Hotlines

July 2017

July 20, 2017
MP3

Changing of the Guard

Let's start with the big, but also not so big, news out of Malvern. Vanguard announced a changing of the guard last week: Tim Buckley will become President and CEO as well as a Vanguard board member, with current CEO Bill McNabb retaining his chairmanship. Greg Davis steps into the Chief Investment Officer shoes. And John Hollyer will take over Davis' role as Global Fixed Income chief. While the press spilled lots of ink over this, what you need to know is that nothing really changes at Vanguard. All of these executives are long-standing Vanguard employees. Only Davis, however, has any experience managing real money. Buckley, like McNabb, Brennan and Bogle before him, has never been a hands-on portfolio manager. Read More

July 13, 2017
MP3

Vanguard Gets Into the Dating Game

The Dow hit yet another all-time high yesterday, and markets are up again today. Why? Well, in part, the job market remains strong, and given last Friday's report, it may actually be getting stronger. Yes, the headline unemployment rate ticked up a tenth of one percent, to 4.4%, but that was due to more people entering the workforce to look for gainful employment. That's the kind of increase in unemployment numbers that you like to see. Read More

July 6, 2017
MP3

The Bull Market Is Young

With the second half underway, there's no reason stocks can't build on the gains earned in the first half of the year. That said, market gains in the next six months are not going to be as easy to come by. The blush is off the political rose, and the Fed is now in tightening, rather than loosening mode. But I'll be more interested in earnings than in policy gains. So, while we might still see some form of tax cut or overhaul coming from Washington, what's most important is whether the global economy continues to generate demand for goods and services that both U.S. and foreign companies can provide. Read More

June 2017

June 29, 2017
MP3

Disconnected Investors

We've talked about this before, but the disconnect between the bond and stock markets seems to reflect different investor outlooks. Bond investors, seeing a lack of inflation and maybe some trouble ahead for the pricey stock markets, have kept buying bonds (with the help of a lot of money gushing in from overseas). Meantime, stock investors, bullish about the economy, earnings and the lack of competition from interest rates, have bid stocks up. Read More

June 22, 2017
MP3

Where's Dividend-Gro?

The "sell in May" crowd must be wishing they'd never heard of that market myth, because stocks have continued to set records this month. The Dow Industrials are up almost 2% this month, and the S&P 500 is up 1%. Small-caps have rebounded with a better than 2% gain this month. Foreign markets have been mixed with a slight negative cast to returns, overall, but nothing to be concerned about. And healthcare stocks have been particularly strong in June, despite the wrangling over healthcare that is taking place in D.C. Read More

June 15, 2017
MP3

The Fed's Slow Dance

Retail sales slipped in May, as did inflation, which is now running under 2% again. That didn't deter the Fed, though. Policymakers raised interest rates at the end of yesterday's two-day meeting, and the fed funds rate now stands at 1.25%. While the Fed says they remain on track for another interest rate hike sometime later this year, Vanguard is now predicting, along with the consensus, that there are no further rate hikes in store for 2017. And Vanguard floats the possibility of no hikes in 2018 either, as Janet Yellen & Co. make plans to begin normalizing the Fed's balance sheet by allowing maturing bonds to run off rather than reinvesting in more bonds. Read More

June 8, 2017
MP3

FANG Fantasies

It's been a fairly noisy week when it comes to politics, but a quiet week from an economic point of view. I'll focus on the latter rather than the former. The labor market remains strong, and job openings data reflects the fact that workers have gained a bit of power in terms of being able to leave one job and find another if they so desire. It's good when the economy provides ample opportunities for job changes, and this apparently is what's happening. While some manufacturing and service economy data suggests a bit of a slowing from prior months, the fact is that we are still well into expansion mode. Read More

June 1, 2017
MP3

A Healthy Consumer

U.S. consumers are in good shape with incomes on the rise, plentiful jobs and low inflation. To put some numbers behind that statement: The ADP employment report showed a gain of 253,000 jobs in May. We'll see how the official numbers look tomorrow, but a tight labor market is leading to higher incomes, which are up 1.8% over the past year after inflation. That's four months in a row of rising incomes. Spending, too, is up 2.6% after inflation. Yes, this means that savings are down. The savings rate at 5.3% is lower than the 10-year average of 5.6%. But that's to be expected. Read More

May 2017

May 25, 2017
MP3

Earnings Eruption

Nearly all the companies in the S&P 500 have reported earnings for the first quarter, and it looks as if the last three months were the strongest in almost six years—since the third quarter of 2011—resulting in earnings growing 13.6% compared to a year ago. That’s significant, given that economic growth was particularly paltry during the period, with GDP up just 1.9% over the past year. We’ll be getting another look at the GDP number tomorrow, but don’t expect a big improvement over the original forecast of 0.7% annualized growth in Q1. Estimates are that they’ll come in at, oh, 0.9%. Read More

May 18, 2017
MP3

Don't Get Rattled

As Dan and I have been saying for a while now, the Trump Rally, which we think should be called the Rumor Rally, seems to be falling apart a bit as Washington is embroiled in controversies that are putting plans for major tax and health care reform on hold. That doesn’t mean, though, that all the market’s gains since Election Day will evaporate. The fact is that the economic news remains perfectly sound. Read More

May 11, 2017
MP3

When 60/40 Becomes 80/20

Markets are up, volatility is down, France isn't going to Frexit, jobs are plentiful, and corporate earnings have surprised even the sell-side analysts' often rosy projections to the upside. What's not to like? Well, I don't want to be a "Debbie Downer," but when everything looks this good, you have to begin worrying about what's around the corner, even if you can't see it. Read More

