Hello 2012

Last week we said goodbye to 2011, a year with plenty of sturm und drang but, at the end, little net change.  At the closing bell last Friday it was a mixed bag of results for US markets. Here are the final numbers for the year:

 Dow Jones Industrial Average: +5.53% (DJIA for short)

Standard & Poors 500:  -.002% (let’s call that “unchanged”)

Nasdaq Composite: -1.8%

 The financial media will tell you how the Dow Jones is unrepresentative of our markets, because it is an index made up of just 30 large companies.  That last part is true, of course.  But the kind of companies that make up the index are (mostly) stable, dividend-paying businesses. Names like Exxon, Procter & Gamble, McDonalds, and 3M are what you’ll find there, and those kind of companies have been steadily recovering from the global recession. Another thing common to most of them is that they pay regular cash dividends to their shareholders – and raise those dividends frequently. By contrast the 500 companies that make up the S&P index are a necessarily very mixed bag, and the Nasdaq index is tech-heavy.  Both of those indices have many of what would traditionally be called “growth stocks.”  As in “I don’t mind if they don’t pay me a dividend because I’m looking for growth.”

 If that’s your plan, you’ll need to look hard. The last ten year’s average annual return for the S&P 500 Index is just over 2%. By contrast, the current average annual cash dividend yield for the 30 stocks of the DJIA is now 3%.  I think the chances of making money in 2012 look pretty good if I can expect 3% just for showing up. The directors and officers of most public companies seem to take pretty good care of themselves. I expect them to consider their shareholders by paying cash dividends.  In most cases, if they do not, then I will not consider them.

GTC

(This article contains the current opinions of the author but not necessarily those of Brighton Securities Corp.  The author’s opinions are subject to change without notice. This blog post is for informational purposes only. Forecasts, estimates, and certain information contained herein should not be considered as investment advice or a recommendation of any particular security, strategy or investment product. References to specific securities and their issuers are for illustrative purposes only and are not intended and should not be interpreted as recommendations to purchase or sell such securities).

Goodbye 2011

We’re 10 days past the Winter Solstice and the days are getting longer.  Before we know it, summer will be here – not soon enough for my taste.  As we bid goodbye to 2011 there were several big events this year of note to investors:

 The US Treasury was downgraded to AA from AAA by Standard & Poors.  Moody’s the other major ratings agency, did not follow suit.  It was a big story that, in terms of rates and prices, ended up a non-story. Rather than rising, as some predicted, interest rates actually fell (as others predicted).

 Stock markets went up and down plenty but didn’t end up far from where they started.  As of yesterday’s close, the Dow was +6.1%, S&P 500 +0.4%, and NASDAQ -1.4%.

 Apple’s continued domination of technology made it the world’s most valuable tech firm, briefly surpassing Exxon Mobil as the most valuable of all.  The death of founder Steve Jobs was even bigger news, but thus far the transition to a new CEO has gone well for Apple.

 The Japanese tsunami knocked US stock markets for about 5% back in March but we promptly recovered from both that and the late summer selloff.

 Next week: we’ll start off 2012 with some predictions for the new year.

 

GTC

(This article contains the current opinions of the author but not necessarily those of Brighton Securities Corp.  The author’s opinions are subject to change without notice. This blog post is for informational purposes only. Forecasts, estimates, and certain information contained herein should not be considered as investment advice or a recommendation of any particular security, strategy or investment product. References to specific securities and their issuers are for illustrative purposes only and are not intended and should not be interpreted as recommendations to purchase or sell such securities).

Some Perspective

On a daily basis, we are bombarded with headlines from the mainstream media. Whether its problems in the Euro-Zone, the collapse of MF Global, persistent unemployment, “stagflation” or the nation’s enormous amount of debt, there is plenty of negative sentiment out there.

 What does the market say about all of this? Price pays after all, not opinion. Below is a chart of the SPY’s. It is the most popular ETF (exchange-traded fund) that tracks the S&P 500. As you can see, the market suffered a sharp sell-off in July-August of this year. Since then, however, we have been making higher lows and lower highs. Volatility has been contracting slowly over the last few months, and you can see price squeezing tighter within the trend-lines I have added to the chart.

