Adios 2014

For some it was a good year, for others not so much. For investments, it was mostly a good year, with both stocks and bonds benefiting from the growth of the U.S. economy. Foreign investments did not fare very well, as currency values shrank relative to the dollar, and foreign economies were stagnant. Commodities were mixed, with oil being the major game changer, as the price fell by more than 30%. What will 2015 bring? Will we see oil rebound, the U.S.

Hero Image: 

On Balance

At this time of year, I like to look back to a year ago and see if we are better off now than we were then. On balance, it appears that, both economically and financially, we are better off this December than we were a year ago. Many jobs have been created, unemployment is lower, consumer confidence is greater, factory production is higher, and all of this is happening as the Federal Reserve withdrew its economic stimulus. Not bad! If I were looking at Europe, China, Japan, Russia, or most of the rest of the world, I could not say the same.

Hero Image: 

Happy Thanksgiving!

At this time of the year we get an opportunity to take some quiet time and count our blessings. As for myself, I have many blessings to be thankful for this year. Above all others is my oldest daughter’s most recent MRI, showing her to be cancer free. I have many other things for which I am grateful, such as living in this country, having a caring and loving family and fellow workers, whom I enjoy being with each day. Much of what I am grateful for would not be possible without the support of you, my clients and friends.

Hero Image: 

Economic Check

A great deal of economic data has been released in the past couple of weeks. The most important news was a report from the Commerce Department indicating that the GDP of the U.S. grew at a rate of 3.5% during the third quarter of this year. Thus far in 2014, the growth rate for the three quarters has now averaged 3.5%. 

Hero Image: 

The Return of the Bear

Let’s go way, way back in time and look at the stock market. I’m talking about that time long ago when the S&P 500 had dropped through the floor and had “crashed” down to 1863. Now to understand the significance of the “crash”, you must remember that--back even farther--the S&P 500 stood at about 2011. This means that the S&P 500 had dropped more than 7%.

Hero Image: 

The Long View

I always find it interesting to listen to news reports about the stock market. When it is just coasting along, it is not newsworthy. When it is going up, it does not appear to be newsworthy. But, when the markets move down – it is newsworthy! Thus we have been hearing a great deal about the recent market swoon. To put this in perspective, consider that since the middle of last year the market has been moving up quite nicely. This isn’t to say that there haven’t been some bumps along the way. From mid-January to mid-February the market dropped about 7.2%.

Hero Image: 

Leading Indicator

A leading indicator is an economic factor that changes before the economy starts to follow a trend. Examples of leading indicators include: production workweek, building permits, unemployment insurance claims, money supply, inventory changes, and stock prices. The Federal Reserve watches all of these in determining the direction of interest rates. Last year we watched as stock market prices increased sharply. This was a harbinger of better economic news for 2014.

Hero Image: 

Inflation and Relative Value

The inflation rate for August is likely to be reported as about 1.9%. What does this mean relative to the value of your investments? From time to time, I still have people telling me how they remember the “good old days” when they were making 16% on their CDs.  The only problem with that memory is that they have forgotten that, at the same time, the inflation rate was 18%! As fast as your money was growing, it was losing purchasing power faster.  If you buy a CD today that is paying, say, 0.5%, and inflation is at 1.9%, your loss of purchasing power is only 1.4% vs.

Hero Image: 

10-Year Treasury @ 2.345%

It was not that long ago when the 10 year U.S. Treasury bond was over 3%. The expectation was that it would continue to go higher as the economy improved. The drop in the rate is a clear indicator that there is a flight to safety, as more money is flowing into the safest types of bonds. These include U.S. Treasuries as well as U.S. Corporate investment grade bonds.

Hero Image: 

Conflict and the Markets

A great deal of conflict is transpiring in the world at this time. The Middle East, Asia, Africa, and Eastern Europe are all in different types of conflict, and in addition, we are experiencing tense relations with Iran, Russia and China. Domestically, we are dealing with a major immigration issue, as thousands of children are streaming across our southern borders, in search of refuge. In the past, such conflict, turmoil and loss of life would have resulted in the stock market sinking and the bond market making a mighty surge, as investors sought the greatest safety possible.

Hero Image: