U.S. Stocks snapped a six-week winning streak, with the S&P 500 declining 3.6% and the Dow falling 3.7% during the week.  Stocks appear to be digesting the reality of a near-term interest rate increase (December 16^th Fed meeting), which would be the first hike since 2006.  While this move would reflect a stronger economy, it means the days of easy money won’t last forever.

Consumer discretionary stocks, specifically the retailers, had a difficult week following earnings reports from companies such as Macy’s, Nordstrom and J.C. Penney.  While the warm weather has been an excuse for many department store operators, there’s no doubt that online retailers continue to take share from the bricks and mortar retailers.

Commodity prices also had a tough week, with oil falling 8% to $40.74 per barrel, contributing to a 6% slide in the overall energy sector.

Here is a look at last week’s numbers:

Looking Ahead – A preview of the week of November 16, 2015:

This week will be filled with more earnings reports, largely from retailers such as Wal-Mart, Target, Home Depot and Best Buy.  The coming days will also be busy with more “Fed speak”, with minutes from the October 27-28 meeting being released on Wednesday.  Wall Street is now expecting the first rate hike since 2006.  Fed funds futures, used by investors to place bets on central-bank policy, have risen to reflect a 70% likelihood of a rate hike in December.  Wall Street is beginning to look past December and focus on rate hike #2 and its timing.  The pace of tightening is beginning to become more important than the date Fed liftoff.

Commodity prices, oil in particular, will continue to be on the minds of investors this week.  Energy stocks have been hit hard over the past 20 months, falling by a third since oil prices began to plunge in mid-2014.

Major earnings this week include:

Monday (11/16):         Tyson Foods (TSN), Agilent Technologies (A), Urban Outfitters (URBN), JD.com (JD)

Tuesday (11/17):         Dick’s Sporting Goods (DKS), Home Depot (HD), TJX (TJX), Wal-Mart (WMT)

Wednesday (11/18):   Lowes (LOW), Staples (SPLS), Target (TGT), salesforce.com (CRM), NetApp (NTAP), Semtech (SMTC)

Thursday (11/19):       Best Buy (BBY), J.M. Smucker (SJM), Autodesk (ADSK), The Gap (GPS), Intuit (INTU), Splunk (SPLK), Fresh Market (TFM), Workday (WDAY)

Friday (11/20):            Abercrombie & Fitch (ANF), Foot Locker (FL), Hibbett Sports (HIBB)

Economic / macro reports this week include:

Monday (11/16):         G20 Leaders Summit (11/15 and 11/16)

Tuesday (11/17):         October CPI (consensus +0.2%) and IP #s

Wednesday (11/18):   Fed minutes from 10/27-28 meeting

Thursday (11/19):       ECB meeting minutes

This past Friday, all eyes and ears were turned to the Fed. That morning, the Labor Department reported 271,000 new jobs, a number much higher than expected. Of course this is great news for the markets and our economy in general. More hiring means that managers are expecting business to pick up, orders to increase, and for the health of our nation’s commerce to generally improve. We take this as a sign that business profits will improve. All good things for the market.

But what about the Fed? This much stronger than expected number is widely expected to be the signal the Fed takes to mean the economy is ready for an increase in interest rates. It almost certainly won’t be much: 0.25% or 0.5%. But what it will do is end eight years of the zero interest rate policy (ZIRP) that has defined our, and indeed the world’s, economy. It will mean recognition by the Fed that we are moving into a new economic time. It could also means a short-term dip in the market, but we are not concerned with such temporary movements.

Our nervousness about the market is assuaged by the jobs number. We continue to be positive for the long term.

Looking ahead, this week we will see how the nation’s retail sales are holding up. Last month, we saw month-over-month growth of just 0.1%, lower even than the consensus of 0.2%. A beat in this metric would underscore the need for action on interest rates.

We’re going to try something new on the Hardesty blog. In addition to giving you weekly updates about what we think was important that week, we want to hear from you. With that in mind, we are starting an “Ask Hardesty” column in our blog in which we’ll be answering questions that you send in. The questions can be about an investing concept that isn’t quite clear, something in the financial news, or anything investment-related.  Just e-mail johnk@hardestycap.com.

