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2 January 2011 by Cullen Roche 3 Comments
The first day of the month has been particularly rewarding to investors over the last decade.? CNBC reports on a S&P report that shows an investor who has been invested only on the first day of the each month since the year 2000 has outperformed a buy and hold portfolio by 68%:
“But a very simplistic form of market-timing has worked for the past 11 years. It involves owning the Standard & Poor’s 500 stocks, but only for the first day of every month.
An S&P report recently found that someone who invested $10,000 in the S&P 500 on Dec. 31, 1999, and left the money there until Dec. 1, 2010, would have just $8,209. An investor who was in the market only on the first day of every month over the same time — for example, buying at the close on Dec. 31 and selling at the close of the first trading day in January — would have $13,816.
That’s nearly 70 percent more than buying and holding the whole time. S&P didn’t include reinvesting dividends in either scenario because of the complications of figuring out which companies paid dividends on the first trading day of the month for 11 years. But even if you include all possible dividends for the buy-and-holders, the first-day trade strategy came out 33 percentage points ahead.”
As I type, S&P futures are trading higher by 4 points as we head into the first trading day of 2011.? Looks like the trend is set to continue….
Source: CNBC
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The content on this site is provided as general information only and should not be taken as investment advice. All site content shall not be construed as a recommendation to buy or sell any security or financial product, or to participate in any particular trading or investment strategy. The ideas expressed on this site are solely the opinions of the author(s) and do not necessarily represent the opinions of firms affiliated with the author(s). The opinions of all guest authors or contributors can and will differ from those of Mr. Roche. These opinions do not necessarily represent the opinions or investment decisions of Mr. Roche. The author(s) may or may not have a position in any security referenced herein and may or may not seek to do business with one another or companies mentioned via this website. Any action that you take as a result of information or analysis on this site is ultimately your responsibility. Consult your investment adviser before making any investment decisions.
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1)Yet another eurozone crisis in the spring if not before, when Spain and Italy have to refinance in aggregate over €400 billion of bonds. The euro might break up at this point, though European politicians are normally able to respond to a crisis and I suspect that what will break up the euro will be the failure of most of the countries to take the tough medicine necessary to make their economies competitive over the longer term. We give it only a one in five chance of surviving in its present form for ten years. If the euro doesn’t break up, this could be the year when it weakens substantially towards parity with the dollar.
2) Slower economic growth. As the boost from the end of destocking comes to an end, countries will have to rely on the fundamentals. And in the fast growing Eastern economies, growth will have to slow because of inflationary fears. For the UK, all this will combine with the effects of fiscal retrenchment as the government tries to bring borrowing under control. A double dip for the world economy is not likely because of the strength of the emerging economies. But it is well within the bounds of possibility for the UK.
3) Germany to be the Western economic superstar again. German performance, in some sense subsidised by the euro which has the same effect for the German economy that the cheap renminbi policy has for the Chinese economy, is likely to continue to be stunning. With the costs of unification gradually absorbed and a highly competitive exchange rate, Germany is setting the pace in Europe. One of the interesting elements of Germany’s recent economic success has been the role of immigrants –primarily Turks but increasingly from other countries –who now seem to be boosting the German economy in the same way that their equivalents have boosted the British economy in the past 20 years.
4) A serious economic crisis in Japan. Japanese debt is now 200% of GDP and if it grows will need foreign financing which may be difficult to achieve. It is likely that the government will have to embark on fiscal retrenchment. Meanwhile, growth in the main Asian export markets will slow and the aging population will force the government to raise the retirement age again, this time to 75!
5) Inflation to be a bit lower than is conventionally expected. The end of the inventory turnaround and the prospect of more normal wheat and cotton growing weather should bring prices of commodities down. While interest rates –raised in China again on Christmas Day –should continue to rise in the fast growing Eastern economies, they could remain flat in the US, the eurozone and the UK.
6) Another tough year for consumers. The VAT rise, combined with high commodity prices at the beginning of the year and depressed average earnings and falling employment mean that disposable income will fall. Whereas last year the fall was offset by consumers running down savings and by spending less on utility bills (at least until the cold December), this year there is not a lot of cushion left. So expect consumer spending to be flat at best and even that would be a result.
7) Online retailing has had a tremendous year in 2010 and has really become a dominant driver of consumer spending. Two new technologies which I expect to start to grab attention in 2011 are cloud computing, which in effect is renting access to your server, and ‘telepresence’, the use of HD TV to provide teleconferencing that is such high quality that it seems as if the other people are in the same room as you.
