/interest-rate/real_yield_historical.shtml [12/17/10]
12 - treasurydirect.gov/instit/annceresult/press/preanre/2000/ofm11200.pdf [7/12/00]
13 - montoyaregistry.com/Financial-Market.aspx?financial-market=8-retirement-tips&category=3 [12/18/10]

This material was prepared by Peter Montoya Inc., and does not necessarily represent the views of the presenting party, nor their affiliates. This information should not be construed as investment, tax or legal advice. The Dow Jones Industrial Average is a price-weighted index of 30 actively traded blue-chip stocks. The NASDAQ Composite Index is an unmanaged, market-weighted index of all over-the-counter common stocks traded on the National Association of Securities Dealers Automated Quotation System. The Standard & Poor's 500 (S&P 500) is an unmanaged group of securities considered to be representative of the stock market in general. It is not possible to invest directly in an index. NYSE Group, Inc. (NYSE:NYX) operates two securities exchanges: the New York Stock Exchange (the “NYSE”) and NYSE Arca (formerly known as the Archipelago Exchange, or ArcaEx®, and the Pacific Exchange). NYSE Group is a leading provider of securities listing, trading and market data products and services. The New York Mercantile Exchange, Inc. (NYMEX) is the world's largest physical commodity futures exchange and the preeminent trading forum for energy and precious metals, with trading conducted through two divisions – the NYMEX Division, home to the energy, platinum, and palladium markets, and the COMEX Division, on which all other metals trade. Additional risks are associated with international investing, such as currency fluctuations, political and economic instability and differences in accounting standards. All information is believed to be from reliable sources; however we make no representation as to its completeness or accuracy. All economic and performance data is historical and not indicative of future results. Market indices discussed are unmanaged. Investors cannot invest in unmanaged indices. The publisher is not engaged in rendering legal, accounting or other professional services. If assistance is needed, the reader is advised to engage the services of a competent professional.

December 6, 2010 Weekly Market Commentary

DECEMBER GETS OFF TO A BULLISH START

Recently, it's almost comical watching the market see-saw back and forth as emotionally-based investors swing with tides of varying economonic news. In the first three days of December, the S&P 500 gained 3.74% as Black Friday sales numbers and reassurance from the European Central Bank aided Wall Street. Gold closed at a record $1406.20 an ounce Friday. Then things swung the other way. Yet for the week, the big three U.S. indices performed as follows: DJIA, +2.62% to 11,382.09; S&P 500, +2.97% to 1,224.71; NASDAQ, +2.24% to 2,591.46 (its highest close in 35 months). (6,7)

JOBLESS RATE INCREASES BY 0.2%
Unemployment hit 9.8% last month. The latest Bureau of Labor Statistics report said the economy only created 39,000 new jobs in November; economists expected three times that. After all, ADP reported 93,000 new positions in the private sector last Wednesday, and the revised government estimate for October showed the economy adding 172,000 jobs in that month. Labor Department figures indicate that the unemployed and underemployed now make up around 17% of the population. (1,2)

SECOND POLL GAUGES CONFIDENCE AT 5-MONTH HIGH
The Conference Board’s consumer confidence index rose to 54.1 for November, reaching a peak unseen since June (which is exactly what happened last week with the University of Michigan’s consumer poll). Sub-indices measuring employment expectations and income expectations also improved. (3)

SOME GOOD NEWS FROM THE REAL ESTATE SECTOR
Pending home sales increased by 10.4% in October, according to the National Association of Realtors. This would seem to suggest better numbers for existing home sales in November. NAR’s pending home sales index is now back at the level it was before the appearance of the federal home buyer tax credit. (4)

ISM INDEXES BOTH AT 55 OR BETTER
The closely-watched manufacturing and non-manufacturing sector surveys from the Institute for Supply Management show moderate growth. The manufacturing index declined to 56.6 from October’s 56.9 mark; the service sector index improved from 54.3 in October to 55.0 in November. The manufacturing index showed a 7.7% slump in production for November; the service sector index showed 4.0% gains in export orders and inventories. (5)

COMING NEXT WEEK: It is a light week in terms of major economic releases. Wednesday, we get initial and continuing jobless claims data and learn about October wholesale inventories. Thursday, we have the University of Michigan’s first consumer sentiment survey for December.

WEEKLY QUOTE

“Nothing will ever be attempted, if all possible objections must be first overcome.”

– Samuel Johnson

WEEKLY TIP

Have you taken a Required Minimum Distribution from your IRA yet? If you are age 70½ or older, it’s time. If you are taking your very first RMD, you can put it off until April 1 of next year - but if you do that, you’ll have to take two RMDs in 2011. The RMD deadline for most IRA owners aged 70½ or older is December 31.

Best Regards,

Kevin Kroskey

Citations.
1 - forbes.com/2010/12/03/markets-briefing-open-jobs-equities-unemployment.html [12/3/10]
2 - ocregister.com/articles/rate-278642-november-time.html [12/3/10]
3 - bloomberg.com/news/2010-11-30/stocks-in-u-s-pare-retreat-after-consumer-confidence-report-tops-estimate.html [11/30/10]
4 - online.wsj.com/article/SB10001424052748703377504575650470810345484.html [12/3/10]
5 - ism.ws/ISMReport/nonmfgROB.cfm [12/3/10]
6 - cnbc.com/id/40496761 [12/3/10]
7 - money.cnn.com/2010/12/03/markets/markets_newyork/index.htm [12/3/10]
8 - bigcharts.marketwatch.com/historical/default.asp?detect=1&symbol=DJIA&close_date=12%2F3%2F09&x=0&y=0 [12/3/10]
8 - bigcharts.marketwatch.com/historical/default.asp?detect=1&symbol=COMP&close_date=12%2F3%2F09&x=0&y=0 [12/3/10]
8 - bigcharts.marketwatch.com/historical/default.asp?detect=1&symbol=SPX&close_date=12%2F3%2F09&x=0&y=0 [12/3/10]
8 - bigcharts.marketwatch.com/historical/default.asp?detect=1&symbol=DJIA&close_date=12%2F2%2F05&x=0&y=0 [12/3/10]
8 - bigcharts.marketwatch.com/historical/default.asp?detect=1&symbol=COMP&close_date=12%2F2%2F05&x=0&y=0 [12/3/10]
8 - bigcharts.marketwatch.com/historical/default.asp?detect=1&symbol=SPX&close_date=12%2F2%2F05&x=0&y=0 [12/3/10]
8 - bigcharts.marketwatch.com/historical/default.asp?detect=1&symbol=DJIA&close_date=12%2F4%2F00&x=0&y=0 [12/3/10]
8 - bigcharts.marketwatch.com/historical/default.asp?detect=1&symbol=COMP&close_date=12%2F4%2F00&x=0&y=0 [12/3/10]
8 - bigcharts.marketwatch.com/historical/default.asp?detect=1&symbol=SPX&close_date=12%2F4%2F00&x=0&y=0 [12/3/10]
9 - ustreas.gov/offices/domestic-finance/debt-management/interest-rate/real_yield.shtml [12/3/10]
9 - ustreas.gov/offices/domestic-finance/debt-management/interest-rate/real_yield_historical.shtml [12/3/10]
10 - treasurydirect.gov/instit/annceresult/press/preanre/2000/ofm11200.pdf [7/12/00]