May 4, 2017
MP3

Calm Markets in Uncertain Times

The S&P 500 Total Return index hit its 16th high of the year on Tuesday, and has now hit 201 highs since the market bottom on March 9, 2009. You've heard Dan and me say this before, but this means that investors have had 201 reasons, since the market bottom, to "sell at the high" and get out. The S&P 500 index, by contrast, has hit 139 highs, the latest on March 1, and is only 0.3% away from that high as of Wednesday night's close. And it's not just the S&P hitting highs—on Tuesday, no fewer than 40 of Vanguard's stock and balanced funds hit all-time highs. Read More

April 2017

April 27, 2017
MP3

Headline Juggling Act

We've got changes recommended for three of our Model Portfolios in this Hotline. Grab a pen and paper and I'll give them to you in a moment. But first, let's recap the week, because all of a sudden there are a lot of balls in the air. First, the economy continues to show strength. For instance, existing home sales in March were stronger than February. New home sales were also strong, up 5.8% over February's numbers. Year-over-year new home sales are at the highest level since October. The lack of adequate supply, and now mortgage rates under 4%, must be making demand even stronger—a good sign, but something I'm sure is making builders anxious, since they will want to strike while the iron is still hot. Read More

April 20, 2017
MP3

Bulls and Bonds

Tax Day has come and gone, and I hope that you were able to get your filings done on time, or took extensions to make sure your data was clean and clear. Given the disturbing round of emails I've recently received concerning mistakes in Vanguard's reports, I'm sure you were extra diligent. Read More

April 13, 2017
MP3

Peeved with SPIVA

The employment numbers released last Friday were strong but show signs of a slowing in the pace of job gains, as unemployment fell to 4.5%. Jobless claims reported this morning remain near 40-year lows. And the Fed, or more specifically Janet Yellen, believes the economy is in fine shape. In fact, she used a car metaphor in a speech, saying that while the Fed had had its foot on the gas for a long period, now it was simply allowing the economy to coast. I'd add that she probably should have also said that their interest rate increases have not been akin to tapping on the brakes—yet. I'd say we have a ways to go before the Fed actually tries to slow things down. Read More

April 6, 2017
MP3

Keep a Watchful Eye

To quickly recap the economic news of the week: Construction spending was solid in February. Both the manufacturing and non-manufacturing sectors lost some of their momentum but are still indicating that the economy continues to expand. Auto sales were weak in March but probably couldn't have maintained the torrid pace of sales from the fourth quarter, so this was neither bad nor good news, taken at its face. In sum, the economy is growing, but could be firing on more cylinders, which would lead to faster growth. None of this is new news. Read More

March 2017

March 30, 2017
MP3

Changing Course

With Thursday in the books, we have one more trading day to go in the month and the first quarter, and from where I sit it's been a pretty remarkable quarter. Why? Because many trends that have been driving the markets over the past year to year-and-a-half, have reversed pretty dramatically—simply with the turn of the calendar. Read More

March 23, 2017
MP3

Explorer's Manager Diet

Well, on Tuesday it finally happened—the S&P 500 index declined by more than 1% for the first time in 109 trading days—the first time since October 11. Tuesday's decline was led by financials, with Financials ETF (VFH) off a full 3.0%. Remember, financial stocks have been one of the big gainers since the election on the promise of greater economic activity and loosened regulations. With all the machinations in Washington, it appears Wall Street gave up on them, at least for the moment. Read More

March 16, 2017
MP3

Yellen: "GDP Is a Pretty Noisy Indicator"

Last Friday's jobs numbers were surprising, and strong. Unemployment dropped from 4.8% to 4.7%, while the U-6 rate, which is the broadest measure of unemployment, dropped 2-tenths from 9.4% to 9.2%. The gap between the two is currently at 4.5 percentage points, lower than the long-term 4.7-point average and matching the December 2016 reading for the lowest gap since August 2008. The lowest I've seen is a 2.9 percentage point gap between a headline rate of 3.9% and a U-6 rate of 6.8% in October 2000. That was more than 16 years ago, and it didn't last long. Read More

March 9, 2017
MP3

Prepare for a 3,000-Point Decline

Here's a number to write down: 3,003. As Jeff has told us many times, the average intra-year drawdown the stock market has experienced over the last 30 years is 14.3%. That translates into a 3,003-point decline from the Dow's top. Are you mentally and financially prepared for a 3,000-point decline in the Dow? Read More

March 2, 2017
MP3

Falling Prices Happen—What's Your Plan?

Tuesday's GDP report had something for everyone, with better consumer spending but worse numbers on business investment and home building. And inventory "build" was less than originally thought. In the end, virtually nothing changed, with Q4 still coming in at a 1.9% growth rate. That's a far cry from the 3% to 4% promises being made in Washington these days. The personal income data for January showed incomes rising at the best year-over-year rate since December 2015. Great news. But when you adjust for inflation, income growth remains pretty paltry. And the same goes for consumer spending—great numbers on their face, but when inflation is factored in, not so much. In fact, savings rates have gone up a bit. So, both good and not so good news out of the income report. Read More

February 2017

February 23, 2017
MP3

Firing on Many Cylinders

U.S. markets remain in rally mode, but questions are now popping up about just how far they can go and how long this rally can last. In the meantime, Federal Reserve policymakers are making noises that suggest the next interest-rate hike is coming in March. Stock prices are high. I was reading an analysis from the folks at FactSet who report that the forward price-earnings multiple on the S&P 500 index (this is the price of the S&P compared to earnings expectations for the next 12 months) is now higher than its 5-year, 10-year, 15-year and 20-year averages. That takes us back to 1997, of course, which was the beginning of the end of the tech bubble. Read More

