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"The conventional
view serves to protect us from the painful job of thinking."
~ John Kenneth Galbraith, economist
The Markets
It
was a boxing match between the bulls and bears last week…with
the bulls winning the bout.
In a holiday shortened week, the
markets ended on a positive note with new record highs for
the Dow Jones Industrials
and S&P 500. Those indexes have gained ground in eight
of the last nine weeks. The NASDAQ Composite rallied over
2% to close at its best levels since early 2001 (but still
down over 50% from 2000's high.)
The Bulls Corner
- The May jobs report was
stronger-than-expected and there was a positive April revision.
The unemployment rate was
steady at 4.5%.
- The Commerce Department said inflation
was lower and the ISM survey indicated that the manufacturing
sector was strengthening.
- Merger and acquisition news
are still a major positive factor driving shares higher
with the latest announcement
coming from Wachovia announcing its acquisition of A.G
Edwards for $6.8 billion.
The Bears Corner
- A few weeks ago we highlighted a chart
showing that a bubble has materialized
in the Chinese stock market. China's
stocks tumbled the most in three months after the government
tripled the tax on securities transactions to cool a
rally that's drawing more than 300,000 new investors a
day. Last
week we saw a single session drop of 6.9% for the Shanghai
market. Unlike a similar decline on February 27, last
week's
plunge failed to inspire a worldwide correction because
our markets were defensively prepared. The Shanghai Composite
dropped another 8.26% this morning but investors shrugged
it off again.
- We also learned that home prices in
the U.S. dropped last quarter for the first time in almost
16
years
according to
a report last week by S&P/Case-Shiller. The last
time home prices fell was during the third quarter of
1991. (Bloomberg)
-
1Q annual GDP growth was revised lower, from 1.3% to
0.6%, the slowest pace since 2002 when the economy was
in a recession.
Economic data remains mixed which means
the Fed sees no pressure for action in either direction.
Rates are still
low enough
to allow cheap borrowing.
Three things to watch going forward are
potentially weakening consumer spending, strengthening capital
expenditures,
and the impact of housing.
| Returns through 06/01/07 |
1-Week |
Y-T-D |
1-Year |
3-Year |
5-Year |
10-Year |
| Dow Jones Industrials |
1.2 |
9.7 |
21.5 |
10.2 |
7.1 |
6.5 |
| Nasdaq Composite |
2.2 |
8.2 |
17.8 |
9.5 |
10.8 |
6.4 |
| Standard & Poor's 500 |
1.4 |
8.3 |
19.3 |
11.1 |
8.1 |
6.1 |
Source: Yahoo! Finance, Barrons
Past performance is no guarantee of future results. Indices
are unmanaged and cannot be invested into directly. Three-,
5-, and 10-year returns are annualized. Assumes dividends
are not reinvested.
WHAT DO YOU SUPPOSE THE SAVINGS RATE IN AMERICA WAS when
Franklin Delano Roosevelt was sworn in as President of the United States?
Remember, the Great Depression was underway and one-quarter of the population
was out of work. People were spending any savings they had just to stay afloat
financially. In 1933, the personal savings rate in the United States was negative
1.5%. People were spending more than they were saving, which is understandable.
Now, consider the year 2006. The economy was stronger than
it was in 1933. Unemployment was relatively low. People had jobs and were
earning significant
income. What do you suppose the savings rate was in 2006? According to the
Commerce Department, Americans saved negative 1% of their disposable income
last year! That means we spent every penny we earned, and then we spent
more.
Should we be worried? If you're not meeting your personal savings goals,
perhaps you should be worried. However, you may not need to worry about the
national savings rate—yet. The Bureau of Economic Analysis does not
include capital gains earned on investments or increases in the value of housing
in their savings calculations. As a result, even as Americans have been spending
more and borrowing more, their overall net worth has continued to go up because
their assets have appreciated faster than they have been spending, according
to Federal Reserve Board statistics. Of course, if the market turns down or
housing prices depreciate significantly, then our failure to save could become
a concern.
WHAT IS A TRADE DEFICIT? Countries keep track of
how much they buy from, and sell to, each other through a measure called "balance
of trade." If a country exports more goods to another country than it
imports (sells more to other countries than it buys from them) then it has
a favorable balance of trade, or a trade surplus. If a country imports more
than it exports, it has a negative balance of trade, or a trade deficit.
Is a large trade deficit, like that of the United States,
a problem? According to experts, it's not—as long as the dollars we export to the rest
of the world are used to buy U.S. assets like stocks, bonds, government debt,
real estate, and American businesses. A problem could arise if foreign investors
lose confidence in the U.S. economy and stop investing in U.S. assets. If
that happens, then the supply of dollars in the world banking system could
become greater than the demand for them, and the value of the U.S. dollar
could fall. During the first quarter of 2007, our trade deficit was cited
as the main reason that our country's Gross Domestic Product fell from
2.5% (during the fourth quarter of 2006) to 0.6%, according to Yahoo! Finance.
Agflation: An
increase in the price of food that occurs as a result of increased demand
from human consumption and use as an alternative energy resource. While
the competitive nature of retail supermarkets allows some of the effects
of agflation to be absorbed, the price increases that agflation causes are
largely passed on to the end consumer. The term is derived from a combination
of the words 'agriculture' and 'inflation'.
The following are anagrams of places in
the Big Apple. The numbers in parentheses will tell you how
many letters are in each word:
1. A raw body (8)
2. Nailed sills (5, 6)
3. Masqueraders gain
nod (7, 6, 6)
4. Swat teller (4, 6)
5. US yak dementia
(6, 7)
Click here for the answers.
Best Regards,
P.S. Please feel free to forward
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