9) A year of two halves for the UK housing market. In the first half of the year, I expect a weak UK housing market and prices could even edge down, on the back of weak disposable income. But in the second half of the year, lending could become cheaper as competition to provide mortgages heats up and this should turn the market round. Prices may be much the same at the end of the year as at the beginning.
10) Now for our infamous sporting predictions which for 2009 were 100% right and for 2010 were nearly 100% wrong. For 2011 ‐Manchester United for the league, New Zealand to beat Australia in the final of the rugby World Cup, India for the cricket World Cup. England to beat Sri Lanka but to lose to India in the two test series in the summer. Real Madrid for the European Champions League.
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The content on this site is provided as general information only and should not be taken as investment advice. All site content shall not be construed as a recommendation to buy or sell any security or financial product, or to participate in any particular trading or investment strategy. The ideas expressed on this site are solely the opinions of the author(s) and do not necessarily represent the opinions of firms affiliated with the author(s). The opinions of all guest authors or contributors can and will differ from those of Mr. Roche. These opinions do not necessarily represent the opinions or investment decisions of Mr. Roche. The author(s) may or may not have a position in any security referenced herein and may or may not seek to do business with one another or companies mentioned via this website. Any action that you take as a result of information or analysis on this site is ultimately your responsibility. Consult your investment adviser before making any investment decisions.
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Back in late August, with interest rates at all-time lows I explained what would need to occur for interest rates to rise substantially:
“Inflation will likely occur during a recovery.? And by then all of this chatter of default and USD collapse will be long gone.? It might get the hyperinflationists hyperventilating again, but these same people fail to understand what hyperinflation actually is – it is the death of the currency that generally occurs due to a lack of faith in that currency.? And that my friends will not occur if we experience a booming recovery and a surge in loan growth.? The two simply do not go hand in hand.”
Since then, interest rates have moved higher (though still very low in historical terms).? This rise in rates happened to occur during the latest round of QE which has provided new fodder for the hyperinflation/default argument from the same pundits who have gotten that story wrong for as long as anyone can remember.? Of course, they’ve been claiming for years now that QE1 & now QE2 would result in hyperinflation and eventually some form of default.? But there is a a disconnect in their argument.? Uncle Sam’s prognosis has not deteriorated in recent months – it has in fact improved dramatically.? So what exactly is occurring here and do the higher interest rates spell impending doom for America?
When QE2 was initiated the Fed’s goal was to lower interest rates by purchasing government debt.? Some commentators said this would crash the dollar and cause runaway inflation.? It was described as “money printing” despite Ben Bernanke’s repeated efforts to explain why he was not increasing the money supply.?? But a funny thing has happened since this new policy was initiated – rates have surged.? This is a remarkable event.? Can you imagine if the Fed announced a target rate on the Fed Funds Rate and rates move in the opposite direction?? That would be a market shattering event, but in the context of QE it is overlooked largely because most people still fail to understand exactly what QE is.? As I’ve previously explained, however, the Fed can’t control the long end of the curve under the current strategy.? They’ve essentially put an unloaded bazooka on the table and the market knows it.? In order to truly control the long end of the curve the Fed would have to specify a target rate and be a willing buyer at any size.? This inherent flaw in QE proves that it was destined to fail before it ever began.? But that hasn’t stopped the hyperinflationists and defaultistas from trying to scare everyone into believing that the USA is about to sink into the same black hole that now consumes Greece and Ireland.
With rates rising they have latched onto the argument that higher rates mean we are being exposed as the insolvent nation they have long argued we are.? Of course, that’s nonsense for anyone who understands how the modern monetary system works.? In a recent article Michael Pento of Euro Pacific (Peter Schiff’s firm) writes:
“By 2015, our publicly traded debt is projected to be at least $15 trillion. Even if interest rates simply revert to their average level – not a stretch, given surging commodity prices and endless Fed money printing – the debt service expense could easily reach over $1 trillion, or about 50% of all federal revenue collected today. Just imagine what would happen if rates were to rise to the level of Greece, nearly 12% on a 10-year note, as opposed to our current 10-year yield of just 3.5%. I bet Athens, Georgia wouldn’t look much better than its namesake. Don’t forget: as interest rates rise, GDP growth slows, sending the debt-to-GDP ratio even higher.
Earlier this year, it wasn’t the nominal level of debt that suddenly sent euroland into insolvency, but rather a spike in debt service payments. Right now, the US national debt is the biggest subprime ARM of all time. Much like homeowners who thought they could afford a mortgage that was 10 times their annual incomes, Messrs. Krugman and Wesbury are blinded by deceptively low current rates of interest. These ostriches won’t poke their heads up to see the writing on the wall: low rates and quantitative easing cannot coexist for long. As rates continue to rise, the reality of US insolvency will be revealed.”