November 22, 2010 Weekly Market Commentary

NO RISE IN CORE CPI OR CORE PPI IN OCTOBER
Last month, the Consumer Price Index rose 0.2% with core CPI flat for the third month in a row. Core CPI has advanced at a crawl in the past 12 months: just 0.6% compared to a Federal Reserve annualized target of 2.0%. Producer prices rose 0.4% last month, duplicating their August and September increase. Yet core producer prices fell 0.6%.1,2

HOUSING STARTS SLIP, MORTGAGE RATES JUMP
The Commerce Department announced an 11.7% slump in new residential construction starts for the month of October, and a 1.9% slip from year-ago levels. A drop in apartment and condo construction accounted for most of the October decline. Last week, Freddie Mac said that the average rate on a 30-year conventional home loan had jumped to 4.39% from 4.17% a week prior. The average rate for a 15-year FRM had increased to 3.76%, up from 3.57% in Freddie’s previous survey.3,4

RETAIL SALES 7.3% BETTER THAN A YEAR AGO
Car buying drove a 1.2% gain in U.S. retail sales in October. In fact, the Census Bureau reported a 14.7% year-over-year increase in sales volume at car dealerships. The year-over-year gain in overall retail sales was 7.3%, and 13.5% for non-store retailers.5

CONFERENCE BOARD INDEX UP 0.5%
The Conference Board’s index of leading economic indicators notched its second straight half-percent increase in October. This was also its fourth straight advance.6

GM IPO TURNS THE WEEK AROUND
Thursday’s eagerly awaited initial public offering from General Motors sent the Dow on a triple-digit rally and turned a down week into a flat one. Here is how the three marquee indices performed last week: DJIA, +0.10% to 11,203.55; S&P 500, +0.04% to 1,199.73; NASDAQ, 0.00% to 2,518.12 (it actually fell .09 on the week).7,8

COMING NEXT WEEK: No economic releases are scheduled for Monday. Tuesday, we have October existing home sales and the release of the minutes from the Fed’s November 3 policy meeting, plus the second estimate of 3Q GDP. Wednesday, we have even more data: the October consumer spending report, October new home sales, October durable goods orders and the final November consumer sentiment survey from the University of Michigan.

WEEKLY QUOTE
“You are the only real obstacle in your path to a fulfilling life.”
– Les Brown

WEEKLY TIP
Ramp up your college savings with rewards programs. There are credit cards and online shopping programs that can allow you to direct a steady stream of rebates toward your education fund.

Best Regards,

Kevin Kroskey

Citations.
1 - marketwatch.com/story/us-consumer-prices-up-02-in-october-2010-11-17 [11/17/10]
2 - blogs.barrons.com/stockstowatchtoday/2010/11/16/producer-prices-lower-than-expected-but-crude-prices-jump/ [11/16/10]
3 - articles.latimes.com/print/2010/nov/18/business/la-fi-housing-mortgage-20101118 [11/18/10]
4 - freddiemac.com/pmms/release.html [11/18/10]
5 - census.gov/retail/marts/www/marts_current.pdf [11/15/10]
6 -boston.com/news/nation/washington/articles/2010/11/19/new_figures_indicate_economy_is _picking_up [11/19/10]
7 - cnbc.com/id/40279101 [11/19/10]
8 - cnbc.com/id/40155548 [11/12/10]
9 - bigcharts.marketwatch.com/historical/default.asp?detect=1&symbol=DJIA&close_date=11%2F19%2F09&x=0&y=0 [11/19/10]
9 - bigcharts.marketwatch.com/historical/default.asp?detect=1&symbol=COMP&close_date=11%2F19%2F09&x=0&y=0 [11/19/10]
9 - bigcharts.marketwatch.com/historical/default.asp?detect=1&symbol=SPX&close_date=11%2F19%2F09&x=0&y=0 [11/19/10]
9 - bigcharts.marketwatch.com/historical/default.asp?detect=1&symbol=DJIA&close_date=11%2F18%2F05&x=0&y=0 [11/19/10]
9 - bigcharts.marketwatch.com/historical/default.asp?detect=1&symbol=COMP&close_date=11%2F18%2F05&x=0&y=0 [11/19/10]
9 - bigcharts.marketwatch.com/historical/default.asp?detect=1&symbol=SPX&close_date=11%2F18%2F05&x=0&y=0 [11/19/10]
9 - bigcharts.marketwatch.com/historical/default.asp?detect=1&symbol=DJIA&close_date=11%2F20%2F00&x=0&y=0 [11/19/10]
9 - bigcharts.marketwatch.com/historical/default.asp?detect=1&symbol=COMP&close_date=11%2F20%2F00&x=0&y=0 [11/19/10]
9 - bigcharts.marketwatch.com/historical/default.asp?detect=1&symbol=SPX&close_date=11%2F20%2F00&x=0&y=0 [11/19/10]
10 - ustreas.gov/offices/domestic-finance/debt-management/interest-rate/real_yield.shtml [11/19/10]
10 - ustreas.gov/offices/domestic-finance/debt-management/interest-rate/real_yield_historical.shtml [11/19/10]
11 - treasurydirect.gov/instit/annceresult/press/preanre/2000/ofm11200.pdf [7/12/00]

This material was prepared by Peter Montoya Inc., and does not necessarily represent the views of the presenting party, nor their affiliates. This information should not be construed as investment, tax or legal advice. The Dow Jones Industrial Average is a price-weighted index of 30 actively traded blue-chip stocks. The NASDAQ Composite Index is an unmanaged, market-weighted index of all over-the-counter common stocks traded on the National Association of Securities Dealers Automated Quotation System. The Standard & Poor's 500 (S&P 500) is an unmanaged group of securities considered to be representative of the stock market in general. It is not possible to invest directly in an index. NYSE Group, Inc. (NYSE:NYX) operates two securities exchanges: the New York Stock Exchange (the “NYSE”) and NYSE Arca (formerly known as the Archipelago Exchange, or ArcaEx®, and the Pacific Exchange). NYSE Group is a leading provider of securities listing, trading and market data products and services. The New York Mercantile Exchange, Inc. (NYMEX) is the world's largest physical commodity futures exchange and the preeminent trading forum for energy and precious metals, with trading conducted through two divisions – the NYMEX Division, home to the energy, platinum, and palladium markets, and the COMEX Division, on which all other metals trade. Additional risks are associated with international investing, such as currency fluctuations, political and economic instability and differences in accounting standards. All information is believed to be from reliable sources; however we make no representation as to its completeness or accuracy. All economic and performance data is historical and not indicative of future results. Market indices discussed are unmanaged. Investors cannot invest in unmanaged indices. The publisher is not engaged in rendering legal, accounting or other professional services. If assistance is needed, the reader is advised to engage the services of a competent professional.

