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.”

The markets had strong gains this week, the Dow ended up 2.9%, the S&P up 3.8%, and the Nasdaq 3.7%. Stocks were boosted Wednesday by good news from Australian and Chinese markets and a positive ISM report. On Friday stocks also gained ground, bolstered by the bureau of Labor Statistics’ jobs report, which showed better-than-expected employment numbers. The report showed that while it may be true that the economy slowed a bit, it is at least not collapsing.

This week’s factoid: The World Meteorological Organization recycles their storm names every seven years, until such time that a hurricane gains enough notoriety that its name is “retired.” Thus, the storm currently threatening Labor Day plans is actually Earl IV.

Despite an attempted Friday rally, the markets had another down week, but the Dow did managed to finish the week above the (psychologically) important 10,000. The Dow ended down .62%, the S&P was down .68%, and technology suffered the most, with the Nasdaq down 1.19%.

Weak housing and jobs numbers made investors skittish over the strength and timing of the recovery. Companies’ results are still looking strong, though, so we consider the markets now considerably undervalued.

The markets had a mixed week. The Dow was down .87% and the S&P lost .7%, while the Nasdaq ended up .28%. Economic data continues to chill investors. The recovery is not coming along as speedily as we all had hoped.

There has been a tremendous amount of money that continues to flow into the bond market. Instead of looking at yield to maturity, many investors instead are looking at their current yield. This sentiment, along with the fear of equities, has pushed bond prices ever higher. It has all the trappings of a bubble.

This week’s factoid: The money sapped from Mexico’s economy from illegal drug trade amounts to 1% of its GDP. President Calderon’s proposal to legalize marijuana is, in part, an attempt to regain some of that cost.

Stocks suffered this week, with the Dow ending down 3.29%, the S&P 3.77% and the Nasdaq 5.01%. Among many factors bringing down the markets this week was an unexpected rise in weekly jobless claims. Also, Cisco had earnings that beat consensus numbers, but were weaker than the all-important “whisper numbers,” casting further doubt on a smooth recovery. Much of the week’s losses can be attributed to this fear of a continued rocky recovery. Volume was light this week, however, so whoever did bring the volume was in the mood for selling.

Master limited partnerships have been getting attention recently. An MLP has the tax benefits of a limited partnership with the liquidity of a publicly traded company. An MLP pays out nearly all of is profits to shareholders. The arrangement creates a tax headache, as our clients have reminded us, but we maintain that the yields from an MLP can be more than worth it.

Next week, we look for weekly claims (as always), housing starts, and manufacturing and industrial production numbers to dictate trading. (more…)

The modest gains of this week were erased- and then some- by Friday’s loss. The Dow ended the week down .98%, the S&P -1.2%, and the Nasdaq -.79%. A good jobs report Thursday and stellar earnings from Intel were evidently not enough to bolster confidence. Google’s earnings late Thursday failed to meet bottom-line estimates, while a few financials saw weaker earnings.

Despite the bad news in a few areas, we still feel the recovery is underway. A majority of the leading economic indicators have turned up toward non-recessionary levels. We remain confident in our economy’s growth.

Next week we’ll see more earnings pour in. Hopefully, a majority of good reports will turn this market around.

This week’s factoid: The fact that the Richter scale for earthquakes is logarithmic means that today’s 3.6 magnitude earthquake was more than ten thousand times less powerful than the February 27 earthquake that shook Chile and prompted tsunami warnings.

The markets had a big week, with the Dow trumpeting past 10,000 to finish the week up5.28% at 10,197. The S&P gained 5.41% and the Nasdaq 5%.  Markets looked favorably on both earnings and jobs reports. First-time initial jobless claims dropped by a better-than-expected 21,000. Gold suffered from the optimism in the markets, dipping below $1200 on Thursday, but regained some ground Friday.

We are on the record calling for no double-dip recession. The jobs data and positive earnings reports strengthen our position.  The valuations of equities remain extremely low. Also, the IMF revised upward it world growth estimate for the year this week. We believe these data serve as a reminder that the recovery is continuing.

Next week, all the focus will be on earnings.  Other economic news will take a back seat to the outlook given in next week’s announcements. We look for strong earnings to come through.

This week’s factoid:  BP predicts it may be able to contain all of the flow from its broken well in the next four days.

Bonus factoid: In 1943, Thomas Watson, chairman of IBM, predicted that there would be a “world market for maybe five computers.”

The second quarter was punctuated by two major crises: the European financial crisis and the BP oil disaster. Both dramatically affected the market and both arguably had very little impact on our economy. When we look beyond these two headline-grabbing events, we see a continuation of the economic recovery. This market downturn should prove to be a buying opportunity. (more…)

Investment Income—The Growing Problem

With bond and money market yields near all-time lows, investors who are trying to generate income feel like they are swimming upstream. Until recently, investors could always count on the bond market to provide them with a steady stream of consistent income. Yields were reasonably competitive, which made it easier for investors to live off of their investment income. The U. S. financial crisis and subsequent recession pushed interest rates to historically low levels.

During this difficult period, however, investors could still manage to find competitive yields, as risk was still rampant. For example, there was a period of time in late 2008 and early 2009 when the consensus view was that municipalities would default on their obligations. Yields spiked to very attractive levels as hedge funds dumped their municipal bonds. Also, corporate bonds maintained high yields throughout the crisis as they were considered very risky. The spread between corporate yields and Treasury yields reached an all-time high.