This isn’t the first time Mr. Pento or Mr. Schiff argued that the US dollar was doomed and that interest rates were going to surge and expose the USA as being insolvent.? In fact, they’ve been making this argument for well over a decade and interest rates have continued to decline and the US dollar has remained remarkably stable over the same period.? Inflation, has been remarkably low.? But what about the most recent surge in yields?? Are the gentleman at Euro Pacific finally going to be right??? The evidence says no.
Since the rally in yields began in September we’ve actually seen the hyperinflation story deteriorate further.? The surge in yields are not a sign that Uncle Sam is becoming Greece.? To the contrary, the rise in yields are a sign that Uncle Sam is recovering.? Productivity is increasing, the much feared double dip appears to be a thing of the past and yields are accurately reflecting this higher level of economic output.? Yields are rising because the economic outlook has improved – not because the US government is on the verge of imminent insolvency.? Rising economic activity will almost certainly be accompanied by higher inflation, but let’s not confuse hyperinflation (death of the currency) with healthy rates of inflation.
The hyperinflation story can be debunked easily by looking at the data itself.? As the equity markets rally on hopes of a sustained economic recovery we have seen a coinciding rally in the US dollar and a decline in 5 year US credit default swaps.? This is not even remotely close to what might happen if the government bond market were in fact pricing in default or hyperinflation.? One need look no further than the recent action in Greece for evidence.? As yields in Greek debt surged throughout 2010 their equity markets have collapsed and their credit default swaps have surged to all-time highs.? If it were not for the flawed single currency system in Europe you could guarantee that the Drachma would be absolutely collapsing right now (although the Euro has declined significantly).? The situation in the USA is EXACTLY the opposite.? Rising yields are occurring during a period when 5 year CDS are flat or falling (see chart below), equities are surging and the US dollar strengthens.? That is in no way consistent with an environment in which default or hyperinflation are likely to ensue.
So you can see that this is hardly an environment comparable to the one confronted by Greece, Ireland, Zimbabwe or Weimar.? This is not to imply that the US economy is without troubles (the still very low historical rates show that the USA has severe structural issues), but the most recent rise in yields should not be misconstrued as something that poses a risk of US default, dollar collapse or hyperinflation.? To imply as much is pure fear mongering and nothing more.? The rise in yields merely reflects a marginally higher rate of economic activity when compared to the severely depressed expectations of a few months ago.
In sum, the USA is not insolvent or on the verge of suffering a hyperinflationary collapse.? Anyone who argues as much simply does not understand how the modern monetary system actually functions in the USA.? Furthermore, the latest round of QE has been proven to be a failure as rates surge in the face of a Fed that has vowed to purchase $600B in government bonds, but failed to set a target rate on these purchases.? Make no mistake – this rise in yields is not a sign that Uncle Sam’s balance sheet is weakening.? It is a clear sign that Uncle Sam is recovering from a truly nightmarish economic situation.? Higher rates in the USA are not a sign that we are becoming Greece.? Rather, it is a sign that we are NOT becoming Japan (hopefully).? Let’s hope the recent trends truly do become sustained.? I still believe the USA faces extreme headwinds, but hyperinflation and default are not amongst them.
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The content on this site is provided as general information only and should not be taken as investment advice. All site content shall not be construed as a recommendation to buy or sell any security or financial product, or to participate in any particular trading or investment strategy. The ideas expressed on this site are solely the opinions of the author(s) and do not necessarily represent the opinions of firms affiliated with the author(s). The opinions of all guest authors or contributors can and will differ from those of Mr. Roche. These opinions do not necessarily represent the opinions or investment decisions of Mr. Roche. The author(s) may or may not have a position in any security referenced herein and may or may not seek to do business with one another or companies mentioned via this website. Any action that you take as a result of information or analysis on this site is ultimately your responsibility. Consult your investment adviser before making any investment decisions.
A brief note on comments – The increase in users in recent months has resulted in an increase in unproductive comments. Any user who engages in the use of racial epithets or uses the comment section as a place to insult other users will be banned from the site. The comment section is welcome to all readers who are interested in asking pertinent questions and/or engaging in thoughtful, intelligent, and productive debate. In short, just be nice. Thanks.
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TV Editor Nellie Andreeva - tip her here.
