Schwartz Financial Weekly Commentary 10/29/12

 

The Markets

 

Who’s right, consumers or businesses?

 

As it relates to the U.S. economy, consumers seem to feel optimistic about it while businesses are hunkering down.

 

This split showed up in last week’s release of the first estimate of third quarter gross domestic product (GDP), defined as the output of goods and services produced by labor and property located in the United States. The government said GDP grew a modest 2.0 percent. How we got to the 2.0 percent growth rate is where it gets interesting.

 

For background, GDP consists of 4 major components:

 

1)   Personal consumption expenditures

2)   Business investment

3)   Government spending

4)   Net exports of goods and services

Source: Department of Commerce

 

Of these four components, the first one – personal consumption expenditures – typically accounts for about 70 percent of the total. So, if consumers are optimistic and in a shopaholic mood, that bodes well for economic growth. And, in the third quarter, they were as consumer spending accounted for most of the 2.0 percent increase in GDP.

 

Businesses, on the other hand, were rather subdued. Capital spending actually declined in the third quarter as, “Slower world growth and worries about a budget crisis at home have spurred U.S. business to take a more cautious stance on hiring and investment,” according to MarketWatch.

 

Now, all we have to do is get businesses to drink the same Kool-Aid as consumers and we’ll be off to the races!

 

Data as of 10/26/12	1-Week	Y-T-D	1-Year	3-Year	5-Year	10-Year
Standard & Poor's 500 (Domestic Stocks)	-1.5%	12.3%	13.7%	9.8%	-1.7%	4.7%
DJ Global ex US (Foreign Stocks)	-1.7	7.9	3.0	0.2	-7.0	7.2
10-year Treasury Note (Yield Only)	1.8	N/A	2.2	3.6	4.4	4.1
Gold (per ounce)	-1.2	9.0	0.1	17.6	17.1	18.5
DJ-UBS Commodity Index	-2.3	1.7	-2.9	1.9	-4.6	3.2
DJ Equity All REIT TR Index	-2.5	14.6	19.6	20.3	2.1	11.8

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.

 

DO YOU PREFER TO BUY THINGS when they go on sale or do you prefer to pay full price? Now, before you snicker, consider that many people do prefer to pay full price. Why? Take clothing as an example. If you want to be trendy, you’ll likely pay full price since most clothing stores don’t put the latest fashions on sale.

 

Other folks, while still “fashion conscious,” prefer to wait until an item goes on sale so they can get it at a “bargain” price. And, chances are, if you’re patient, you can get that desired piece on sale as the store makes room for the next season’s clothes.

 

How people shop for clothes can be very instructive in how to invest successfully in the financial markets. Here are several comparisons to think about:

 

1)   Buy what’s on sale. Like clothing, investments occasionally drop to a point where they seem like a bargain. Just as smart shoppers like to buy clothes on sale, shrewd investors like to buy securities that are temporarily out of favor.

2)   Buy at full price. Well, maybe not. It’s fine to buy trendy clothes at full price because of the psychic rewards of being sharply dressed. But, investors should focus on making money, not on having bragging rights at the cocktail party about owning the latest high-flying, change-the-world Internet company.

3)   Buy only what you need. Consumer’s closets have limited space so most clothes shoppers have a limit on how many suits or coats they buy. Likewise, investors should buy only what they need to help meet their goals and objectives. Specifically, there’s no need to take extra risk if a lower-risk portfolio has a reasonable chance of helping you meet your goals.

 

Interestingly, investors often think very differently about how they approach buying clothes and making investments. With clothes, many people prefer to wait for a sale and are apt to buy more if they can get them at a deep discount. Conversely, when investments go “on sale,” meaning, their price has dropped, investors often shy away.

 

As an advisor, part of our job is to help make investing more like bargain clothing shopping. We look for investments that are on sale, that meet your needs, and will last for more than one season. Unlike tie-dyed shirts, we think this type of investment strategy will never go out of style.

 

Weekly Focus – Think About It…

 

“You don't want too much fear in a market because people will be blinded to some very good buying opportunities. You don't want too much complacency because people will be blinded to some risk.”