Our first question is seemingly the most basic:

What should I invest in?       -Tina D.

It seems the most basic to the asker, but it is perhaps the most complicated to answer. Unfortunately, the answer is going to be, “It depends.” It depends on the timeframe of the investment, your resources, what your goals for the investment are, and your tolerance for risk, among other things.

These are too many variables for just one concise blog post. As such, we’ll look at one at a time in a multi-part post, to be compiled at the end.

Risk

Let’s first consider the most fundamental part of your investments: the level of risk you are taking. Generally, investors think of “risk” as “How much money could I lose?” whereas we at HCM prefer to think of this question in terms of  “What kind of price swings might I experience?” The difference might be subtle to a novice investor, so we won’t dwell on it. Basically, with risk, you need to know that in order to make money in the long term, you have to be willing to risk losing money in the short term.

Something else that is essential to understand but is not generally well-understood is that risk and return are not only related, but almost interchangeable. A higher return means a higher risk. At HCM, we have seen countless examples of investors losing money in a supposedly higher-return investment that they thought was “safe.” However, what the market is telling you by offering a higher rate of return is that you are taking more risk. There may be some exception to this rule, but we are certainly not aware of one.

In general, stocks have higher returns (more risk) over time than bonds. Bonds return more than money market funds (cash). Even within these categories, we can have differing levels of return: some stocks are riskier than others, as you might imagine.

If you need your money back in two years to pay for a child’s education, you shouldn’t take as much risk as if you are looking to start saving for your retirement that is thirty or forty years away. Over thirty years, you shouldearn the 8-10% long-term average that stocks provide, even if you lose 25% in the first two. But if you need the money in two years, you can’t take those kinds of risks.

If you can’t stomach the thought of a 45% loss of your investments, you will need to choose safer asset classes than just stocks. Similarly, if you are risk-seeking, you might want to take a higher weighting in riskier stocks than others in a situation similar to yours. Whatever your situation, you need to understand the risks you are (or aren’t) taking.

In sum, when investing, you  first need to consider how much risk you want to take over your entire investment portfolio.  If you are conservative on risk, it doesn’t mean you can’t have 2% of your assets in a tech stock, as long as your overall average risk is where you want it to be.

The concept of risk and return is one we will return to often. If your goal for the question “What should I invest in?” is a hot stock tip without considering all of these things, you may want to reconsider your strategy.

Look for the next segment soon.

The Hardesty Blog has returned with a renewed vigor.

The markets had a good week, bolstered by news from Europe. The Dow was up 1.97%, the S&P 1.71%, and the Nasdaq 1.12%.

European Central Bank head Mario Draghi’s comments were the focus of the week. Draghi said that he is willing to do whatever is necessary to keep the Eurozone intact. There is still plenty of uncertainty in Europe. There is still plenty of it here, too: a fiscal cliff and an election are among the American uncertainties. But we believe that, in the short term, the Eurozone will not break up. This idea has stabilized the markets somewhat.

Next week, earnings season continues. As well as watching our companies, we’ll look at the unemployment figure, as well as initial claims.

This week’s factoid: In ancient Greece, Olympic athletes were expected to be the pinnacles of both mind and body. Poetry and verse were an important part of the games. At Hardesty Capital Management, we believe the Portfolio Management event would be an exciting addition to the 2016 games.

With big-bet strategy, the losses could be equally great

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MarketWatch.com Robert Powell’s Your Portfolio Oct. 5, 2011, 12:01 a.m. EDT

Hello again everyone. Sorry that this blog has taken an unannounced hiatus. We are back.

The markets had a solid week, with the Dow, S&P and Nasdaq all ending solidly higher: 1.28%,  .98% and 1.19% respectively. Capping off the week was the March jobs report. We saw 216,000 jobs created last month, compared to the expected 180,000.  The unemployment number came down as well, to 8.8%. That figure has declined a full percent over the last four months. It would seem that employment is gaining some real traction. We expect this trend to continue.