November 8, 2010 Weekly Market Commentary

FIRST NET JOB GAIN SINCE MAY
Economists polled by Dow Jones Newswires thought non-farm payrolls would increase by about 60,000 for October. In a pleasant surprise, the economy added 151,000 jobs instead. While the jobless rate remained at 9.6% for October, Labor Department data showed the economy adding jobs for the first time in five months – a development implying moderate growth instead of a “double dip” recession.1

TWO MORE SIGNALS OF EXPANSION
The Institute for Supply Management released its October assessments of the manufacturing and service sectors last week, and both ISM indices showed improvement. The manufacturing index climbed to 56.9 from 54.4 and the service sector index improved to 54.3 from September’s 53.2 reading.2

CONSUMERS SPEND A BIT MORE
September’s personal spending gain wasn’t that impressive – just 0.2%. Economists surveyed by Bloomberg had forecast a 0.4% increase in for the month. The Commerce Department data also showed a 0.1% decrease in personal income, the first such reduction since July 2009.3

PENDING HOME SALES SUDDENLY SLIP
They fell by 1.8% in September, according to the National Association of Realtors. They haven’t declined in three months. September 2010 pending sales were 24.9% underneath year-ago levels.4

STOCKS HIT 2010 HIGHS
The Dow, S&P 500 and NASDAQ quickly reached YTD peaks after the Federal Reserve announced its plans to buy $600 billion worth of Treasuries over the next eight months. Here is how the big three performed last week: Dow, +2.93% to 11,444.08; S&P 500, +3.60% to 1,225.85; NASDAQ, +2.85% to 2,578.98. Some key commodities took off as well – oil prices gained $5.42 on the week, gold gained $40.20 across five days to close at $1,397.30 on the COMEX Friday, and copper advanced 5.68% for the week.5,6,7

COMING NEXT WEEK: The schedule of economic releases is very light. Tuesday, we have data on September wholesale inventories. Wednesday, we have initial jobless claims for 11/6 and continuing claims as of 10/30. Friday, we get the initial October survey of consumer sentiment from the University of Michigan.

(Click on the picture below to enlarge the table in a new window.)

WEEKLY QUOTE
“The book you don’t read won’t help.”
– Jim Rohn

Best Regards,

Kevin Kroskey

Citations.
1 – online.wsj.com/article/SB10001424052748704353504575596060581399440.html [11/5/10]
2 - ism.ws/ISMReport/NonMfgROB.cfm [11/3/10]
3 - blogs.barrons.com/stockstowatchtoday/2010/11/01/markets-open-higher-despite-spending-woes [11/1/10]
4 - dailyfinance.com/story/real-estate/september-pending-home-sales-drop-uneven-economic-recovery/19704428/ [11/5/10]
5 - csmonitor.com/Business/2010/1103/Federal-Reserve-to-buy-600-billion-in-bonds-as-hedge-against-deflation [11/3/10]
6 - cnbc.com/id/40032470 [11/5/10]
7 - blogs.wsj.com/marketbeat/2010/11/05/data-points-energy-metals-396/ [11/5/10]
8 - bigcharts.marketwatch.com/historical/default.asp?detect=1&symbol=DJIA&close_date=11%2F5%2F09&x=0&y=0 [11/5/10]
8 - bigcharts.marketwatch.com/historical/default.asp?detect=1&symbol=COMP&close_date=11%2F5%2F09&x=0&y=0 [11/5/10]
8 - bigcharts.marketwatch.com/historical/default.asp?detect=1&symbol=SPX&close_date=11%2F5%2F09&x=0&y=0 [11/5/10]
8 - bigcharts.marketwatch.com/historical/default.asp?detect=1&symbol=DJIA&close_date=11%2F4%2F05&x=0&y=0 [11/5/10]
8 - bigcharts.marketwatch.com/historical/default.asp?detect=1&symbol=COMP&close_date=11%2F4%2F05&x=0&y=0 [11/5/10]
8 - bigcharts.marketwatch.com/historical/default.asp?detect=1&symbol=SPX&close_date=11%2F4%2F05&x=0&y=0 [11/5/10]
8 - bigcharts.marketwatch.com/historical/default.asp?detect=1&symbol=DJIA&close_date=11%2F6%2F00&x=0&y=0 [11/5/10]
8 - bigcharts.marketwatch.com/historical/default.asp?detect=1&symbol=COMP&close_date=11%2F6%2F00&x=0&y=0 [11/5/10]
8 - bigcharts.marketwatch.com/historical/default.asp?detect=1&symbol=SPX&close_date=11%2F6%2F00&x=0&y=0 [11/5/10]
9 - ustreas.gov/offices/domestic-finance/debt-management/interest-rate/real_yield.shtml [11/5/10]
9 - ustreas.gov/offices/domestic-finance/debt-management/interest-rate/real_yield_historical.shtml [11/5/10]
10 - treasurydirect.gov/instit/annceresult/press/preanre/2000/ofm11200.pdf [7/12/00]

November 1, 2010 Weekly Market Commentary

WALL STREET AWAITS QE2, CONSIDERS 3Q GDP
Yes, QE2 – that is the media nickname for the expected second round of quantitative easing from the Federal Reserve, a move which could boost long-term bond prices and lower long-term interest rates. Will the Fed buy more than $500 billion in Treasuries? Or less? The Wall Street Journal says the purchases will amount to “a few hundred billion dollars over several months.” The Fed will reveal its plans on Wednesday at the end of its November policy meeting. Meanwhile, the initial third quarter GDP reading is in: +2.0%. The good news: consumer spending in 3Q 2010 was the strongest in four years. The bad news: a 2.0% gain in GDP isn’t strong enough to reduce unemployment.1,2

