The Markets
Two widely watched indicators just hit five-year extreme
levels – and that’s a positive for the
economy.
Consumer sentiment hit a five-year
high in the preliminary October reading, as measured by the University of
Michigan-Thomson Reuters sentiment gauge. This gauge “covers how consumers view
their personal finances as well as business and buying conditions,” according
to MarketWatch. Higher levels of sentiment could translate into higher consumer
spending and help propel the economy.
And, the second indicator, housing foreclosure filings, hit
a five-year low in September,
according to RealtyTrac. Foreclosure filings include default notices, scheduled
auctions, and bank repossessions. In September, there were 180,427 foreclosure
filings. By contrast, that number was above 350,000 in mid-2009, so, yes, foreclosure
filings have improved significantly over the past few years.
And, for good measure, let’s throw in a third indicator – weekly
jobless claims – which fell to their lowest level in more than four years for
the week ending October 6, according to Bloomberg. Lower claims “may mean
employers are seeing enough demand to maintain current staff, a necessary first
step to bigger gains in hiring,” according to Bloomberg.
While these three indicators look good, “Earnings pessimism
among U.S. chief executive officers is climbing to levels last seen when the
Standard & Poor’s 500 Index was mired in bear markets,” according to
Bloomberg. In fact, analysts are now forecasting a 0.9 percent decline in corporate earnings for the
just completed third quarter, according to Bloomberg.
Good news, bad news, what’s an investor supposed to take
from this? Well, like the movie by the same title, it’s complicated. The
economy continues to recover and rebalance from the Great Recession and this
leads to some indicators looking good, others looking bad, and some looking just
plain normal.
Data as of 10/12/12
|
1-Week
|
Y-T-D
|
1-Year
|
3-Year
|
5-Year
|
10-Year
|
Standard
& Poor's 500 (Domestic Stocks)
|
-2.2%
|
13.6%
|
18.3%
|
9.9%
|
-1.8%
|
5.4%
|
DJ
Global ex US (Foreign Stocks)
|
-1.8
|
7.8
|
4.6
|
0.1
|
-7.0
|
7.8
|
10-year
Treasury Note (Yield Only)
|
1.7
|
N/A
|
2.2
|
3.4
|
4.7
|
3.8
|
Gold
(per ounce)
|
-1.0
|
12.2
|
5.0
|
18.6
|
18.7
|
18.7
|
DJ-UBS
Commodity Index
|
-0.6
|
4.4
|
0.6
|
3.7
|
-3.7
|
3.3
|
DJ
Equity All REIT TR Index
|
-0.7
|
15.7
|
29.2
|
20.3
|
1.4
|
12.3
|
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 WANT TO KNOW THE
SECRET to Warren Buffett’s remarkable investment success?
First, some background. Buffett partially owns a company
called Berkshire Hathaway and he uses this as his vehicle for making
investments in other companies. So, when people say Buffett is a great
investor, they’re looking at the performance of Berkshire Hathaway stock which,
in turn, tends to reflect the performance of the companies Berkshire owns.
Further, a recent academic paper by Andrea Frazzini, David
Kabiller, and Lasse H. Pedersen, titled Buffett’s
Alpha, said, “Buffett’s performance is outstanding as the best among all
stocks and mutual funds that have existed for at least 30 years.”
Now, here’s the secret to Buffett’s spectacular returns according
to the paper’s authors:
We find that the secret to Buffett’s
success is his preference for cheap, safe, high-quality stocks combined with
his consistent use of leverage to magnify returns while surviving the
inevitable large absolute and relative drawdowns this entails.
Let’s look at each of those components:
1) Cheap:
defined as value stocks with low price-to-book ratios
2)
Safe:
defined as stocks with low beta and low volatility
3)
High-quality:
defined as stocks of companies that are profitable, stable, growing, and have
high dividend payout ratios
4) Leverage:
perhaps shockingly, the authors discovered that Berkshire magnified its returns
by leveraging its capital by 60 percent financed partly using insurance float
with a low financing rate
Source: Buffett’s
Alpha paper
This is not a buy or sell recommendation on Berkshire
Hathaway stock, rather, it shows Buffett latched on to a good strategy early in
his career, used leverage to magnify his returns, and stuck to the strategy
even when it suffered large declines.
Now that we know “how” Buffett achieved his outstanding
return (including the surprising leverage), does this in any way diminish his
results? No. In fact, it’s probably just the opposite. Buffett figured this strategy
out more than 30 years ago and researchers are just now catching up with him!
Weekly Focus – Think About It…
“Research is to see
what everybody else has seen, and to think what nobody else has thought.”
