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The
Markets It
seems rather surprising that oil prices hit a new all-time
high last week (unadjusted for inflation), while at the
same time, the Dow Jones Industrial Average registered
its largest weekly gain since April 22nd, according to
Reuters.
Normally, you’d expect the stock
market to struggle in the face of record oil prices. Higher
oil prices
tend
to increase the cost of doing business and act as a brake
on economic growth. So, is the stock market acting irrationally
here?
Despite what academics say, investors
do not always appear to act rationally. Humans are emotional
people and
we do
not always make investment decisions with a cool, detached
demeanor nor do we always make decisions with complete
information. For example, over the past few weeks, we’ve
seen the stock market bounce around like a pinball machine
as it reacts to the latest information. Some people would
say that’s a sign of a rational market that quickly
adjusts to new data. Others would say it’s a sign
of human emotions getting in the way of a sound, long-term
investment plan.
Oil is another good example. On any given
day, oil companies produce about 200,000 barrels of West
Texas crude. However,
last Thursday, almost 600 million barrels of benchmark
West Texas crude were traded on the New York Mercantile
Exchange. If you do the math, that means about 3,000 times
more barrels were traded than were produced that day, according
to Ted Kloza, publisher and chief oil analyst at the Oil
Price Information Service. With that level of trading volume,
it appears there’s a tremendous amount of (irrational?)
speculation going on and that speculation may or may not
bear any resemblance to the fundamental economics of oil.
Astute
investors understand that irrational behavior may occur
from time to time in the markets and when it does,
they try to take advantage of it.
| Returns through 09/14/07 |
1-Week |
Y-T-D |
1-Year |
3-Year |
5-Year |
10-Year |
| Dow Jones Industrials |
2.5 |
7.9 |
16.3 |
8.3 |
9.4 |
5.4 |
| Nasdaq Composite |
1.4 |
7.7 |
16.4 |
10.2 |
15.0 |
4.6 |
| Standard & Poor's 500 |
2.1 |
4.7 |
12.5 |
8.8 |
10.3 |
4.7 |
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:
- Texas
Instruments (TXN) narrowed its 3Q
expectations this week, as the chip maker expects 4% to
8% in revenue growth. The company credits the growth on
increased use of their chips in hard drives and printers.
(9/11)
-
Gold reached $723.50 per ounce this week as investors
are flocking to safer investments in metals on fears
of the credit crunch, a weak dollar and record oil. (9/11)
- China's consumer price index reached a 10 year high in the
month of August as it saw an increase of 6.5%
led by rising food prices. (9/11)
- The dollar fell to
a record low against the euro this week, as the euro
peaked at $1.3877. This decline has
been fueled by speculation that the fed will cut
the federal funds rate by 25 or 50 basis points in their
meeting on September 18. (9/12)
- Retail
sales increased
0.3% for the month of August, led by strong performance
in autos. Excluding autos,
sales fell 0.4%, with poor performance by malls,
grocery stores, and restaurants. Year to date retail
sales are
up 3.7%. (9/14)
- Banks borrowed $7.2 bln from the Fed
discount
window on Wednesday, up from an average of $2.7
bln per day
the week prior. This is an indication of banks
struggling to raise funding elsewhere. Commercial paper
eased its
decline this week as it fell $8.1bln in the
past week, down from $51.4bln the week prior. (9/13)
Five Things You Need to Know About 529
College Savings Plans:
Low Fees
In some cases, 529 Plans come with
no sales charges, application or maintenance fees. The asset-based
management fee can range
from less than 1% to as much as 2.7% -- incentive to shop
around. Read the program's disclosure statement for details.
Shop around for the best deal.
Initial Investment
You can open many 529
Plans with a small initial investment, sometimes as little
as $25 per investment option. You can
then make regular contributions through payroll deduction.
You make the fund allocation, and a pro manages the money.
Rule of thumb: Slow and steady beats fast and erratic.
Contribution
Limits
The total amount that can be contributed to a 529 Plan
varies by state, but is about $300,000. Read the plan's disclosure
statement.
Liquidity
Typically, contributions to a
529 Plan may be withdrawn ten days after receipt of the money
by the fund's transfer
agent. Remember: Withdrawals for purposes other than qualified
educations expenses will be taxed and may be slapped with
an additional 10% penalty.
Taxation
State and federal income taxes
are deferred as the money grows in the account. Withdrawals
for qualified higher education
expenses are exempt from federal taxes and may be exempt
from state income tax. Passage of the Pension Protection
Act of 2006 makes the federal tax benefits permanent.
The following sentences can be completed
by adding two words that are anagrams of one another. Each
word has only four letters. Enjoy!
1. If you prick your finger
while picking a ____, it may be very ____.
2. If you take
a ____ at the Mad Hatter's party, you still may not get a
sip of his ____.
3. If you need some stamps, then you must
____ by the ____ office.
4. If you eat a whole ____ of a wedding
cake, you may develop a spare ____ around your middle.
5.
If you have a ____ with your friend, you should forgive them
and focus on the future, not on the ____.
Click here for the answers.
Best Regards,
P.S. Please feel free to forward
this newsletter to family, friends, or colleagues.
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