HOME SALES PICK UP
Existing home sales improved 10.0% in September – the biggest one-month leap since the National Association of Realtors began keeping track of monthly sales volume. The median price was still 2.4% below year-ago levels. New home sales rose 6.6% in September, with the median price up 3.3% from 12 months ago. In related news, the August S&P/Case-Shiller home price index showed a year-over-year gain of 1.7% across 20 metro markets.3,4,5

CONSUMER SENTIMENT WAVERS
The Conference Board’s survey of consumer confidence reached 50.2 this month, a 1.6% improvement. However, the final October Reuters/University of Michigan survey hit an 11-month low of 67.7, perhaps on election season pessimism.6,7

DURABLE GOODS ORDERS RISE 3.3%
September’s overall gain was mostly attributable to a 105% jump in aircraft orders. Core durable goods orders declined by 0.6% on the month.8

MARKETS MOVE CAUTIOUSLY
Wall Street largely held its breath last week, waiting for November’s data and policy moves. The performance across the last five trading days of October: Dow, -0.13% to 11,118.49; S&P 500, +0.02% to 1,183.26; NASDAQ, +1.13% to 2,507.41.9

COMING NEXT WEEK: Monday, we have September consumer spending and construction spending data and the October ISM manufacturing report. Wednesday is also big – the Fed announcement comes at 2:15pm EST, and before that we get the ISM service sector report for October, plus data on October auto sales and September factory orders. Thursday, we receive the latest initial claims figures. Friday, we have the October unemployment report and September pending home sales.

(Click on the picture below to enlarge the table in a new window.)

WEEKLY QUOTE
“One loyal friend is worth ten thousand relatives.”
– Euripides

WEEKLY TIP
If you like to itemize, consider organizing your receipts by expense type. It will save your accountant time and help them on their quest to save you money.

Best Regards,

Kevin Kroskey

Citations.
1 –online.wsj.com/article/SB10001424052702303891804575576533845166848.html [10/25/10]
2 – abcnews.go.com/Business/wireStory?id=12000624 [10/29/10]
3 – businessweek.com/news/2010-10-25/u-s-existing-home-sales-rise-more-than-forecast.html [10/25/10]
4 - blogs.wsj.com/developments/2010/10/27/new-home-sales-stuck-at-rock-bottom/?mod=google_news_blog [10/27/10]
5 - bloomberg.com/news/2010-10-26/home-prices-in-20-u-s-cities-rose-less-than-forecast-case-shiller-says.html [10/26/10]
6 - theatlantic.com/business/archive/2010/10/consumer-confidence-remains-weak-going-into-midterms/65173/ [10/26/10]
7 - dailyfinance.com/story/consumer-sentiment-dips-on-economic-concerns-ahead-of-elections/19694879/ [10/29/10]
8 - marketwatch.com/story/durable-goods-orders-jump-33-in-september-2010-10-27 [10/27/10]
9 – cnbc.com/id/39916022 [10/29/10]
10 - bigcharts.marketwatch.com/historical/default.asp?detect=1&symbol=DJIA&close_date=10%2F29%2F09&x=0&y=0 [10/29/10]
10 - bigcharts.marketwatch.com/historical/default.asp?detect=1&symbol=COMP&close_date=10%2F29%2F09&x=0&y=0 [10/29/10]
10 - bigcharts.marketwatch.com/historical/default.asp?detect=1&symbol=SPX&close_date=10%2F29%2F09&x=0&y=0 [10/29/10]
10 - bigcharts.marketwatch.com/historical/default.asp?detect=1&symbol=DJIA&close_date=10%2F28%2F05&x=0&y=0 [10/29/10]
10 - bigcharts.marketwatch.com/historical/default.asp?detect=1&symbol=COMP&close_date=10%2F28%2F05&x=0&y=0 [10/29/10]
10 - bigcharts.marketwatch.com/historical/default.asp?detect=1&symbol=SPX&close_date=10%2F28%2F05&x=0&y=0 [10/29/10]
10 - bigcharts.marketwatch.com/historical/default.asp?detect=1&symbol=DJIA&close_date=10%2F30%2F00&x=0&y=0 [10/29/10]
10 - bigcharts.marketwatch.com/historical/default.asp?detect=1&symbol=COMP&close_date=10%2F30%2F00&x=0&y=0 [10/29/10]
10 - bigcharts.marketwatch.com/historical/default.asp?detect=1&symbol=SPX&close_date=10%2F30%2F00&x=0&y=0 [10/29/10]
11 - ustreas.gov/offices/domestic-finance/debt-management/interest-rate/real_yield.shtml [10/29/10]
11 - ustreas.gov/offices/domestic-finance/debt-management/interest-rate/real_yield_historical.shtml [10/29/10]
12 - treasurydirect.gov/instit/annceresult/press/preanre/2000/ofm11200.pdf [7/12/00]

This material was prepared by Peter Montoya Inc., and does not necessarily represent the views of the presenting Representative or the Representative’s Broker/Dealer. This information should not be construed as investment advice. The Dow Jones Industrial Average is a price-weighted index of 30 actively traded blue-chip stocks. The NASDAQ Composite Index is an unmanaged, market-weighted index of all over-the-counter common stocks traded on the National Association of Securities Dealers Automated Quotation System. The Standard & Poor's 500 (S&P 500) is an unmanaged group of securities considered to be representative of the stock market in general. It is not possible to invest directly in an index. NYSE Group, Inc. (NYSE:NYX) operates two securities exchanges: the New York Stock Exchange (the “NYSE”) and NYSE Arca (formerly known as the Archipelago Exchange, or ArcaEx®, and the Pacific Exchange). NYSE Group is a leading provider of securities listing, trading and market data products and services. The New York Mercantile Exchange, Inc. (NYMEX) is the world's largest physical commodity futures exchange and the preeminent trading forum for energy and precious metals, with trading conducted through two divisions – the NYMEX Division, home to the energy, platinum, and palladium markets, and the COMEX Division, on which all other metals trade. All information is believed to be from reliable sources; however we make no representation as to its completeness or accuracy. All economic and performance data is historical and not indicative of future results. Market indices discussed are unmanaged. Investors cannot invest in unmanaged indices. The publisher is not engaged in rendering legal, accounting or other professional services. If other expert assistance is needed, the reader is advised to engage the services of a competent professional. Please consult your Financial Advisor for further information. Additional risks are associated with international investing, such as currency fluctuations, political and economic instability and differences in accounting standards. www.montoyaregistry.com www.petermontoya.com

October 25, 2010 Weekly Market Commentary

FED & CONFERENCE BOARD SEE MODEST GROWTH
The Federal Reserve’s latest Beige Book came out last week, and 8 of the 12 regional Fed banks reported economic expansion in the anecdotal survey covering September and early October. The survey found that while hiring demand “remained limited”, gains in manufacturing and retail spending were occurring in most regions. The Conference Board’s September Leading Indicators Index offered a slightly less encouraging picture – the gauge advanced for a third consecutive month, rising 0.3%, but just 5 of the 10 components of the index posted gains.1,2

