|
Weekly Focus - Think About It
|
|
"You can't make the other fellow feel important in your presence if you secretly think he is a nobody." --Les Giblin
|
|
Weekly Commentary
|
|
The Markets
Has corporate America lost its gumption?
Three of the things that have made the United States so great are the determination, fearlessness, and entrepreneurial spirit of our people. Unfortunately, that seems to be a bit lacking right now with the leaders of some of our country's largest companies.
For more than two years now, corporate America has been on a belt-tightening, cost-cutting push that has helped contribute to our high unemployment rate. While that has been bad for employees, it has sparked a significant revival in corporate profits. For example, according to a New York Times article based on data from the Bureau of Economic Analysis, second quarter corporate profits were within 4% of their pre-recession peak. And, by another measure, Barron's magazine pointed out that corporate profits as a percentage of gross domestic product are near 40-year highs.
So, if corporate America is doing so well, why aren't they hiring and why is the stock market stuck in neutral?
In a word -- uncertainty.
Even top Federal Reserve officials are having a hard time agreeing on what to do next to help the economy. On August 10, 17 of them met and, according to an August 24 Wall Street Journal article, at least seven of them spoke against or expressed reservations about the ultimate decision Chairman Bernanke made to keep the Fed's balance sheet from shrinking. Toss in government regulation, an upcoming mid-term election, tax policy uncertainty, a deflation/inflation debate, and stubbornly high unemployment, and there's plenty to muddy up the waters. Corporate America is reacting to this uncertainty by conserving cash and keeping a lid on hiring. However, this will eventually change, and, on a positive note, we may be starting to see that happen as corporate acquisitions are on the rise. The current bidding war between two blue-chip technology companies for an obscure data-storage company may be one example of gumption returning to the boardroom... and that's good! As of 8/27/10 1-week YTD 1yr 3yr 5yr 10yr
S&P 500 -0.7% -4.5% 3.5% -10.1% -2.6% -3.5%
DJ Global ex US
(foreign stocks) -0.5 -6.0 2.6 -10.0 1.4 0.7
10yr Treausury
Note (Yield Only) 2.7 N/A 3.5 4.6 4.2 5.8
DJ-UBS Commodity
Index 0.1 -5.6 3.8 -7.1 -4.8 2.1
DJ Equity All REIT
TR Index 1.8 14.0 31.5 -5.1 1.8 10.5
Notes: S&P 500, DJ Global ex US, Gold, DJ-UBS Commodity Index returns exclude reinvested dividends and the three-, five-, and 10-year returns are annualized; the DJ Equity All REIT TR Index does include reinvested dividends and the three-, five-, and 10-year returns are annualized; and the 10-year Treasury Note is simply the yield at the close of the day on each of the historical time periods. Sources: Yahoo! Finance, Barron's, djindexes.com. Past performance is no guarantee of future results. Indices are unmanaged and cannot be invested into directly. N/A means not applicable or not available. WHO HAS A WORSE DEBT BURDEN, countries in developed markets or countries in emerging markets? Well, by at least one measure, developed countries are in worse shape.
This debt level is problematic because it hampers a country's ability to grow.
Over time, as the developed world tries to pare its debt through austerity programs, sluggish growth may result. World leaders are banking on emerging countries like China to help pickup the economic slack. The extent to which these emerging countries can do that may have a big impact on how long the U.S. stays stuck in neutral. Blessings to you, Your VFA Team
P.S. Please feel free to forward this commentary to family, friends, or colleagues. If you would like us to add them to the list, please reply to this e-mail with their e-mail address and we will ask for their permission to be added. -----
* The Standard & Poor's 500 (S&P 500) is an unmanaged group of securities considered to be representative of the stock market in general. * The DJ Global ex US is an unmanaged group of non-U.S. securities designed to reflect the performance of the global equity securities that have readily available prices.
* The 10-year Treasury Note represents debt owed by the United States Treasury to the public. Since the U.S. Government is seen as a risk-free borrower, investors use the 10-year Treasury Note as a benchmark for the long-term bond market.
* The DJ Commodity Index is designed to be a highly liquid and diversified benchmark for the commodity futures market. The Index is composed of futures contracts on 19 physical commodities and was launched on July 14, 1998.
* The DJ Equity All REIT TR Index measures the total return performance of the equity subcategory of the Real Estate Investment Trust (REIT) industry as calculated by Dow Jones.
* Yahoo! Finance is the source for any reference to the performance of an index between two specific periods.
* This commentary was prepared by PEAK.
* Opinions expressed are subject to change without notice and are not intended as investment advice or to predict future performance.
* All information is believed to be from reliable sources; however, we make no representation as to its completeness or accuracy.
* Past performance does not guarantee future results.
* You cannot invest directly in an index.
* Consult your financial professional before making any investment decision.
|
