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Monthly Archives: May 2014

Oil, Oil Everywhere

For the third year in a row, the summer driving season kicked off with national gasoline prices at $3.67 per gallon, according to data from the U.S. Department of Energy. Prices at the pump are below the $3.80 – $4.00 danger zone where they contributed to economic soft spots in 2011 and 2012. But they may head higher with crude oil prices rising over $104 lastweek — well above the levels seen around Memorial Day weekend duringthe past couple of years. While the conflict in Ukraine may be fueling some f the price gain, this is nothing new — a year ago the world was focused on the conflict in Egypt, and in 2011, the civil war in Libya was the sourceof geopolitical risk to oil prices. So why — if the United States is producing more oil and consuming less than it was a decade ago — is the price of oil going up, and what does it mean for investors?

Oil, Oil Everywhere

Japan Going Godzilla

Godzilla, the latest version of Japan’s King of Monsters, took the top spot at the box office this past weekend. But Japan’s stock market looks like a giant mutated lizard stomped all over it. One of the worst-performing stock markets in the world this year, Japan’s Nikkei Stock Average is down 13% in yen and 10% measured in dollars. The drop has been enough to push down the forward price-to-earnings ratio for companies in the MSCI Japan index to a rare discount to the U.S. S&P 500 Index. Yet Japan’s economy is finally growing. First quarter 2014 economic growthin Japan was a strong 5.9% above the prior quarter and 3.0% above the year-ago quarter, according to data released last week. It marked the fifth straight quarter of growth — a streak not exceeded since before the 2008 – 09 global recession. The quarter’s growth was boosted by spending ahead of a consumption tax increase, which could be largely reversed in the second quarter. Nevertheless, the consensus of economists tracked by *Quantitative Easing (QE) dates **Monetary Base = all money in circulation plus bank reserves held at the central bank Indices: MSCI Japan. One cannot invest directly in an index. Past performance is no guarantee of future results. The Consumer Price Index (CPI) is a measure of the average change over time in theprices paid by urban consumers for a market basket of consumer goods and services….

Godzilla-Sized Stimulus

 

Dollar on the Verge?

As has been the case since late 2008 when the Federal Reserve (Fed) began its quantitative easing (QE) program, there has been a great deal of concern lately among some market participants that the dollar is on the verge of collapse, but is that a likely scenario? 455 of the 500 corporations in the S&P 500 Index have reported results forthe first quarter of 2014 and, in many cases, have also provided guidance on their operations in the current quarter and for the remainder of the year. As always, when discussing the business environment, corporate management cited swings in the value of the dollar versus the currencies of the nations in which they do business, but none sounded the alarm about an imminentcollapse in the dollar. Indeed, many were more concerned about the value of the dollar rising. Why? Because a rising dollar makes U.S. goods and services more expensive to foreign buyers.

Dollar on the Verge?

Global Earnings Picture Reveals

At the beginning of the year, many investors believed analysts’ forecasts for a faster pace of earnings growth combined with lower valuations would lead to stocks in Europe and Japan outperforming U.S. stocks. Now those earnings forecasts are being cut sharply, raising the questions of how much of a value international developed market stocks are and whether they can outperform the U.S. market in 2014.Four times a year investors focus on the most fundamental driver of investment performance: earnings. For U.S. stocks, the earnings reporting season has produced nearly all the gains in the stock market over the pastfour years with nothing but volatility, on average, during the other weeks of the quarter. The earnings season in the United States is now nearly overwith 374 of the S&P 500 companies — representing 80% of the market value of the index — having reported. While the earnings season will only reach the halfway point this week in Europe and Japan, the difference so far between their earnings results and guidance and U.S. markets is striking. High hopes of an overseas earnings rebound are being disappointed, which may be creating a performance headwind.

Global Earnings Picture Reveals

Run for the Roses

The Kentucky Derby is the longest running sports event in American history. Held the first Saturday in May, three-year-old thoroughbreds gather at Churchill Downs in Kentucky to compete over a blistering two minutes that ends with a blanket of roses draped over the winner. While winning is worth millions, racing horses is a risky endeavor. Fortunately, current conditions inthe economy and markets appear to be improving, encouraging corporate leaders, investors, and even horse owners to take the risk and invest. Thoroughbreds are costly and speculative investments. The prices paid reflect the general willingness of horse owners to take risks. As aresult, they are a good indicator of the strength of the economy. Sales of the leading thoroughbred horse auctioneer, Keeneland, fell during the recessions of 1990 – 91, 2001, and 2008 – 09, and then rebounded asconditions improved.

Run for the Roses