A trend that we are not so cheerful about is inflation. We’ve seen manufacturers across industries saying that they need to increase prices to match rising input costs. The Fed’s infusion of umpteen billions of dollars through their various programs puts more upward pressure on prices. A lot of attention from the media is focused here now, and we think it is something that needs to be watched closely.

Next week, we’ll be looking towards the consumer when consumer confidence numbers are announced Friday.  The other, always-important piece of the consumer’s confidence, continuing jobless claim numbers, will bear consideration as well.

This week’s factoid:  The radiation exposure associated with living within 50 miles of a nuclear power plant for one year is .09 μSv, which is slightly less than the radiation exposure associated with eating one banana (.1 μSv).

Markets edged up a bit this week. The Dow led the charge, up .72%, with the S&P and Nasdaq lagging a bit, up .28% and .21%, respectively.  Promising reports on layoffs, factory production and consumer spending have contributed to hopes that 2011 will pick up nicely.

Initial jobless claims unexpectedly fell on Thursday. The number of claims declined 3,000 to 420,000, compared to estimates of a rise of 4,000. This is good news, but continuing claims increased by 22,000 to 4,135,000.  The mixed data points to a slow recovery- as we already know. But we do continue to believe that we will steadily, if slowly, win this race.

Next week will be a quiet one, given Christmas coming up Saturday. Durable goods and new home sales numbers might receive some focus.

This week’s factoid:  The $7.2 billion recovered from the estate of the biggest beneficiary to Bernie Madoff’s fraud represents about 36% of the estimated total investment losses.

The markets had an up week- to varying degrees. Tech was way out ahead, with the Nasdaq up 1.78% for the week. The S&P chugged along heartily, gaining 1.28%. The Dow dragged its feet a bit, ending the week up .25%. The economy continues to show signs of improvement, and Europe seems to be slowly getting its financial house in order.

This week, yields on two-years and longer duration bonds  jumped some 25 basis points- devastating on low-yielding bonds bonds’ prices.  It’s possible we’re finally seeing the turn in bonds for which we have been calling for some time now.

Next week, we’ll be looking at consumer sentiment, inflation, and housing numbers. And, as always, weekly claims.

This Week’s Factoid:  The U.S. is the only country in the Organization for Economic Development and Co-operation to tax money when it is repatriated to this country. Cisco’s CEO, John Chambers, says that there is $1 trillion held by American companies in foreign countries, waiting to be repatriated to the U.S. The companies are hesitant to do that, however, given the 35% tax.

The markets had a good week. The Dow ended up 2.62%, the S&P up 2.97%, and the Nasdaq up 2.24%.   Fueling the growth was the November ADP National Employment Report, which reported private nonfarm payrolls to be up by 93,000 jobs. Also helping was movement towards stability and resolution in the continuing debt problems in Europe, as well as the U.S. government working toward extension of tax cuts.  Despite a disappointing employment report from the government Friday, the markets finished the week strong.

There has been a dramatic increase in interest rates recently. Money is finally coming out of bond funds. Money is not moving into stock funds yet, but that money must eventually go somewhere. These moves could signal renewed confidence in the markets and in the economy.

Next week is light in economic data, and no earning reports from companies stand out.

This week’s factoid: Spain has failed to attract the 2018 World Cup to its shores, and the event will instead be hosted by Russia. We have our fingers crossed that Spain will be more successful in other endeavors in the coming weeks.

The markets had a disappointing week after a string of mostly uninterrupted positive ones. The Dow was down 2.12% for the week, the S&P down 1.79%, and the Nasdaq lost 2.29%. Spearheading the decline is the decision by the Chinese government to raise interest rates in response to fears of rising inflation. Also, we had a couple of high-profile companies, Cisco and Disney, with challenging earnings calls.

We see that Wall Street is now back into full gear, and financial wizards are up to their old tricks. For example, BWAY found buyers for PIK bonds- payment in kind. “Payment in kind” means that the bonds’ interest is paid by some means other than cash, usually by increasing the principal owed to the bondholder. Why someone would purchase such a bond is beyond us.