 What does this mean? It means that soon the market must make up its mind and pick a direction. Do we head back towards 52-week highs or off the edge of a cliff? I lean towards a market rally into the New Year, but I’m not betting the farm on it. As always, patience will be a virtue heading into 2012.

 

Sam DiNorma

 

(This article contains the current opinions of the author but not necessarily those of Brighton Securities Corp.  The author’s opinions are subject to change without notice. This blog post is for informational purposes only. Forecasts, estimates, and certain information contained herein should not be considered as investment advice or a recommendation of any particular security, strategy or investment product. References to specific securities and their issuers are for illustrative purposes only and are not intended and should not be interpreted as recommendations to purchase or sell such securities).

 

 

 

 

Bernanke vs. The Markets

Ben Bernanke, Chairman of our Federal Reserve System, announced the other day that the Fed will attempt to stimulate the economy and drive interest rates even lower through a series of bond market maneuvers that traders have dubbed “the Twist.”  In the Twist, the Fed will invest $400 billion (yes, nearly half a trillion tax dollars) in an effort to push bond prices higher and interest rates lower. From a purely financial standpoint, there is no reason why Bernanke can’t accomplish his objective. And low rates are good, right?  People can more easily afford homes, cars, appliances; businesses can borrow and expand and hire; that’s all good.  So how come financial markets around the world yesterday reacted to news of the Twist as if Bernanke were serving up a plate of snakes?

 I suspect the reason is that investors have little confidence in another round of government stimulus.  After all, the last big push to bail and stimulate did pretty much one thing: it kept our biggest banks in business and gave them enough cash to pay bonuses, but not enough, apparently, for the banks to want to lend.  We still have uncomfortably high unemployment, and lately headlines have suggested that half a billion dollars went to stimulate a solar-power company, Solyndra, that has recently filed for bankruptcy.

 I am sure that I am not as smart as Ben Bernanke. I am less sure that he can help the economy by dishing up another big stimulus package. And I am downright certain that investors worldwide see the prospect of our debt-burdened federal government throwing bags of cash into the breach as a signal to head for the hills.  When everyone sells, prices go down.

 Corporate earnings are still rising, modestly, despite the best efforts of the earnest folks in Washington and Brussels.  If we have a hope to see unemployment drop, it is that earnings will continue to rise.

GTC

(This article contains the current opinions of the author but not necessarily those of Brighton Securities Corp.  The author’s opinions are subject to change without notice. This blog post is for informational purposes only. Forecasts, estimates, and certain information contained herein should not be considered as investment advice or a recommendation of any particular security, strategy or investment product. References to specific securities and their issuers are for illustrative purposes only and are not intended and should not be interpreted as recommendations to purchase or sell such securities).

A Busy Week

I love my job and generally look forward to weekends no more than any work day.  But I will be happy to get a break over the next couple of days.  We have had an unusually volatile week in the stock market   It started in earnest Tuesday last week, with the Dow down 265, over 2%.  Last Thursday we were down 512 points, but Friday was quiet. Monday brought unwelcome fireworks – down 634. Then Tuesday up 429, Wednesday back down 519, and yesterday back up 423. I’m tired already and today hasn’t even started.

 There was plenty of business news to stir the pot.  Washington punted on dealing with our national debt, in Europe the debt demons lurched from one country to another, threatening the Euro (and global economic stability).  In an effort to pour a little oil on roiling markets, the Fed made an unprecedented move, stating that interest rates would be kept “exceptionally low” through mid-2013.  In over 30 years of following Fed policy I have never seen such a term-certain pronouncement.  And the week’s not over.

 Meanwhile individual investors are dealing with the sturm und drang and still have to do the laundry and walk the dog. Long term investors with the correct perspective have mostly sat out the volatility, bargain hunters have made cautious forays to buy quality at low prices, but plenty of people have anxiety over the state of the markets.

I have seen plenty of up-and-down over the years, and remain long-term bullish on America.  I plan a couple of days relaxing in a hammock over the weekend and we’ll see what Monday brings.

GTC

(This article contains the current opinions of the author but not necessarily those of Brighton Securities Corp.  The author’s opinions are subject to change without notice. This blog post is for informational purposes only. Forecasts, estimates, and certain information contained herein should not be considered as investment advice or a recommendation of any particular security, strategy or investment product. References to specific securities and their issuers are for illustrative purposes only and are not intended and should not be interpreted as recommendations to purchase or sell such securities).