HOUSING STARTS RISE SLIGHTLY
A nice surprise: Commerce Department data showed a 0.3% advance in housing starts for September. Analysts were not expecting a third straight monthly increase. Is it a sign of stability in the real estate market? Economists hope so, though the pace of housing starts is still very weak in historical terms.3

INDUSTRIAL OUTPUT DISAPPOINTS
It had been a year since the Federal Reserve announced a monthly decline in industrial production. There was an unanticipated 0.2% drop in the category for September. Utilities production rose by 1.9%.4

GOLD PULLS BACK, OIL HOLDS STEADY
October 18-22 was the worst week in three months for the precious metal, which had been heading north toward the $1,400 mark at mid-month. Gold futures fell 3.41% last week, resulting in a $1,324.40 close Friday on the COMEX. Crude oil futures dipped 0.29% last week to settle at $81.69 per barrel on the NYMEX Friday.5

GAINS ON WALL STREET
Marquee U.S. indices pulled off small advances last week. The Dow rose 0.63% to a Friday close of 11,132.56. The NASDAQ and S&P 500 respectively gained 0.43% and 0.59% on the week; at Friday’s closing bell, that left them at 2,479.39 and 1,183.08.6

COMING NEXT WEEK: September existing home sales (Monday), the August Case-Shiller Home Price Index and the Conference Board’s October poll of consumer confidence (Tuesday), September new home sales and durable goods orders (Wednesday), the latest initial and continuing claims (Thursday), and the final October reading on consumer sentiment from the University of Michigan and the first estimate of 3Q GDP (Friday). Plus of course, 3Q earnings reports all week.

Best Regards,

Kevin Kroskey

Citations.
1 – dailyfinance.com/story/the-fed-economy-grew-at-a-modest-pace-in-september/19681630/ [10/20/10]
2 – msnbc.msn.com/id/39777205/ns/business-eye_on_the_economy/ [10/21/10]
3 – marketwatch.com/story/housing-starts-rise-03-to-610000-in-september-2010-10-19 [10/19/10]
4 - thestreet.com/story/10891354/1/industrial-production-drops-in-september.html [10/18/10]
5 - blogs.wsj.com/marketbeat/2010/10/22/data-points-energy-metals-386/ [10/22/10]
6 – cnbc.com/id/39801554 [10/22/10]
7 - bigcharts.marketwatch.com/historical/default.asp?detect=1&symbol=DJIA&close_date=10%2F22%2F09&x=0&y=0 [10/22/10]
7 - bigcharts.marketwatch.com/historical/default.asp?detect=1&symbol=COMP&close_date=10%2F22%2F09&x=0&y=0 [10/22/10]
7 - bigcharts.marketwatch.com/historical/default.asp?detect=1&symbol=SPX&close_date=10%2F22%2F09&x=0&y=0 [10/22/10]
7 - bigcharts.marketwatch.com/historical/default.asp?detect=1&symbol=DJIA&close_date=10%2F21%2F05&x=0&y=0 [10/22/10]
7 - bigcharts.marketwatch.com/historical/default.asp?detect=1&symbol=COMP&close_date=10%2F21%2F05&x=0&y=0 [10/22/10]
7 - bigcharts.marketwatch.com/historical/default.asp?detect=1&symbol=SPX&close_date=10%2F21%2F05&x=0&y=0 [10/22/10]
7 - bigcharts.marketwatch.com/historical/default.asp?detect=1&symbol=DJIA&close_date=10%2F23%2F00&x=0&y=0 [10/22/10]
7 - bigcharts.marketwatch.com/historical/default.asp?detect=1&symbol=COMP&close_date=10%2F23%2F00&x=0&y=0 [10/22/10]
7 - bigcharts.marketwatch.com/historical/default.asp?detect=1&symbol=SPX&close_date=10%2F23%2F00&x=0&y=0 [10/22/10]
8 - ustreas.gov/offices/domestic-finance/debt-management/interest-rate/real_yield.shtml [10/22/10]
8 - ustreas.gov/offices/domestic-finance/debt-management/interest-rate/real_yield_historical.shtml [10/22/10]
9 - treasurydirect.gov/instit/annceresult/press/preanre/2000/ofm11200.pdf [7/12/00]

This material was prepared by Peter Montoya Inc., and does not necessarily represent the views of the presenting Representative or the Representative’s Broker/Dealer. This information should not be construed as investment advice. The Dow Jones Industrial Average is a price-weighted index of 30 actively traded blue-chip stocks. The NASDAQ Composite Index is an unmanaged, market-weighted index of all over-the-counter common stocks traded on the National Association of Securities Dealers Automated Quotation System. The Standard & Poor's 500 (S&P 500) is an unmanaged group of securities considered to be representative of the stock market in general. It is not possible to invest directly in an index. NYSE Group, Inc. (NYSE:NYX) operates two securities exchanges: the New York Stock Exchange (the “NYSE”) and NYSE Arca (formerly known as the Archipelago Exchange, or ArcaEx®, and the Pacific Exchange). NYSE Group is a leading provider of securities listing, trading and market data products and services. The New York Mercantile Exchange, Inc. (NYMEX) is the world's largest physical commodity futures exchange and the preeminent trading forum for energy and precious metals, with trading conducted through two divisions – the NYMEX Division, home to the energy, platinum, and palladium markets, and the COMEX Division, on which all other metals trade. All information is believed to be from reliable sources; however we make no representation as to its completeness or accuracy. All economic and performance data is historical and not indicative of future results. Market indices discussed are unmanaged. Investors cannot invest in unmanaged indices. The publisher is not engaged in rendering legal, accounting or other professional services. If other expert assistance is needed, the reader is advised to engage the services of a competent professional. Please consult your Financial Advisor for further information. Additional risks are associated with international investing, such as currency fluctuations, political and economic instability and differences in accounting standards. www.montoyaregistry.com http://www.petermontoya.com/

October 18, 2010 Weekly Market Commentary

The Markets

When is a dollar not worth a dollar?

A McDonald’s Big Mac costs an average of $3.71 in the United States, according to an October 14 article from The Economist. Just across the border in Canada, that same burger costs $4.18 based on the October 13 exchange rate. In the Euro area, you’d have to shell out $4.79 to quench your Mac attack. But, if you’re really hungry, you should forget going to Switzerland because a Big Mac there will set you back a whopping $6.78 at the going exchange rate.