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McLear, a Republican, previously?served as a regional press secretary for the Republican National Committee from 2005 to 2007 and was communications director for the 2004 Bush-Cheney Campaign in Ohio. Prior to that, he served Ohio Governor Bob Taft as a legislative liaison, assistant press secretary and communications assistant.?Baron, a Democrat,?since 1990?has overseen the productions of feature films that include: Knight and Day, Date Night, The Day the Earth Stood Still, Live Free or Die Hard, Borat, Kingdom of Heaven, I Robot, The Day After Tomorrow, Last of the Mohicans, Grand Canyon, Edward Scissorhands, Hot Chicks, Broken Arrow, Romeo and Juliet, Alien Resurrection, Bulworth and Moulin Rouge. Interestingly, few of those productions were filmed in California. DeKoven, a democrat,?has headed?DeKoven Entertainment?after she left NBC in?2000.?She is chair of the Commission on the Status of Women. Also appointed was?Hilary Rice Armstrong, another Democrat,?who since?2006 has been president of Fire of Life Films and executive producer for California State of Mind: the Legacy of Pat Brown. Additionally, she has been development director for My California Now since 2007.
Reappointed were Steve Dayan,?a business agent for the Teamsters Local 399 representing Drivers, Location Managers and Casting Directors;?Christine Essel,?CEO?for the Community Redevelopment Agency for the city of Los Angeles and a former?Paramount Pictures SVP of?government affairs;?Janet Knutsen,?a freelance TV and film producer and production manager who previously worked for Nickelodeon and Warner Bros;?Michael Miller,?division director of IATSE's?Motion Picture and Television Production Department since 2008 and served as eighth international vice president of the IATSE General Executive Board;?Gary Tobey,?chairman/CEO for Haworth Marketing and Media since 1995.
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Seasonally adjusted greetings to Annaly Salvos readers around the world!
In the commercial spirit of the season (and a day early for our blog post this week), we thought we’d go down a level from the headline retail sales numbers, which have been trending strongly of late. In November, retail sales rose 0.8%, and October and September were both revised upwards. Many economists are pointing to the relative strength of this three-month set to predict a decent 4th quarter GDP number. Macroeconomic Advisors has raised its estimate to over 3%. “The report on retail sales through November,” they write, “was much stronger than expected, and even with offsets to our assumptions for imports and inventories, we revised up our current-quarter tracking forecast of GDP growth by four tenths on this report.”
The results for selected line items were consistent with the theme that Americans are starting to spend a little bit more on things that fall more into the “discretionary spending” category, while cutting back on most purchases related to buying new houses. So to begin at the top, total retail sales (less food and autos) were approximately $338 billion at a seasonally adjusted rate in November, up 8.1% from a year ago and within shouting distance of the cyclical peak of $342 billion in November 2007. (All retail sales data are through November 2010.)
Sales at furniture and home furnishing stores, which rose along with the strong housing market, are still languishing below the cyclical peak and bumping along the cyclical trough.
Likewise, sales at electronic and appliance stores, which we would put in the same general “new home sales” category as furniture, are also skittering along the cyclical bottom.
In contrast, building materials, garden equipment and supply dealers, more reflective of the do-it-yourself category of housing-related consumption, are registering double-digit year-over-year sales growth. After the collapse in this category’s sales over the last two years, and with prospects for the housing market still weak, perhaps people have capitulated on maintenance and upgrades.
Recreational purchases are rising faster than the cohort. Sporting goods, hobby, book and music stores are rising impressively on a year-over-year basis, perhaps reflecting the trend towards staycations and the tentative beginnings of the resumption of discretionary spending.
Likewise for the “miscellaneous” category of retail sales, which encompasses stationery, gift, novelty, souvenir and used merchandise stores. They are rising at a double-digit year-over-year pace.
The lump of coal in the sales stockings is new home sales, which are still at generational lows after the mid-decade top. The population of the United States has about doubled since the 1960s, and yet new home sales are less than the run rate of that era. Moreover, it is the first time that new home sales have continued to decline after the official end of a recession. The question before the market is whether or not we can have a sustainable recovery without the important contribution of the housing sector.
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The content on this site is provided as general information only and should not be taken as investment advice. All site content shall not be construed as a recommendation to buy or sell any security or financial product, or to participate in any particular trading or investment strategy. The ideas expressed on this site are solely the opinions of the author(s) and do not necessarily represent the opinions of firms affiliated with the author(s). The opinions of all guest authors or contributors can and will differ from those of Mr. Roche. These opinions do not necessarily represent the opinions or investment decisions of Mr. Roche. The author(s) may or may not have a position in any security referenced herein and may or may not seek to do business with one another or companies mentioned via this website. Any action that you take as a result of information or analysis on this site is ultimately your responsibility. Consult your investment adviser before making any investment decisions.
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