Volatility and its Returns

 Let’s start with this: the 1,000 point drop in the Dow Jones over the last few days has been No Fun.

 Why do we put up with this? Why stay invested if it’s no fun? For an answer, I look to some clients who don’t seem to be too put out by all the ruckus.  Here’s a composite sketch: he or she is retired, a little older, some but not all are elderly.  The most prominent commonality: quality common stocks comprise the majority of their portfolios, and have for many years.  This, of course, goes against financial planning orthodoxy.  Why on earth wouldn’t I tell the 80-year-old widow to sell off some of her stocks? After all, stocks are risky, we’ve seen that. So what would I have her sell? Exxon, that she has owned since the 60’s? How about P&G, seller of soap and toothpaste?

 Fact is, these clients know their investments and are comfortable with them.  They know that the price per share might go down, but the dividends seldom do.  For every Kodak and its dwindling business there is a Johnson & Johnson, an AT&T, a DuPont, a Hershey.  They know that these companies have been, for the most part, steady and satisfying investments over the long haul.  They don’t know what their investments will do tomorrow, next week, or next year.  And neither do I.  But they are confident that if they stay diversified and keep a quality portfolio, they’ll probably be just fine. And I agree.

GTC

(This article contains the current opinions of the author but not necessarily those of Brighton Securities Corp.  The author’s opinions are subject to change without notice. This blog post is for informational purposes only. Forecasts, estimates, and certain information contained herein should not be considered as investment advice or a recommendation of any particular security, strategy or investment product. References to specific securities and their issuers are for illustrative purposes only and are not intended and should not be interpreted as recommendations to purchase or sell such securities).

Can We See It From Here?

I often post about why I think it’s not the end of the world.  And yet again today, I think it’s not.  But with a day like yesterday, people are asking if maybe we can see it from here.  Stocks were down sharply yesterday, and I would be surprised if they weren’t off to a weak start this morning.  Psychology moves herds; herds move markets.

 Strip away the madness of crowds, though, and you can focus on two things: 1. your personal circumstances and 2. What you really own. Your investment decisions should be dictated by your circumstances, not by the actions of a trader in Hong Kong or a 401k participant in Miami, even if their moves can affect the market.  If you aren’t retiring for 10, 15, 20 years, keep your decisions focused on that fact, not on day-to-day volatility. And about that what-you-really-own thing: if you own conservative, well managed investments, you shouldn’t have a problem in the long run.  Do you really think people will stop buying soap and toothpaste?

 Most important: take a deep breath and think before you worry too much. Talk to someone you trust. We have been here before, markets don’t always move in one direction.  If I had to guess, we’re closer to a bottom than a top.

 GTC

(This article contains the current opinions of the author but not necessarily those of Brighton Securities Corp.  The author’s opinions are subject to change without notice. This blog post is for informational purposes only. Forecasts, estimates, and certain information contained herein should not be considered as investment advice or a recommendation of any particular security, strategy or investment product. References to specific securities and their issuers are for illustrative purposes only and are not intended and should not be interpreted as recommendations to purchase or sell such securities).

Markets to Washington: Drop Dead

One of the all-time classic news headlines was printed in the New York Daily News in 1975 when NY City was facing a serious budget crisis (note that at lower right it says “Stocks Skid, Dow Down 12” – I wish).  Now we have financial markets home and abroad skidding on the news that Congress and the President have “fixed” a threatened Federal default.  Stock market turmoil around the world is a clear signal of what investors think of the fix: it’s a sham.

 Markets are weak because investors don’t believe that Washington has any intention of changing its borrow-and-spend ways. People know that you can’t borrow and spend forever in your own home, and that a reckoning will come for those who eschew financial discipline.  It might have been better had Washington defaulted.  At least we’d know that they were grappling seriously with the nation’s debts.

 GTC

(This article contains the current opinions of the author but not necessarily those of Brighton Securities Corp.  The author’s opinions are subject to change without notice. This blog post is for informational purposes only. Forecasts, estimates, and certain information contained herein should not be considered as investment advice or a recommendation of any particular security, strategy or investment product. References to specific securities and their issuers are for illustrative purposes only and are not intended and should not be interpreted as recommendations to purchase or sell such securities).