February 16, 2017
MP3

Resilient Rally

Last Thursday's big jump in the markets was said to be due, at least in part, to a Trump statement that he would make good on a campaign promise to lower taxes. Again, this is part of the Rumor Rally that Dan and I have been talking about for some time now. Investors are buying on the rumor of things to come—tax reform and reduced regulation, in particular—but neither the actual news nor the action is here yet, and when that "news" finally hits we'll have to see if the promise is matched, or if it provokes some selling. Read More

February 9, 2017
MP3

Rolling with the Returns

Last Friday's jobs report had something for everyone in it. The good side was the increase in the U.S. workforce by about 76,000 and job creation on the order of 227,000. The flipside is that the headline unemployment rate and the U-6 rate of total unemployment, which includes people in part-time jobs looking for full-time work, both rose. Still, the gap between the headline rate of 4.8% and the U-6 of 9.4% remains below the long-term average for the measure. Read More

February 2, 2017
MP3

Fed Stands Still

Earnings and interest rates drive stock prices. If rates rise too high and start competing with stocks for investors' money...well, then we have an issue. That is not the case right now. The Fed stood pat. Remember when I mentioned that it seemed as though everyone had forgotten about the Fed, given how little chatter there was in the media? Well, the lack of a strong statement about the economy and a "holding pattern" on interest rates means that the media and the markets had it right. Read More

July 2017

July 20, 2017
MP3

Changing of the Guard

Let's start with the big, but also not so big, news out of Malvern. Vanguard announced a changing of the guard last week: Tim Buckley will become President and CEO as well as a Vanguard board member, with current CEO Bill McNabb retaining his chairmanship. Greg Davis steps into the Chief Investment Officer shoes. And John Hollyer will take over Davis' role as Global Fixed Income chief. While the press spilled lots of ink over this, what you need to know is that nothing really changes at Vanguard. All of these executives are long-standing Vanguard employees. Only Davis, however, has any experience managing real money. Buckley, like McNabb, Brennan and Bogle before him, has never been a hands-on portfolio manager. Read More

July 13, 2017
MP3

Vanguard Gets Into the Dating Game

The Dow hit yet another all-time high yesterday, and markets are up again today. Why? Well, in part, the job market remains strong, and given last Friday's report, it may actually be getting stronger. Yes, the headline unemployment rate ticked up a tenth of one percent, to 4.4%, but that was due to more people entering the workforce to look for gainful employment. That's the kind of increase in unemployment numbers that you like to see. Read More

July 6, 2017
MP3

The Bull Market Is Young

With the second half underway, there's no reason stocks can't build on the gains earned in the first half of the year. That said, market gains in the next six months are not going to be as easy to come by. The blush is off the political rose, and the Fed is now in tightening, rather than loosening mode. But I'll be more interested in earnings than in policy gains. So, while we might still see some form of tax cut or overhaul coming from Washington, what's most important is whether the global economy continues to generate demand for goods and services that both U.S. and foreign companies can provide. Read More

June 2017

June 29, 2017
MP3

Disconnected Investors

We've talked about this before, but the disconnect between the bond and stock markets seems to reflect different investor outlooks. Bond investors, seeing a lack of inflation and maybe some trouble ahead for the pricey stock markets, have kept buying bonds (with the help of a lot of money gushing in from overseas). Meantime, stock investors, bullish about the economy, earnings and the lack of competition from interest rates, have bid stocks up. Read More

June 22, 2017
MP3

Where's Dividend-Gro?

The "sell in May" crowd must be wishing they'd never heard of that market myth, because stocks have continued to set records this month. The Dow Industrials are up almost 2% this month, and the S&P 500 is up 1%. Small-caps have rebounded with a better than 2% gain this month. Foreign markets have been mixed with a slight negative cast to returns, overall, but nothing to be concerned about. And healthcare stocks have been particularly strong in June, despite the wrangling over healthcare that is taking place in D.C. Read More

June 15, 2017
MP3

The Fed's Slow Dance

Retail sales slipped in May, as did inflation, which is now running under 2% again. That didn't deter the Fed, though. Policymakers raised interest rates at the end of yesterday's two-day meeting, and the fed funds rate now stands at 1.25%. While the Fed says they remain on track for another interest rate hike sometime later this year, Vanguard is now predicting, along with the consensus, that there are no further rate hikes in store for 2017. And Vanguard floats the possibility of no hikes in 2018 either, as Janet Yellen & Co. make plans to begin normalizing the Fed's balance sheet by allowing maturing bonds to run off rather than reinvesting in more bonds. Read More

June 8, 2017
MP3

FANG Fantasies

It's been a fairly noisy week when it comes to politics, but a quiet week from an economic point of view. I'll focus on the latter rather than the former. The labor market remains strong, and job openings data reflects the fact that workers have gained a bit of power in terms of being able to leave one job and find another if they so desire. It's good when the economy provides ample opportunities for job changes, and this apparently is what's happening. While some manufacturing and service economy data suggests a bit of a slowing from prior months, the fact is that we are still well into expansion mode. Read More

June 1, 2017
MP3

A Healthy Consumer

U.S. consumers are in good shape with incomes on the rise, plentiful jobs and low inflation. To put some numbers behind that statement: The ADP employment report showed a gain of 253,000 jobs in May. We'll see how the official numbers look tomorrow, but a tight labor market is leading to higher incomes, which are up 1.8% over the past year after inflation. That's four months in a row of rising incomes. Spending, too, is up 2.6% after inflation. Yes, this means that savings are down. The savings rate at 5.3% is lower than the 10-year average of 5.6%. But that's to be expected. Read More

