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“In the business world,
the rearview mirror is always clearer than the windshield.” -
Warren Buffett
The Markets The market started last week on a tear.
The Dow Jones Industrial Average rose 476 points in the first
three days, which was the Dow’s best three-day rally
since March 2003, according to Barron’s. But on Thursday,
investors had a change of heart and the Dow posted its second
worst loss of the year, according to The Wall Street Journal.
By the time Friday morning rolled around, nervous investors
continued selling. However, the Federal Reserve stepped in
and helped calm the markets by injecting $35 billion into
banking systems, according to MarketWatch. This added some
needed liquidity and confidence to the markets and the Dow
ended the day down just slightly.
The Fed’s intervention raises an interesting issue.
If investors start thinking that the government or the Federal
Reserve will intervene in the markets every time there’s
a potential problem brewing, this could make investors less “disciplined” and
cause markets to not function properly. For example, if investors
figure that the government will step in and prevent significant
losses, they may take bigger risks, which could lead to bigger
bubbles.
Walking a fine line between letting markets
function in a capitalistic system and intervening if things
get way
out
of kilter is a delicate balancing job for the Fed and the
government. Based on the markets response last Friday,
the initial reaction was the Fed made the right move by adding
liquidity to banking systems.
As the markets showed us last
week, we may not like what happens in the middle “innings,” but
ultimately, the score at the end of the game is what really
matters.
And so far, all the numbers in the box below are showing
positive returns.
| Returns through 08/10/07 |
1-Week |
Y-T-D |
1-Year |
3-Year |
5-Year |
10-Year |
| Dow Jones Industrials |
0.4 |
6.2 |
19.4 |
9.8 |
8.7 |
5.0 |
| Nasdaq Composite |
1.3 |
5.4 |
23.7 |
11.6 |
14.0 |
4.7 |
| Standard & Poor's 500 |
1.4 |
2.5 |
14.8 |
9.9 |
9.7 |
4.3 |
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.
Top Headlines:
- After their meeting this week, the FOMC
decided to keep interest rates at 5.25% for the ninth consecutive
time. Their statement declared that despite recent volatility
in the credit market, economic growth is expected over
the next few quarters supported by growth in employment,
income and a healthy global market. (8/7)
- Home-Depot (HD)
continued discussions with private equity firms this
week on the purchase of its HD supply segment.
Due to current market conditions, the company plans
on lowering the offer price. This reduction resulted in
a 5.3% drop in share prices on Thursday. (8/9)
- Credit
worries and market volatility continued this week as
AIG reported that their residential mortgage
delinquencies and defaults are on the rise. Also
French Banking group BNP reported that it has suspended
three
funds after stating they are unable to value the
funds due to a complete loss in liquidity caused by the
credit
markets. (8/9)
- Countrywide Financial (CFC) share plummeted
17% in early trading Friday after reporting the recent
disruptions
in the mortgage market may adversely affect their
current financial condition. (8/10)
MORE AND MORE PEOPLE
ARE THINKING GREEN and making changes in
their lifestyles to preserve natural resources. Why the surge
in interest? Today, the economics of saving energy are making
green strategies attractive to everyone.
Going green doesn’t mean having a garden on your roof
or installing a windmill in the backyard. In fact, some very
simple green strategies could help you save you a lot of
money. For example:
- Switching 20 light bulbs in your
home from conventional incandescent bulbs to compact fluorescent
light bulbs may
help you save as much as $250 each year, according to
SmartMoney.com. If you have more bulbs, you may save even
more.
- Insulating your attic can produce
big cost savings. Attic leakage accounts for about one-fourth
of your energy
bill. By improving your insulation, you could realize significant
savings. How much? In 2001, the most recent data released,
the Department of Energy found that average annual U.S.
household energy bill came to about $1,500. It’s safe to
assume it is higher today.
- Unplugging your appliances,
or using a power strip to turn them off, can save you big money. In the average
home,
75% of the electricity used to power electronics is drawn while
the appliances are off!
AMERICANS HAVE TENDED TO CONSTRUCT LARGELY DOMESTIC
PORTFOLIOS, but in the last few years, U.S. investors have
begun to expand their worldview. According to the Investment
Company Institute (ICI),
of the $160 billion of net new money investors added to equity
portfolios in 2006, portfolios investing in foreign companies
raked in a record
$148 billion, up from $105 billion in 2005.
Additionally, a new
Spectrem Perspective report, “Meeting The
Affluent Investors Needs Through International Investing,” released
in early May, notes that trend is strong among affluent Americans.
In fact, 40% of affluent households, defined as having more
than $500,000 in investable assets, say they are likely to
invest or continue
investing
internationally. Nearly one-third (31%) say they are investing
more internationally than in the past.
Are investors chasing
performance or is this an attitude adjustment? It may be
a little of both.
While the traditional benefit of international
diversification has been to lower portfolio risk, today U.S.
and foreign markets seem to move
a little more in lockstep than in the past. Of course, this
could reverse in the future. For now, some investors are
pursuing “global opportunity” as
the primary reason to invest overseas. Simply, the U.S. is
a smaller piece of the world economy. Today, if you want
to invest in the dominant
pharmaceutical company or automobile manufacturer, you need
to cast a global net. As the world becomes flatter, our investment
choices become wider.
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Best Regards,
P.S. Please feel free to forward
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