With the economic recovery, the perceived risk of both corporate and municipal bonds has fallen dramatically. Thus, their yields are now in line with historical levels versus Treasury yields. For the first time in 50 years, many companies’ bonds are yielding less than their common stock. With bond yields at record lows and money market rates near zero, investors are facing the unappealing proposition of replacing their maturing 5% coupon bonds with new bonds yielding 3% or less.

Simply put, after years of growing income streams, investors’ income generated by bonds and money market funds is being systematically reduced. But what can investors do to fix this problem? The answer may lie in the equity market. Diversified stock portfolios can be constructed with yields in excess of 4%. Because of the recent correction combined with companies’ willingness to increase dividends, stock yields have increased. We are not proponents of making a huge asset allocation shift, but are in favor of shifting some money from bonds to high yielding stocks to increase the portfolio’s income. Taking this action may allow investors to swim with the income current instead of against it.

—Dave Stepherson

The major markets continued in their volatility this week, this time swinging down: the Dow finished the week down 2.94%, the S&P 3.64%, and the Nasdaq 3.74%.  The slide was despite a better-than-expected jobs report and durable-goods orders. As noted earlier, volatility is unnerving, but we still think the economy should continue pushing upward.

The European debt crisis continues to be the buzz in the media. After some analysis, we believe that, discounting currency changes, a slowdown in European growth might not be all that terrible for the U.S. economy. Look for a more thorough report on the subject from us in the coming two weeks or so.

This week’s factoid:   The Center for Economics and Business Research (CEBR) in London estimates that $4.8 billion in productivity is lost worldwide due to the World Cup.

Markets took a beating this week. While there were a few other factors, such as a disappointing jobs report, the focus has been on the troubles in the Eurozone. The Dow ended the week down 4.01%, the S&P 4.23%, and the Nasdaq 5.01%.

We have noted that had one waited to sell until even significantly after Lehman Brothers’ collapse, he would have avoided the bulk of the losses of the markets. The markets were not perfectly “efficient,” allowing time to act even after the news broke.

The question now is, are we in a similar situation? Can we get out in front of the collapsing European markets? We are not sure that the analogy holds. Now, as opposed to in 2008, earnings reports are coming in strong from U.S. companies. The underlying fundamentals are solid. The recent dip may be a buying opportunity- not a selling one. Still, we are worried by the continuing issues in Europe.

This week’s factoid: the U.S. imports approximately 9,783,000 barrels of crude oil a day. Estimates put the oil spill at 5,000-90,000 barrels a day. Or, as our Senior Vice President put it, “They have no clue.”

The three major domestic equity markets finished up this week despite back-to-back triple digit losses in the Dow Thursday and Friday. The Dow ended up 2.31%, the S&P 2.27%, and the Nasdaq 3.58%. The markets ignored an upbeat jobs report Thursday and chose to focus on the growing European financial crisis.

The large losses at the end of the week were unsettling, but the week didn’t point towards a trend of loss, as we ended the week higher. Rather, it points towards volatility.  Large swings in both directions have been the norm these past few weeks. While it is emotionally taxing, we remain confident that the volatile numbers will still give way to a general uptrend.

Next week, the markets’ focus will remain on Europe. In recent weeks the trend has been to sell stocks at the end of the week. Unless something significant happens, we suspect that trend will continue in the near term. (more…)

The markets took a beating this week. There is a common perception that the markets’ faltering on Thursday was due to a trading error. This explanation was widely latched on to and used to “explain away” any problems. However, had it been the case that it were merely an error, traders would have moved the market back to an appropriate equilibrium as soon as the error was discovered. Instead, markets continued their plunge on Friday.

The decline may not be any more “real” than any given correction, but it is certainly more real than just some trading error. For the week, the Dow was down 5.71%, the S&P 6.38%, and the Nasdaq 7.95%.

The problems surrounding the “PIGS” zone are more likely to blame for much of the markets’ jitters.  The resulting correction may be a buying opportunity- or may be a warning, giving a selling opportunity.  It comes down to the question of the Eurozone: can its problems be fixed? Will it be fixed soon?

This week’s factoid:  EBITDA, or Earnings Before Interest, Taxes, Depreciation and Amortization, is a favorite measure of analysts. It shows a company’s performance after taking out the effects of accounting and financing. It is also a means by which a junior analyst can make a fool of himself during an investment meeting, and be teased about it indefinitely.

The major markets ended down this week, breaking the Dow and Nasdaq’s streak of eight up weeks.  Goldman Sachs’ legal woes combined with worries about foreign countries’ debt obligations to mete out a pummeling: The Dow ended the week down 1.75%, the S&P 2.50%, and the Nasdaq 2.73%.

“Greece” was the buzzword this week, and we believe “Spain” may be it next week.  Standard and Poor’s downgraded Spain’s debt rating this week, and the country’s statistics agency revealed that their unemployment level has risen above 20%.  Spain and Portugal are the new economies to watch, and we continue to keep an eye on Greece.

Should these countries’ problems worsen, the United States faces several issues. First, we lose the countries as customers, as they are importers of our goods. The contagion effect will see the problems spread to other Euro nations, exacerbating the problem.  And should the financial crisis reignite in Europe, it could lead to another credit crisis.

Next week is a heavy week for financial data. We will get data from the ISM, figures on auto sales and productivity, and April’s unemployment data.  187,000 jobs are forecast to have been created; such a figure would point strongly in the direction of recovery.

Starting this week, we will close each Week in review with a factoid. Did you know the term “blog” is a shortening of “web log”? There is an opinion at the firm that this was due to pure laziness on the part of bloggers.