May 2017

May 25, 2017
MP3

Earnings Eruption

Nearly all the companies in the S&P 500 have reported earnings for the first quarter, and it looks as if the last three months were the strongest in almost six years—since the third quarter of 2011—resulting in earnings growing 13.6% compared to a year ago. That’s significant, given that economic growth was particularly paltry during the period, with GDP up just 1.9% over the past year. We’ll be getting another look at the GDP number tomorrow, but don’t expect a big improvement over the original forecast of 0.7% annualized growth in Q1. Estimates are that they’ll come in at, oh, 0.9%. Read More

May 18, 2017
MP3

Don't Get Rattled

As Dan and I have been saying for a while now, the Trump Rally, which we think should be called the Rumor Rally, seems to be falling apart a bit as Washington is embroiled in controversies that are putting plans for major tax and health care reform on hold. That doesn’t mean, though, that all the market’s gains since Election Day will evaporate. The fact is that the economic news remains perfectly sound. Read More

May 11, 2017
MP3

When 60/40 Becomes 80/20

Markets are up, volatility is down, France isn't going to Frexit, jobs are plentiful, and corporate earnings have surprised even the sell-side analysts' often rosy projections to the upside. What's not to like? Well, I don't want to be a "Debbie Downer," but when everything looks this good, you have to begin worrying about what's around the corner, even if you can't see it. Read More

May 4, 2017
MP3

Calm Markets in Uncertain Times

The S&P 500 Total Return index hit its 16th high of the year on Tuesday, and has now hit 201 highs since the market bottom on March 9, 2009. You've heard Dan and me say this before, but this means that investors have had 201 reasons, since the market bottom, to "sell at the high" and get out. The S&P 500 index, by contrast, has hit 139 highs, the latest on March 1, and is only 0.3% away from that high as of Wednesday night's close. And it's not just the S&P hitting highs—on Tuesday, no fewer than 40 of Vanguard's stock and balanced funds hit all-time highs. Read More

April 2017

April 27, 2017
MP3

Headline Juggling Act

We've got changes recommended for three of our Model Portfolios in this Hotline. Grab a pen and paper and I'll give them to you in a moment. But first, let's recap the week, because all of a sudden there are a lot of balls in the air. First, the economy continues to show strength. For instance, existing home sales in March were stronger than February. New home sales were also strong, up 5.8% over February's numbers. Year-over-year new home sales are at the highest level since October. The lack of adequate supply, and now mortgage rates under 4%, must be making demand even stronger—a good sign, but something I'm sure is making builders anxious, since they will want to strike while the iron is still hot. Read More

April 20, 2017
MP3

Bulls and Bonds

Tax Day has come and gone, and I hope that you were able to get your filings done on time, or took extensions to make sure your data was clean and clear. Given the disturbing round of emails I've recently received concerning mistakes in Vanguard's reports, I'm sure you were extra diligent. Read More

April 13, 2017
MP3

Peeved with SPIVA

The employment numbers released last Friday were strong but show signs of a slowing in the pace of job gains, as unemployment fell to 4.5%. Jobless claims reported this morning remain near 40-year lows. And the Fed, or more specifically Janet Yellen, believes the economy is in fine shape. In fact, she used a car metaphor in a speech, saying that while the Fed had had its foot on the gas for a long period, now it was simply allowing the economy to coast. I'd add that she probably should have also said that their interest rate increases have not been akin to tapping on the brakes—yet. I'd say we have a ways to go before the Fed actually tries to slow things down. Read More

April 6, 2017
MP3

Keep a Watchful Eye

To quickly recap the economic news of the week: Construction spending was solid in February. Both the manufacturing and non-manufacturing sectors lost some of their momentum but are still indicating that the economy continues to expand. Auto sales were weak in March but probably couldn't have maintained the torrid pace of sales from the fourth quarter, so this was neither bad nor good news, taken at its face. In sum, the economy is growing, but could be firing on more cylinders, which would lead to faster growth. None of this is new news. Read More

March 2017

March 30, 2017
MP3

Changing Course

With Thursday in the books, we have one more trading day to go in the month and the first quarter, and from where I sit it's been a pretty remarkable quarter. Why? Because many trends that have been driving the markets over the past year to year-and-a-half, have reversed pretty dramatically—simply with the turn of the calendar. Read More

March 23, 2017
MP3

Explorer's Manager Diet

Well, on Tuesday it finally happened—the S&P 500 index declined by more than 1% for the first time in 109 trading days—the first time since October 11. Tuesday's decline was led by financials, with Financials ETF (VFH) off a full 3.0%. Remember, financial stocks have been one of the big gainers since the election on the promise of greater economic activity and loosened regulations. With all the machinations in Washington, it appears Wall Street gave up on them, at least for the moment. Read More

March 16, 2017
MP3

Yellen: "GDP Is a Pretty Noisy Indicator"

Last Friday's jobs numbers were surprising, and strong. Unemployment dropped from 4.8% to 4.7%, while the U-6 rate, which is the broadest measure of unemployment, dropped 2-tenths from 9.4% to 9.2%. The gap between the two is currently at 4.5 percentage points, lower than the long-term 4.7-point average and matching the December 2016 reading for the lowest gap since August 2008. The lowest I've seen is a 2.9 percentage point gap between a headline rate of 3.9% and a U-6 rate of 6.8% in October 2000. That was more than 16 years ago, and it didn't last long. Read More

March 9, 2017
MP3

Prepare for a 3,000-Point Decline

Here's a number to write down: 3,003. As Jeff has told us many times, the average intra-year drawdown the stock market has experienced over the last 30 years is 14.3%. That translates into a 3,003-point decline from the Dow's top. Are you mentally and financially prepared for a 3,000-point decline in the Dow? Read More

March 2, 2017
MP3

Falling Prices Happen—What's Your Plan?

