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)
-1.46
|
13.94
|
-1.32
|
4.50
|
15.73
|
12.44
|
0.96
|
|
-1.49
|
14.67
|
-1.55
|
4.24
|
16.70
|
11.85
|
0.43
|
|
-1.54
|
15.25
|
-0.79
|
4.51
|
18.30
|
12.22
|
1.85
|
|
-1.08
|
16.32
|
-3.45
|
2.41
|
16.26
|
12.49
|
1.50
|
|
-1.87
|
12.81
|
-0.21
|
5.95
|
15.72
|
10.81
|
-2.33
|
|
-1.44
|
12.17
|
-0.36
|
5.20
|
12.87
|
13.79
|
1.91
|
|
-0.96
|
12.39
|
-0.01
|
4.76
|
14.43
|
15.40
|
3.07
|
|
-1.97
|
11.21
|
-1.84
|
3.23
|
8.53
|
13.69
|
0.75
|
|
-1.32
|
12.97
|
0.90
|
7.77
|
15.78
|
12.17
|
1.73
|
|
-1.20
|
11.20
|
-1.61
|
5.28
|
13.45
|
13.81
|
2.84
|
|
-0.87
|
10.41
|
-1.92
|
4.94
|
12.02
|
12.10
|
1.95
|
|
-1.80
|
9.69
|
-2.83
|
3.33
|
10.88
|
14.55
|
1.68
|
|
-0.92
|
13.57
|
-0.06
|
7.63
|
17.57
|
14.78
|
4.85
|
|
-1.38
|
14.38
|
-0.72
|
4.59
|
17.16
|
12.97
|
2.26
|
|
-1.30
|
14.81
|
-3.10
|
2.63
|
14.31
|
12.97
|
1.42
|
|
-1.70
|
12.90
|
0.02
|
6.42
|
15.87
|
11.37
|
-1.03
|
©2004
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timely. Morningstar is not responsible for any damages or losses arising from
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deemed an “expert” under the Securities Act of 1933. Past performance is no
guarantee of future results. Indices are
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This can only be done by prospectus and should be on the recommendation
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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
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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
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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
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