Another example is bonds being issued that are backed by assets that are already promised as security on another loan- like a second mortgage. The problem is, if the company becomes insolvent, the collateral can’t very well go to both bondholders.

Next week we have a very full week. The key components will be retail sales, housing and inflation. There are also numbers coming out on manufacturing and consumer confidence. The market will be focused on economic data next week.

A quick update this week.

The markets ended the week mixed; the Dow was down .13%, but the S&P was mostly flat at +.02%, and tech had a great week with the Nasdaq up 1.12%.

We’re looking at Microsoft this coming week. We haven’t come down on either side yet, but there are some items of interest. A deal for “social search” between Bind and Facebook may reinvigorate the image of the aging tech company, making it relevant again. Also in that vein is Microsoft’s stance as a commercial vs. a consumer company. It has been some time since anyone’s been excited about a new Microsoft offering. Instead, we are excited by Google or Apple. Microsoft may be becoming an “old giant,” but we can see that the position of “lumbering old tech giant“ might not be so bad: it’s worked out pretty well for IBM.

“Quantitative Easing” sounds like some erudite process performed by financial wizards, the particulars of which we could never understand. In reality, it’s much simpler. Explaining its particulars does take a bit of doing, though.

The term “Quantitative Easing” is really rather misleading. All it is, really, is the Fed injecting new money into the economy. The Fed is often increasing the money supply, but QE involves doing so in ways other than its normal methods (more on its “normal methods” in a moment). It is no more “quantitative” than any other process involving money, and “easing” just means “increasing the money supply.” (more…)

This week was again a good one for stocks, with the Dow up .51% and the S&P up .95%. Meanwhile, the Nasdaq soared, up 2.77% for the week, helped along by positive earnings from Google (a personal favorite of this blog’s author) and Intel.  In Ben Bernanke’s speech Friday morning, he made it clear that the Fed would stand ready to take further steps to help bolster the economy. However, the markets seemed largely to ignore his comments.

The recession ended June 30, 2009. There are some “talking heads” that say it’s been too long since then for unemployment still to be this high. They point to this fact as reason to fear further economic troubles. However, we can see by looking at some historical data (chart below) that there is no real “normal” amount of time that elapses before peak unemployment is reached.  Since World War II, it has taken anywhere from 0 to 574 days to reach the unemployment peak after a recession. The average is 188 days, and our most recent recession gave us unemployment that peaked after 183 days. We say there is really nothing here to worry about yet. (more…)

Markets were up this week, with the Dow finishing up 1.62%, the S&P up 1.64%, and the Nasdaq up 1.31%.  Stocks were helped along Friday by jobs- while we lost some 90,000 in total, most of the loss was from public sector jobs. The private sector actually added some 60,000, showing continued confidence in the economy.

Investors might be noticing the changing currency climate, wherein many currencies are gaining value against the dollar. If this is an “unfair” valuation (as the dollar should continue in its strength), they might be wondering about an investment in the dollar. Investing in a foreign stock with some exposure to U.S. sales is in itself a bet on the dollar- without engaging in tricky currency trades.

Next week, companies’ quarterly earnings start in earnest. Also notably, the CPI numbers come out next week. (more…)

The markets had a very strong week, with the Dow ending up 2.37%, the S&P up 2.04%, and the Nasdaq 2.83%. Investors were able to look past weaker-than-expected numbers in new homes sales and durable goods orders.

Bond prices continue to rise while yields (necessarily) fall. Our investment meeting today again underlined our conviction: bonds are in a bubble. We stress that investors should be exceedingly cautious in the bond market— and may want to avoid it altogether.

This week’s factoid: The mortgage crises have gone so far that Bank of America evidently has decided it can foreclose on any home, even those that do not have mortgages. BofA has foreclosed on and remanded the title of a house for which the owners paid cash seven months ago. Thankfully, BofA recognized the error and is correcting it “at [its] own expense.”