Tuesday's GDP report had something for everyone, with better consumer spending but worse numbers on business investment and home building. And inventory "build" was less than originally thought. In the end, virtually nothing changed, with Q4 still coming in at a 1.9% growth rate. That's a far cry from the 3% to 4% promises being made in Washington these days. The personal income data for January showed incomes rising at the best year-over-year rate since December 2015. Great news. But when you adjust for inflation, income growth remains pretty paltry. And the same goes for consumer spending—great numbers on their face, but when inflation is factored in, not so much. In fact, savings rates have gone up a bit. So, both good and not so good news out of the income report. Read More

February 2017

February 23, 2017
MP3

Firing on Many Cylinders

U.S. markets remain in rally mode, but questions are now popping up about just how far they can go and how long this rally can last. In the meantime, Federal Reserve policymakers are making noises that suggest the next interest-rate hike is coming in March. Stock prices are high. I was reading an analysis from the folks at FactSet who report that the forward price-earnings multiple on the S&P 500 index (this is the price of the S&P compared to earnings expectations for the next 12 months) is now higher than its 5-year, 10-year, 15-year and 20-year averages. That takes us back to 1997, of course, which was the beginning of the end of the tech bubble. Read More

February 16, 2017
MP3

Resilient Rally

Last Thursday's big jump in the markets was said to be due, at least in part, to a Trump statement that he would make good on a campaign promise to lower taxes. Again, this is part of the Rumor Rally that Dan and I have been talking about for some time now. Investors are buying on the rumor of things to come—tax reform and reduced regulation, in particular—but neither the actual news nor the action is here yet, and when that "news" finally hits we'll have to see if the promise is matched, or if it provokes some selling. Read More

February 9, 2017
MP3

Rolling with the Returns

Last Friday's jobs report had something for everyone in it. The good side was the increase in the U.S. workforce by about 76,000 and job creation on the order of 227,000. The flipside is that the headline unemployment rate and the U-6 rate of total unemployment, which includes people in part-time jobs looking for full-time work, both rose. Still, the gap between the headline rate of 4.8% and the U-6 of 9.4% remains below the long-term average for the measure. Read More

February 2, 2017
MP3

Fed Stands Still

Earnings and interest rates drive stock prices. If rates rise too high and start competing with stocks for investors' money...well, then we have an issue. That is not the case right now. The Fed stood pat. Remember when I mentioned that it seemed as though everyone had forgotten about the Fed, given how little chatter there was in the media? Well, the lack of a strong statement about the economy and a "holding pattern" on interest rates means that the media and the markets had it right. Read More

January 2017

January 26, 2017
MP3

Rumor Rally

The "Rumor Rally" carries on. Why do I call it the "Rumor Rally" and not the "Trump Rally"? Well, as Jeff alluded to last week, this post-election rally has been marked mainly by the rumor of what the new administration would do. So far that's still the case. Some executive actions have been signed, yes, but there's no Cabinet, the Congress hasn't done anything and I think there's more to be known before we can be assured that the economy and markets will benefit from the policies of the administration. Read More

January 19, 2017
MP3

Trading Rumors for Reality

Buy on the rumor, sell on the news. The post-election rally has been driven by investors buying on rumors—rumors about better trade deals, lower taxes, the return of jobs lost to foreign countries and the like. Since Election Day, the Dow index has gained 8.6%, while the S&P 500 is up 6.6%. And small stocks have soared on the expectation that companies that rely less on exports will benefit when the trade barriers go up. That's the rumor. Now, where's the news? And will the news bring a sell-off? I think it's highly likely. It won't be permanent, of course (since, ultimately, stocks move on earnings and interest rates), but don't expect the first 100 days of Donald Trump's administration to be bullish for Wall Street. Read More

January 12, 2017
MP3

Health Care On the Hot Seat

Well, it was another quiet week on the economic front. In terms of data, the highlight was soaring optimism among small businesses. Business owners are the most optimistic they've been since December 2004! This report perfectly captures the sentiment that a Trump administration will be pro-business–cutting corporate taxes and slashing regulations. Whether those planned policies become reality has yet to be seen, but people are, well, optimistic. Read More

January 5, 2017
MP3

New Year, Same Computer Bugs

The economy posted some pretty nice growth in the third quarter, according to the updated estimates from the BEA. GDP apparently rose at a 3.2% rate, better than the first estimate of 2.9%, and if it holds into the final report, it will make Q3 the best quarter in two years. Profit growth was also strong, even after taxes, with a 7.6% gain in the quarter and the first year-over-year profit gain since the first quarter of 2015. Read More

December 2016

December 29, 2016
MP3

Expectations for a Healthy New Year

I want to take a quick look back at 2016 today (and will have much more for you in the January newsletter) and also give you my thoughts about the 2017 Hot Hands fund. But before that, I came across an odd piece of data this week. The Conference Board's consumer confidence reading for December jumped to a level that we haven't seen since August 2001. Nothing odd in that. But pundits were exclaiming about confidence having reached a 15-year high, about matching its August 2001 levels. Read More