--Ron Chernow, American biographer

Value vs. Growth Investing (10/26/12)

Name	1-Week	YTD	4-Week	13-Week	1-Year	3-Year	5-Year
US Market	-1.46	13.94	-1.32	4.50	15.73	12.44	0.96
Large Cap	-1.49	14.67	-1.55	4.24	16.70	11.85	0.43
Large Core	-1.54	15.25	-0.79	4.51	18.30	12.22	1.85
Large Growth	-1.08	16.32	-3.45	2.41	16.26	12.49	1.50
Large Value	-1.87	12.81	-0.21	5.95	15.72	10.81	-2.33
Mid Cap	-1.44	12.17	-0.36	5.20	12.87	13.79	1.91
Mid Core	-0.96	12.39	-0.01	4.76	14.43	15.40	3.07
Mid Growth	-1.97	11.21	-1.84	3.23	8.53	13.69	0.75
Mid Value	-1.32	12.97	0.90	7.77	15.78	12.17	1.73
Small Cap	-1.20	11.20	-1.61	5.28	13.45	13.81	2.84
Small Core	-0.87	10.41	-1.92	4.94	12.02	12.10	1.95
Small Growth	-1.80	9.69	-2.83	3.33	10.88	14.55	1.68
Small Value	-0.92	13.57	-0.06	7.63	17.57	14.78	4.85
US Core	-1.38	14.38	-0.72	4.59	17.16	12.97	2.26
US Growth	-1.30	14.81	-3.10	2.63	14.31	12.97	1.42
US Value	-1.70	12.90	0.02	6.42	15.87	11.37	-1.03

©2004 Morningstar, Inc. All Rights Reserved. The information contained herein: (1) is proprietary to Morningstar; (2) is not warranted to be accurate, complete or timely. Morningstar is not responsible for any damages or losses arising from any use of this information and has not granted its consent to be considered or deemed an “expert” under the Securities Act of 1933. Past performance is no guarantee of future results.  Indices are unmanaged and while these indices can be invested in directly, this is neither a recommendation nor an offer to purchase.  This can only be done by prospectus and should be on the recommendation of a licensed professional.

 

Office Notes:

Legend of Jack-o’-lantern

Halloween is one of the oldest holidays with origins going back thousands of years. The current version is based on holidays of several cultures over the centuries—the Roman’s Pomona Day, the Celtic festival of Samhain, and the Christian holidays of All Saints and All Souls Days.

One of the popular symbols of Halloween is the pumpkin. The pumpkin is an orange-colored squash, and orange has become one of the traditional Halloween colors (black being the other).

Carving pumpkins into jack-o’-lanterns is a Halloween custom dating back to Ireland. A legend grew up about a man named Jack who was so stingy that he was not allowed into heaven when he died, because he was a miser. He couldn’t enter hell either because he had played jokes on the devil. As a result, Jack was sent off into the dark night with only a lantern to light his way while he roams the Earth until Judgment Day. The Irish people carved scary faces out of turnips, beets, or potatoes representing “Jack of the Lantern,” or jack-o’-lantern.

When the Irish brought their customs to the United States, they carved faces on pumpkins because in the autumn they were more plentiful than turnips. Today, jack-o’-lanterns in the windows of a house on Halloween night typically let costumed children know that there are goodies waiting if they knock and say “Trick or Treat!”

Here’s a fun fact. Did you know that the United States produces over 900 million pounds of pumpkins per year for Halloween? Illinois is the largest producer, growing an average of 457 million pounds. That’s a lot of jack-o’-lanterns and pumpkin pies!

Whether or not you have kids or grandkids to celebrate this holiday with, we can all appreciate the delicious pumpkin desserts that are made around this time. I hope you and your family have a happy and safe Halloween!

 

Regards,

,

Michael L. Schwartz, RFC®, CWS®, CFS

 

P.S.  Please feel free to forward this commentary to family, friends, or colleagues.  If you would like us to add them to the list, please reply to this email with their email address and we will ask for their permission to be added. 

 

Michael L. Schwartz, RFC®, CWS®, CFS, offers securities through First Allied Securities, Inc., A Registered Broker/Dealer,  Member FINRA-SIPC.  Advisory Services offered through First Allied Advisory Services, A Registered Investment Advisor.

Schwartz Financial Service is not an affiliate of First Allied Securities, Inc.

 

This information is provided for informational purposes only and is not a solicitation or recommendation that any particular investor should purchase or sell any security. The information contained herein is obtained from sources believed to be reliable but its accuracy or completeness is not guaranteed.  Any opinions expressed herein are subject to change without notice.  An Index is a composite of securities that provides a performance benchmark.  Returns are presented for illustrative purposes only and are not intended to project the performance of any specific investment.  Indexes are unmanaged, do not incur management fees, costs and expenses and cannot be invested in directly.  Past performance is not a guarantee of future results.

 

* 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.

 

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