So, a dollar is not worth a dollar when its value declines relative to another country’s currency such as the ones above. The dollar is also weak against the Japanese yen, where it fell to a 15-year low last week, and the Australian dollar, where it fell to a nearly 30-year low, according to MarketWatch.

What’s going on here?

Essentially, the combination of economic weakness in the U.S., extremely low interest rates, and our country’s easy money policy, have conspired to reduce the value of our currency relative to some other countries. And, as our government knows, a weak currency can be a net positive -- as long as it doesn’t get too weak.

According to an October 1 weekly update from Linda Duessel at Federated Investors, “Currency depreciation is the most politically palatable way to deal with both deficits and slow growth. Unfortunately, history suggests depreciating the dollar is the worst possible way to deal with public debt. It spawns inflation, stifles growth and eats away at earnings.”

The relatively weak value of the dollar may not crimp your day-to-day lifestyle right now. However, as an advisor, it’s an important macro indicator that could impact the value of your portfolio -- and your pocketbook -- if it gets too far outside of historical norms. It bears watching.

(Click on the picture below to enlarge the table in a new window.)

WHILE THE PURCHASING POWER OF THE DOLLAR can be analyzed using a Big Mac, it can also be analyzed using something less edible -- gold. Gold has been considered a medium of exchange for several thousand years, according to the National Mining Association. And, for some people, it is the soundest “currency” in existence today because it is scarce, it can’t be printed (mined) freely, and it has a long history of being valuable and tradable even though it generally has zero commercial use other than for jewelry.

Measuring the value of the dollar in terms of gold is quite simple. All you do is plot the dollar cost of one ounce of gold over time. Back in the early 1930s when our country was on the gold standard, gold was set at a fixed price of $20.67 per ounce, according to The Economist. In the early 1970s, the last vestiges of the gold standard were removed and the price of gold was allowed to reach a “market” price. As of last week, that market price was over $1,300 per ounce.

The rise of gold from $20 an ounce to over $1,300 an ounce was effectively a massive devaluation of the dollar, according to The Economist. Had you bought an ounce of gold in 1930 for $20 and held it to today, you could sell it for more than $1,300, which is a return moderately above inflation over the timer period. However, dad you just sat on your $20, it would still be worth $20, but it would buy you less than 1/50th of an ounce of gold.

The funny thing about gold is that it’s not an “investment” in the traditional sense because it does not pay a dividend and it does not generate cash flow. It just sits there and looks really pretty. I would say it's more of a speculation than an investment given its characteristics. And for those gold bugs, gold is still markedly below it's inflation-adjusted high reached in the 1980s and did virtually nothing for 20 long years. It's just the 'speculation du jour' because it has recently done well.

Weekly Focus – Think About It

“More gold has been mined from the thoughts of men than has been taken from the earth.”
--Napoleon Hill

Best regards,

Kevin Kroskey

* The Standard & Poor's 500 (S&P 500) is an unmanaged group of securities considered to be representative of the stock market in general.
* The DJ Global ex US is an unmanaged group of non-U.S. securities designed to reflect the performance of the global equity securities that have readily available prices.
* The 10-year Treasury Note represents debt owed by the United States Treasury to the public. Since the U.S. Government is seen as a risk-free borrower, investors use the 10-year Treasury Note as a benchmark for the long-term bond market.
* Gold represents the London afternoon gold price fix as reported by the London Bullion Market Association.
* The DJ Commodity Index is designed to be a highly liquid and diversified benchmark for the commodity futures market. The Index is composed of futures contracts on 19 physical commodities and was launched on July 14, 1998.
* The DJ Equity All REIT TR Index measures the total return performance of the equity subcategory of the Real Estate Investment Trust (REIT) industry as calculated by Dow Jones.
* Yahoo! Finance is the source for any reference to the performance of an index between two specific periods.
* Opinions expressed are subject to change without notice and are not intended as investment advice or to predict future performance.
* Past performance does not guarantee future results.
* You cannot invest directly in an index.
* Consult your financial professional before making any investment decision.
* This newsletter was prepared by PEAK.

October 11, 2010 Weekly Market Commentary

The Markets

Investors seem to be putting a lot of faith in the Federal Reserve right now.

Since the financial crisis began in 2008, the Federal Reserve and other branches of government have engaged in creative and somewhat unorthodox ways to try and shock the economy back to good health. While reasonable people disagree on the effectiveness of the government’s intervention, it’s fair to say that, so far, we avoided a repeat of the Great Depression. Whether that avoidance was due to, or in spite of, the government’s intervention will be debated by academics for years.

One thing that we can say with confidence is that government intervention has distorted the financial markets to some degree. For example, over the past couple years, the Federal Reserve bought about $1.75 trillion of agency debt, agency mortgage-backed securities, and longer-term Treasury securities. These purchases helped reduce government bond yields. In turn, these low interest rates have put pressure on the value of the U.S. dollar, helped boost oil and commodity prices, and helped send gold to record highs.

Last Friday, another distortion became clear when the Department of Labor released the payrolls report, which showed a loss of 95,000 jobs in September. That was worse than the expected loss of 5,000 jobs, according to Bloomberg. This “bad” news didn’t phase the stock market as it rose for the day. The logic behind this “bad news is good news” idea is that with the job market still quite soft, this makes it even more likely that the Fed will step in with another round of quantitative easing. So, investors put their faith in the Fed thinking that it will swoop in to the rescue and flood the system with cheap money, which, in theory, could help the economy.

Federal Reserve and U.S. government intervention in the financial markets is not new. However, the degree to which it is occurring is rather stunning. While it may keep the economy and the financial markets propped up, the question becomes, for how long? If the juice from the government runs out, will the economy run out, too? Or, will the juice last long enough for the patient to get well and lead us into a vibrant economic expansion?

(Click on the picture below to enlarge the table in a new window.)

HOW LONG IS THE LONG-TERM? Financial advisors commonly tell their clients to “invest for the long-term,” but how long is that? Well, how about 100 years?

Mexico, of all places, issued a government bond on October 6 that yields 6.1% and matures in 100 years, according to Financial Times. That’s longer than the average life expectancy for a baby born today. Despite the extremely long maturity, there is a legitimate reason for this type of bond.

The greatest demand for these bonds came from U.S. insurance companies, which makes sense. Insurance companies have a very long time-horizon because they insure people’s lives. And, while 100 years is longer than the average term of a life insurance policy, it gives insurance companies a little more predictability on the source of income that they can use to fund death claims.

Jeffrey Rosenberg, global credit strategist for Bank of America Merrill Lynch, pointed out in a CNBC article that issuing a 100-year bond is also a side-effect of the Federal Reserve’s easy money policy. Rosenberg said, “Lack of yield in risk-free alternatives forces investors out the risk spectrum -- either down in quality or out in maturity -- in search for yield.” In this case, investors were doing both, i.e., dropping down in quality and extending their maturity.