December 22, 2016
MP3

A Joyful End to a Mixed Year

The economy remains strong. Despite it being a pre-holiday week the news wires have been very busy with economic data releases ahead of the three-day weekend, and the news has been pretty darned good. The big Kahuna, the final report on third quarter GDP saw another boost from the initial and second estimates to 3.5% growth, which is nothing to sneeze at and is the best rate of growth in two years. We've definitely revved up since early 2016, though the fourth quarter may not be as strong as the third was. I'll leave that to the economists to argue about. Read More

December 15, 2016
MP3

Fed Hikes Rates as Expected

Here come the distributions. A few funds have already paid out this week, but the flood is about to be unleashed. Based on updated information from Vanguard that includes dividends, not just capital gains, some funds you didn't hear about in the last round of estimates are poised to make some pretty good payouts in the coming days. Read More

December 8, 2016
MP3

A Healthy Reponse To The Trump Rally

It has been a relatively light week in terms of economic data. The standout was the ISM non-manufacturing index, which came in above expectations at 57.2. In plain English, that means the service side of the economy, which represents just under 90% of U.S. economic activity, is on very solid footing. Looking ahead to next week, I'd be shocked if the Fed doesn't raise interest rates at the end of its two-day meeting, but we'll cross that bridge on Wednesday. Read More

December 1, 2016
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Total Bond's Third-Worst Month

The economy posted some pretty nice growth in the third quarter, according to the updated estimates from the BEA. GDP apparently rose at a 3.2% rate, better than the first estimate of 2.9%, and if it holds into the final report, it will make Q3 the best quarter in two years. Profit growth was also strong, even after taxes, with a 7.6% gain in the quarter and the first year-over-year profit gain since the first quarter of 2015. Read More

November 2016

November 23, 2016
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Acorns Are for Nuts

The markets have so far been rallying on the outcome of the election, or at least on the fact that the election is over, thank goodness. You've heard this before, but how the Trump presidency will affect the markets and the economy remains to be seen, as we are a long way from knowing what policies will be pursued, and how. But Donald Trump is inheriting a fairly strong economy, not the purportedly weak one that he campaigned on (or against). Read More

November 17, 2016
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Winners and Losers

Well, it's been a week of speculation as the transition to a Trump presidency gets underway. There are plenty of unanswered questions at this point: Who will fill the Cabinet and the other soon-to-be-vacated seats in Washington? Will the Affordable Care Act be repealed, or will some elements, such as the requirements around pre-existing conditions or the ability for children under the age of 26 to remain on parental plans, survive? If infrastructure spending is to increase, will it be directed by an infrastructure bank? Apparently, taxes are going lower, but what exactly does that look like—corporate or individual? And what about the repatriation of overseas profits? Other questions abound about foreign policy, trade and immigration. Read More

November 10, 2016
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A Healthy Response to an Election Surprise

The pollsters, the political pundits and yours truly might have gotten the election wrong, but at least I didn't tell you to sell before the crash, because, well, as Jeff and I have been telling you, politics doesn't drive the markets—earnings and interest rates do. No matter who I thought was going to win, you know very well that I wasn't about to make moves in our Model Portfolios that would jeopardize your wealth, or mine. I told you to sit tight and watch. Good for all of us. Read More

November 3, 2016
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Polls Watching

Let's first get the obvious out of the way. By the time you and I get together again next week, we'll have an answer as to who won Tuesday's election. That being said, this election is setting itself up to be one that will not be settled on Tuesday, unfortunately. Divisiveness and mistrust have been growing over the campaign season, and I suppose that Tuesday's results will only be the catalyst for more divisiveness no matter who wins. A contested election remains a possibility—however quixotic. Read More

October 2016

October 27, 2016
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Cruel Math Could Yield Cruel Numbers

The election is just 12 days away. The polls show the race has tightened a bit since the third and final debate. The closer the vote is, the greater the chance for confusion and uncertainty around the process and outcome. Tensions are clearly running high. As if that wasn't enough for an investor to worry about, three-year stock market returns have fallen solidly into the single digits for the first time since September 2011. Without a 2.6% or better gain in the S&P 500 between now and month-end, investors will see long-standing double-digit returns return to earth with a thud. 500 Index's 11.0% three-year annual return at last month's end could fall to less than 9.0% at the rate things are going. Read More

October 20, 2016
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Save This Week ... And Every Other

Last night was the third and final debate between presidential-hopefuls Trump and Clinton, and we're now going to be subjected to the final push towards the election on November 8. Expect the political rhetoric and headlines to remain frenzied, but no matter who wins we know that businesses will continue making things and providing services, people will still have jobs, and commerce will continue. So let's turn down the debate noise and static, and turn to the economy and the Fed. Retail sales numbers for September reversed a two-month slowing, posting the third strongest month of the year. And it wasn't all autos. Retail sales were up 2.7% over year-ago numbers, while auto sales were up 2.5%. The consumer is kicking in. Read More

October 13, 2016
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To Your Continued Health

I want to talk about the jobs numbers, which are terrific, but first let me address the weakness we're seeing in the health care sector. Over the past few days, health care stocks have been whacked. Is this because it appears that the Donald Trump campaign is imploding and Hillary Clinton looks bound for 1600 Pennsylvania Avenue, where she'll lead a charge on the health sector? Maybe so. But if this is what's driving the selloff in health care stocks, I think Wall Street has it backwards. Read More

October 6, 2016
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Buy Health Care, Don't Sell It