--Albert Szent-Gyorgyi, Hungarian
biochemist
Value vs. Growth Investing (10/12/12)
-2.18
|
15.17
|
-0.75
|
7.36
|
20.67
|
12.45
|
0.83
|
|
-2.22
|
16.11
|
-0.27
|
7.63
|
21.47
|
12.04
|
0.38
|
|
-2.70
|
15.76
|
-0.17
|
6.81
|
22.48
|
11.78
|
1.79
|
|
-2.20
|
19.55
|
-0.98
|
7.08
|
21.48
|
14.07
|
1.93
|
|
-1.78
|
13.32
|
0.40
|
9.03
|
20.56
|
10.32
|
-2.86
|
|
-2.00
|
12.68
|
-1.81
|
7.11
|
18.18
|
13.38
|
1.51
|
|
-2.02
|
12.76
|
-1.70
|
6.55
|
21.02
|
15.13
|
2.54
|
|
-2.37
|
12.67
|
-2.72
|
6.12
|
14.19
|
13.93
|
0.76
|
|
-1.59
|
12.61
|
-0.94
|
8.71
|
19.23
|
10.98
|
0.98
|
|
-2.17
|
12.24
|
-2.81
|
5.15
|
19.32
|
13.09
|
2.57
|
|
-2.17
|
11.01
|
-3.52
|
4.32
|
17.45
|
11.47
|
1.59
|
|
-2.29
|
12.18
|
-2.99
|
4.98
|
17.28
|
14.44
|
1.80
|
|
-2.03
|
13.56
|
-1.90
|
6.17
|
23.34
|
13.36
|
4.25
|
|
-2.53
|
14.87
|
-0.70
|
6.59
|
21.87
|
12.55
|
2.08
|
|
-2.24
|
17.63
|
-1.45
|
6.75
|
19.69
|
14.16
|
1.75
|
|
-1.76
|
13.21
|
-0.02
|
8.77
|
20.50
|
10.67
|
-1.60
|
©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:
A More Perfect Union
We the People of the United States, in Order to form a more
perfect Union, establish Justice, insure domestic Tranquility, provide for the
common defense, promote the general Welfare, and secure the Blessings of
Liberty to ourselves and our Posterity, do ordain and establish this
Constitution for the United States of America.
Do you
recognize those words? That’s the
Preamble of the United States Constitution.
Fifty-two words to sum up the bedrock on which our country is
based. Fifty-two words to name our most
precious dream: A more perfect
Union.
When
the Founding Fathers drafted the Constitution, our Union was far from
perfect. That’s why delegates from 12 of
the 13 states (Rhode Island sat out) decided to meet in Philadelphia in May of
1787. The list of delegates reads like a
political All-Star team: Benjamin Franklin was there. Alexander Hamilton and James Madison were
there. George Washington was there. (Thomas Jefferson described the convention as
“a gathering of demi-gods.”) The most
important thing for them to decide was how our nation would be governed. Eventually they determined that, in order for
this experiment in democracy to work, we would need both a legislature for
making laws and an executive to carry them out.
That’s how Congress was formed and the Presidency created. That’s how our Government came to be.
But the
Union still wasn’t perfect. That’s where
we come in.
Every
time Congress meets or a President is inaugurated, they get down to the
business of governing our country. But
they can be judged by only one body: us, the citizens of the United States. Sure, the Supreme Court determines if
Congress’ laws are actually legal—but
to decide whether our laws actually work—to figure out if our government is
doing the right thing—no one else has that power but you and me. We’re the last form of oversight, the
greatest check, the most important balance.
We are the Union. And it’s our
actions that determine how perfect it will be.
That’s
why I’m so excited for this November. I
can’t wait for the chance to vote.
I know
that not everybody feels the same way, and I can understand why. Every year it seems like Washington becomes
more and more divided, and political pundits more and more obnoxious.
And
everyone knows you never talk politics around the dinner table. After all, who
wants to waste time arguing during dinner?
Then
too, some people find the actual voting process annoying. It means showing up late for work, or giving
up your lunch break, or coming home late for dinner. All to stand in line for twenty minutes, then
check off a few names. It’s hardly glamorous,
is it? And yet, if you look at history,
nothing about democracy is glamorous.
When our Founding Fathers wrote the Constitution, it was in the middle
of a hot, sweltering summer. We like to
picture all those great men constantly thumping their chests and giving
speeches, but I’m willing to bet that in reality, most days looked like this:
men in long-sleeve shirts and pants, sweating bullets, their wigs, hats and
coats discarded on the floor, slumping over in their chairs for hours every
day. They couldn’t even open the windows
or the curtains because their deliberations were a secret. Poor Benjamin Franklin had gout. While there were 55 delegates in total, only
30 to 40 would be present any given day, most of them constantly
disagreeing. New York’s delegates went
home early. Hardly the romantic image we
see in paintings.
And
yet, despite all their flaws, they were perfecting
the Union.
This
November, that’s exactly what we’ll be doing—every one of us who stands in
line, every time someone enters a booth, every church or school that gives up
its building for a day, and every overworked and underpaid volunteer who sits
at a table for hour after hour crossing out names and handing out I Voted stickers.
Whenever
you watch a debate, read a newspaper article, or do even the slightest bit of
research, you’re fulfilling the Founders’ dream. It may not be romantic, but it’s still
incredible, because, we are the
People. Every vote we cast is a vote for
justice, a vote for tranquility, a vote for liberty. We may never be as famous as the Founding
Fathers, but in our own small way, we’re just as important. Because, like them, we too, are working to
form a more perfect Union. That’s worth
twenty minutes, wouldn’t you say?
I hope
this year you’ll take the time to vote.
What’s more, I hope you’ll take the time to figure out why you’re voting how you do. The more informed we all are, the better our
country will be.
Our nation is a long way from
perfect. Not all our laws are just; not
all our candidates right. We make
mistakes. But that’s why we vote not
once, but continuously. That’s why we’re
constantly striving to improve. Because
as long as we do, we’ll have a government of the people, by the people, and for
the people, that shall not perish from the earth.
We’ll be one step closer to a more perfect
Union.
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.
* This newsletter was prepared by Peak
Advisor Alliance. Peak Advisor Alliance is not affiliated with the named
broker/dealer.
* 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.
* To unsubscribe from our “market commentary” please reply to this e-mail
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