While a 100-year bond might work for an insurance company, the general public seems to prefer shorter-term bonds that have more liquidity. After all, in this day and age, you never know when you might need access to your investments on short notice.

Weekly Focus – Think About It

“There is a time for departure even when there's no certain place to go.” --Tennessee Williams

Best regards,

Kevin Kroskey

October 4, 2010 Weekly Market Commentary

The Markets

STOCK MARKET RISES SHARPLY

Thanks to a super strong September (the best in 71 years, according to CNBC), stocks rallied sharply for the quarter. It didn’t start off that well as Fed Chairman Ben Bernanke described the economic outlook as “unusually uncertain” in July. The stock market basically treaded water in July and August as it digested the second quarter’s big drop and the uncertain economic environment. By the time September rolled around, investors decided that the weak economy might actually be good news for the stock market. How? In the (il)logical way that the market sometimes works, investors began to believe that the economy was weak enough that the Fed would step in at some point with another round of quantitative easing. If that happened, interest rates might drop, the economy might get a lift, and stock prices might follow. That’s the theory, anyway, and investors followed it by bidding up stock prices.

ECONOMY STILL STUCK IN LOW GEAR

Normally, deep recessions are followed by strong growth. But, not this time. More than a year after the recession officially ended, we’re still stuck with a 9.6% unemployment rate and an economy that grew at a 1.7% annualized rate in the second quarter, down from 3.7% in the first quarter, according to The Wall Street Journal and Bloomberg.

On September 24, a concerned Ben Bernanke said, “A concerted policy effort has so far not produced an economic recovery of sufficient vigor to significantly reduce the high level of unemployment.” That was followed on September 30 by comments from New York Fed president William Dudley who said, “Further action is likely to be warranted unless the economic outlook evolves in a way that makes me more confident that we will see better outcomes for both employment and inflation before too long.” Together, these comments suggest to some market participants that the Fed is gearing up to dole out more goodies to reignite growth.

INTEREST RATES KEEP DROPPING

Investors still have a large appetite for bonds and the government and corporations stepped in to supply it “as new-debt issuance broke records and interest rates fell toward generational lows” in the third quarter, according to The Wall Street Journal. Like a coin, there are two sides to low interest rates.

On the plus side, low rates are a boon to corporations and banks as it lowers their borrowing costs and encourages them to reinvest in their businesses. It also helps the government because it lowers their borrowing costs.

On the negative side, savers get pinched. According to Dan Dekta, chief investment officer at Smith Breeden Associates, “The Fed has effectively been taxing money-market funds [by cutting short-term interest rates] to recapitalize the financial system and to make things easier on borrowers.” So, if you’re a saver, you get near zip on your savings while borrowers reap the savings.

THE DOLLAR DILEMMA

“The dollar seems to be the ugliest girl at the dance,” according to Lane Newman, director of foreign exchange at ING Groep NV in New York as quoted in Bloomberg. With the U.S. economy still relatively weak, investors are losing enthusiasm for the dollar because they fear the Fed will drive down interest rates even further. Low interest rates make the dollar less attractive relative to other countries that may offer higher rates. This concern helped drive the dollar to a third quarter loss that was its worst quarterly loss in eight years, according to MarketWatch.

A weak dollar does benefit U.S. exporters because it makes our products less expensive to foreign consumers. A strong export economy could help lower our unemployment rate and that’s one reason why our government is not too concerned about a weak dollar. Here’s the catch, though. Other countries may want a cheap currency, too, so they can revive their own exports. Since the value of a currency is only measured in relation to another currency (or a precious metal like gold), if too many countries try to devalue their currency, then it becomes a “race to the bottom.” In that scenario, it’s likely nobody will win.

And, speaking of gold, it hit record highs in the third quarter. John Roque of WJB Capital was quoted in Barron’s as saying, “all the price of gold tells you is what paper money isn't worth.” And, as gold keeps going higher, that suggests people are getting less and less comfortable with the value of paper money.

SUMMARY

The big rally in the third quarter was preceded by a big drop in the second quarter. Net, net, after nine months, the S&P 500 index is up 2.3% for the year. Despite a lot of huffing and puffing, we’re still just about where we started the year.

Weekly Focus – Think About It

“Live as if you were to die tomorrow. Learn as if you were to live forever.” --Mahatma Gandhi

Best regards,

Kevin Kroskey

September 27, 2010 Weekly Market Commentary

The Markets

Is inflation good or bad for our economy? After last week, we now know the Federal Reserve’s answer to that question, and it may have a major effect on the financial markets going forward.

While the recession officially ended in June 2009, sluggish growth since then has concerned the Federal Reserve and that helped prod them to make their inflation intentions known in a statement released last week.

In the statement, the Fed said three times that current inflation trends are too low and that it is “prepared to provide additional accommodation if needed to…return inflation, over time, to levels consistent with its mandate.” According to Bloomberg, the Fed statement opened the door to more quantitative easing, which would pump more dollars into the economy and possibly lead to more inflation down the road.

By the end of the week, the financial markets were essentially saying, “bring it on.”

Prominent hedge fund manager David Tepper went on CNBC last Friday morning and commenting on the Fed news said, “Government intervention in the financial markets virtually guarantees that most investment choices will go up.”

Of course, nobody can guarantee anything in the financial markets, but putting Tepper’s hyperbole aside, the Fed’s statement is noteworthy. Like Alice going down the rabbit hole in the beloved children’s story, the effect of more Fed action could take us on an adventure into the economic and political unknown.

(Click on the picture below to enlarge the table in a new window.)

MAU PIAILUG, MASTER NAVIGATOR, DIED ON JULY 12, but his skill as a navigator can teach us a few lessons about what’s possible in business and life.

In 1976, Mau sailed a double-hulled canoe 2,500 miles from Hawaii to Tahiti without a compass, sextant, or charts. His objective was to see if ancient seafarers could have traveled this way from the south and west to populate Hawaii. In a moving tribute, The Economist said, “At that time, Mau was the only man who knew the ancient Polynesian art of sailing by the stars, the feel of the wind, and the look of the sea.”

The Economist further wrote:

By day he was guided by the rising and setting sun, but also by the ocean herself, the mother of life. He could read how far he was from shore, and its direction by the feel of the swell against the hull. He could detect shallower water by color, and see the light of invisible lagoons reflected in the undersides of clouds. Sweeter-tasting fish meant rivers in the offing; groups of birds, homing in the evening, showed him where land lay.