The economy is moving ahead slowly, election jitters are starting to take hold on Wall Street (though that uncertainty will be over on November 8), and tomorrow's jobs report should cement a Fed rate hike in December. On the economy, the ISM manufacturing survey showed a slight improvement for September, but it's nothing robust, and after a slide in August, we're almost back to levels seen in July. That's not cause for excitement. Read More

September 2016

September 29, 2016
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Generally Good Health

On its third and final estimate of how fast the economy grew in the second quarter, the Bureau of Economic Analysis reported today that the economy grew at a 1.4% pace from April to June—slightly faster than originally thought. That's good, but not great, which further confirms something Dan and I have talked about for years now—the U.S. economy is in a slow-growth, not no-growth environment. Read More

September 22, 2016
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Taking Tax-Exempt Munis to the Bank

It's the Fed, the Fed, the Fed this week, but before we get to that, you might have seen a story posted around the web and in papers this week about data that shows only 9.5% of actively managed large-cap funds beat the S&P 500 index over the five years ending in August. Well, without getting into the specifics of how some fund managers don't use the S&P as their benchmark (and investors in those funds are thankful for NOT losing more than 50% of their value during the last bear market), I did want to mention that over the same five-year period, all three of the PRIMECAP-run funds, as well as Health Care, well-outperformed 500 Index. Read More

September 15, 2016
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Income Boost

The only real piece of economic data of any consequence this week was something we can all cheer: the average American saw their income rise in a big way last year. The median household income, which is the level of income where half of households make more and half earn less, rose 5.2% in 2015—the largest annual increase since the Census Bureau started tracking this data in 1967. If we see anything like that this year, median household income will reach a record level. Dan and I have talked at length about how U.S. households are in the best financial shape they've been in decades. Well, I think we can all appreciate how rising incomes only serve to strengthen the position of U.S. consumers. Read More

September 8, 2016
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Getting High—Or Close to It

Just yesterday, we saw new records set for the NASDAQ Composite as well as the S&P small- and mid-cap indexes, and close-but-no-cigar moves by the Dow and the S&P 500, which came within fractions of the highs set in mid-August. Almost 40 Vanguard funds hit all-time highs on Wednesday, and another 15 or so are within 1% of their all-time highs. Read More

September 1, 2016
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The Consumer Is King

July data on incomes and consumption both surprised to the upside. And savings rates remain strong, which is also surprising. This means households remain in great financial shape. As July is the first month of the third quarter, this is good news—the consumer is well employed, is saving and is spending at the same time. The consumer is king. With all this relatively strong economic news, Moody's has raised its estimate of 3rd- quarter GDP growth to 3.4%. If it indeed comes in that strong, it will mark growth at three times the rate of the second quarter. Read More

August 2016

August 25, 2016
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Two Losers? One's a Winner!

Tomorrow will bring the second estimate of second-quarter GDP growth, and given the relatively calm markets we've seen lately, it wouldn't surprise me at all to see a few fireworks if the numbers come in substantially different from the 1.2% annualized growth that the early, or "flash", estimate came up with in late July. Revisions often take the number up—so we'll see if that holds true tomorrow. Read More

August 18, 2016
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Even New Highs Fall Short Of Expectations

Monday was a day of new index highs. Here in the U.S. indexes reached record levels across the market cap spectrum—the Dow, Nasdaq, S&P 500, S&P MidCap 400 and S&P SmallCap 600 indexes all hit records on Monday. Our southern neighbor, Mexico, also hit new highs. Plus, we saw a new index high in Russia for the first time since 2007.

Yes, valuations are on the high side, but that's when you consider them in a vacuum. The fact is that with interest rates as low as they are, and what appears to be the end of a slowdown in economic and earnings growth rates, those valuations may look a bit less bloated in a few months' time. We'll have to see, but remember also that we aren't buying the market—our individual fund managers are looking for the best values in the market rather than buying ALL the market as the indexes do. The economy remains in growth mode, however slow, and the consumer is in great shape. Stock prices may simply be anticipating a bit of a pickup later in the year. Read More

August 11, 2016
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Record Serenity

I wouldn't call it a blowout, but last Friday's jobs report certainly surprised economists almost as much as the prior Friday's GDP report–except to the upside. Not only was job creation strong in July, but revisions to June's numbers also showed marked strength. The headline unemployment rate remains at 4.9%, and the broader U-6 rate ticked up slightly to 9.7%. Job creation was distributed across virtually all kinds of businesses, and reaction on Wall Street was strong. Dan and I think this augurs for a rate hike in September. Read More

August 4, 2016
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The Impermanence of a Down Market

The economic data continues to point to a slow-growth, not no-growth U.S. economy. But let's talk about the stock market for a moment. Headline writers were having a lot of fun pointing out that the Dow fell for seven days in a row between July 25 and Tuesday, but then, of course, the streak was broken. What you weren't hearing, of course, was that over the course of those seven down days, the Dow fell just 257 points for a total of 1.4%. You see, that's just not worrisome enough to get the media types' blood flowing. Read More

July 2016

July 28, 2016
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Vanguard Closes Door on Dividend Growth

Let's start with a big piece of Vanguard news: This morning, without any prior warning, Vanguard closed Dividend Growth to all new investors. If you already own the fund, and I hope you've followed our advice to do so, you can continue to add money to it without restriction. If you don't own the fund, well, the best substitute in Vanguard's stable is Dividend Appreciation Index. The index fund is available in Investor, Admiral and ETF shares.