Clearly, this was a man who understood his craft and the deep principles underlying it. While modern tools could be used to accomplish much of what Mau did by feel and perception, sometimes modern tools are no match for deep understanding.

Likewise, investors sometimes get caught up in thinking that complexity and sophistication are the ticket to stock market riches. But, as Leonardo da Vinci said, “Simplicity is the ultimate sophistication.” You can still be successful without a Bloomberg terminal, without a high-frequency algorithmic trading system, and without using esoteric derivative securities.

Mau passed down his knowledge to a small number of students so his art is not lost to the world. The art of investing is not lost to the world either, and that is an area where we strive to be a continuous learner.

Weekly Focus – Think About It

“If one does not know to which port one is sailing, no wind is favorable.” --Seneca

Best regards,

Kevin Kroskey

September 21, 2010 Weekly Market Commentary

The Markets

Individual investors are having a hard time deciding if they want to be bullish or bearish on the stock market.

The American Association of Individual Investors is a non-profit association of 150,000 investors. Each week, the association compiles a sentiment survey of its members which measures the percentage of individual investors who are bullish, bearish, or neutral on the stock market for the next six months. Lately, their sentiment numbers have been all over the place.

For the week ending September 15, 2010, the bullish sentiment increased to 50.9%, which was the second highest reading in two years, according to Bespoke Investment Group. That was also well above the long-term average bullish reading of 39.0%. However, just three weeks earlier, the bullish sentiment was only 20.7%, which was its second lowest reading in the past two years.

So, what changed in the past three weeks? The simple answer is a very nice stock market rally. Between August 26 and September 16 -- the three weeks between the two surveys -- the S&P 500 index rose 7.4%, according to data from Yahoo! That rally helped turn many of the bears in the survey to bulls.

While this weekly sentiment survey is widely reported in the media, it is basically of little value unless it is at an extreme level of bullishness or bearishness. According to MarketGauge.com, bullish readings above 70.0%, “have been timely predictors of corrections in an up trend,” while bullish readings below 30.0% in a weak market, “indicate a level of fear and capitulation by individual investors which is common at market lows.” Even this 'timely predictor' descriptor needs to often be taken with a grain of salt.

Extreme sentiment readings may actually be a contrarian indicator of where the market is heading. The takeaway is, when individual investors get extremely bullish or bearish, it may be best to do just the opposite!

SUCCESSFUL INVESTING IS NOT LIKE DRAWING A STRAIGHT LINE from point A to point B. Rather, it’s more like being able to connect the zig-zag dots along the way.

Steve Jobs, the co-founder of Apple Computer, spoke to the graduating students at Stanford University in 2005 and told a story about how on a whim, he dropped in on a calligraphy class while he was attending Reed College back in the early 1970s. At the time, he found the class utterly fascinating, but totally useless. It wasn’t until 10 years later, when he was designing the Macintosh computer, that he was able to connect the dots. He decided to take what he learned about calligraphy and incorporate it into the computer. The result was the Macintosh, which became the first computer with beautiful typography. It became a huge hit in the desktop publishing market and helped launch Apple into a multi-billion dollar company.

Like Jobs connecting calligraphy to the computer, there are many “dots” on the investment landscape that, when connected, help draw a picture of the health of the financial markets. Here are a few “dots” to keep an eye on:

• Gold setting a new all-time record high last week, according to Financial Times
• U.S. interest rates near historical lows, according to The Wall Street Journal
• Inflation nearly non-existent in the U.S., according to MarketWatch
• The U.S. dollar near a 15-year low against the Japanese Yen, according to Bloomberg
• Trillion-dollar U.S. budget deficits, according to Bloomberg
• The U.S. unemployment rate near a 27-year high, according to MarketWatch
• The rise of the Tea Party movement, according to Barron’s
• The Federal Reserve engaging in quantitative easing, according to CNBC

Weekly Focus – Think About It

“When nothing is sure, everything is possible.” --Margaret Drabble

Best regards,

Kevin Kroskey

September 14, 2010 Weekly Market Commentary

The Markets

If you had an extra $1,000, would you use it to reduce debt or would you spend it on something discretionary?

How Americans answer that question may significantly impact economic growth over the next few years, according to an August 20 report from Federated Investors. If Americans decide to focus on debt reduction that could keep a lid on economic growth in the near term, but would likely be good for the economy over the long term. Conversely, if Americans start spending freely, it may boost short-term growth, but it might delay our day of reckoning and make it worse down the road.

(Click on the picture below to enlarge the table in a new window.)

Notes: S&P 500, DJ Global ex US, Gold, DJ-UBS Commodity Index returns exclude reinvested dividends (gold does not pay a dividend) and the three-, five-, and 10-year returns are annualized; the DJ Equity All REIT TR Index does include reinvested dividends and the three-, five-, and 10-year returns are annualized; and the 10-year Treasury Note is simply the yield at the close of the day on each of the historical time periods. Sources: Yahoo! Finance, Barron’s, djindexes.com, London Bullion Market Association. Past performance is no guarantee of future results. Indices are unmanaged and cannot be invested into directly. N/A means not applicable or not available.

“ANYBODY WHO THINKS MONEY WILL MAKE YOU HAPPY, HASN’T GOT MONEY,” according to billionaire David Geffen. Now we have a new scientific study that helps quantify the connection between money and happiness.

Researchers Daniel Kahneman and Angus Deaton of Princeton University analyzed data from the Gallup-Healthways Well-Being Index and tried to determine how income affects an individual’s emotional well-being and overall life satisfaction. They measured emotional well-being as an individual’s day-to-day level of happiness (e.g., how much enjoyment, laughter, smiling, anger, stress, or worry they experience each day,) while overall life satisfaction was measured as an individual’s satisfaction with their life in general.

Here’s what they found.

As a person’s annual income rises up to about $75,000, their emotional well-being, or day-to-day happiness, rises, too. But, beyond $75,000 in annual income, there was no additional boost to day-to-day happiness, according to the researchers’ article published in the Proceedings of the National Academy of Sciences and reported by Inc. magazine.

What’s the key to $75,000? According to LiveScience.com, “The researchers suggest that making anything more than $75,000 no longer improves a person’s ability to spend time with friends, avoid pain and disease, and enjoy leisure time--all factors involved in emotional well-being.”

Ah, but more money does increase overall life satisfaction. According to the Inc. article, “With every doubling of income, people tended to say they were more and more satisfied with their lives on a 10-point scale--a pattern that continued for household incomes well above $120,000.”

Do these findings match your life experience? Let us know what you think.

Weekly Focus – Think About It

“An object in possession seldom retains the same charm that it had in pursuit.”

--Pliny the Younger

Best regards,

Kevin Kroskey

Kevin Kroskey's Market Commentary