With just over $30 billion in assets, Dividend Growth is the fourth largest actively managed stock fund at Vanguard (behind Health Care, PRIMECAP and Windsor II), so it was probably only a matter of time before Vanguard closed the fund. Read More

July 21, 2016
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Bearish Sentiment, Bullish Markets

The Dow has now hit new highs seven days in a row, while the S&P 500 index has hit six new highs over the last eight trading days. But more important to you and me, Dividend Growth is at an all-time high, as is PRIMECAP Core, plus about a dozen other equity funds. Other large holdings of ours, like Capital Opportunity and Health Care, are 5.1% and 3.3% below their all-time highs. Don't read anything into this, but of interest to me is the fact that Health Care last hit a high exactly one year ago, on July 20, 2015, and Capital Opportunity, which as you know has a large stake in the health industry, last hit a high on March 20, 2015. Expect a rebound? I would think so. Read More

July 14, 2016
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Don't Fret Over New Highs

The story du jour is something Dan and I have been talking about for a while: the disconnect between stocks and bonds with both markets at peaks. Both the S&P 500 and Dow indexes hit all-time highs on Tuesday and Wednesday and are poised to do so again today. Meanwhile, the yield on the 10-year Treasury bond hit a 240-year low last week, and remember that when yields go down, prices go up, so prices on bonds are sky-high. The issue here is the unique influence of central bank buying and ultra-low yields, plus a world almost completely devoid of inflation. That's what's causing the disconnect with history. Those factors will change, but when that will happen is anyone's guess. Read More

July 7, 2016
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Jobs and Earnings Up Next

Just a few days into July, and what's working in the markets this month is what's worked in the markets for the year to date. Precious Metals & Mining has tacked on another 9.4% through Wednesday as global fears have translated into gold envy. The fund is up 94.1%—yes, that's right, 94.1%—for the year. Long-term Treasury funds are also adding to gains as prices keep rising and yields keep falling to record lows. Extended-Duration Treasury ETF is up 4.1% so far this month, giving it a year-to-date return of 28.5%. And, in a bit of a rebound driven by biotech, Health Care is up 1.3%, which doesn't sound like much but is well ahead of Total Stock Market's 0.04% gain for the past few days. Health Care is still off 2.7% for the year, though. Otherwise, it's been a kind of fractional month so far for most funds, with foreign funds dropping the most. Not surprisingly, European Index has fallen 3.2%, in part due to overseas declines, but also because of continuing strength in the U.S. dollar. Read More

June 2016

June 30, 2016
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What Brexit?

As negative as the initial market reaction to last week's Brexit vote was, the market rebound has been swift. In fact, through Wednesday night, London's FTSE 100 index is up 2.1% for the month and actually 0.3% higher than where it stood prior to the U.K. surprise. This isn't to say all is clear—there are still signs of stress in the system. For instance, the British pound is still down around 10% from where it was before the vote. Or, consider that the yield on the 10-year Treasury bond at 1.48% is down meaningfully from the 1.83% yield it had at the end of May. Read More

June 24, 2016

Special Hotline: Brexit Surprise

One uncertainty has been replaced with another. The question of whether the U.K. would indeed vote to exit the E.U. was always a toss-up—5 hours after the polls closed, the betting pools had Remain winning, and UK Independence Party leader Nigel Farage, who spearheaded the Leave group, said he expected Remain to win. So there was no way to know what would happen, and a 52% vote to exit showed as much. Read More

June 23, 2016
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Heading for the Brexit?

Except for those watching the sit-in at the Capitol, all eyes are on the U.K., whose citizens are voting on a referendum to either stay or leave the E.U. The final tally won't be in until late this evening, so we'll see the impact on markets on Friday. A vote to leave will certainly be disruptive. So why haven't Dan and I recommended changes to our Model Portfolios? Remember, our philosophy of investing in balanced and diversified portfolios doesn't rely upon correctly predicting the outcome of any one vote or event. Our Model Portfolios have weathered booms and busts and surprises over the past 25 years; they will make it through this, as well. Also, with polls showing the vote will be very close, betting on a particular outcome would be like market timing, something we simply don't believe in.

Read More

June 16, 2016
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Bogle on Gold: "No, No, No, No, No"

As expected, the Fed did nothing on the interest rate front, leaving the fed funds rate where it has been since their December hike. The possibility of even two rate hikes in the latter half of this year is diminishing. Six Fed governors think there'll be only one increase this year, rather than two. At the Fed's last meeting, only one governor thought there'd be just one hike in 2016. And expectations for the future are lower. The Fed expects it will raise rates even slower in 2017 and 2018 than had been thought earlier this year. We remain in a slow-growth, not no-growth economy, and with headwinds and uncertainty coming from Europe and Asia, the Fed's reticence is not surprising. Read More

June 9, 2016
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Fed Postponement, Market Records

With the countdown to next week's Tuesday/Wednesday Fed meeting in full swing, the punditry has now solidly done a "180" and has gotten behind the new paradigm that the Fed will be holding off on a rate hike because, in part, the labor report from last week was so dismal. Every word uttered by Chair Yellen is now grist for the mill, which is running overtime. So, when Yellen holds her press conference following a "standing pat" decision, expect the punditry to be out in full force, parsing every word and inflection. Read More

June 2, 2016
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Stocks at Highs

Consumer spending jumped in April—plus, maybe more importantly, the numbers for previous months were revised higher. You may have noted that Jeff and I have been saying for some time that consumers have the wherewithal to spend more; they just haven't done so. Well, maybe now we're seeing some signs of a loosening of purse strings. Auto sales have slowed, but at the same time, there's been a bit of a pickup in manufacturing. So, I'd say that the economic signals are confusing, at best. Jobs are strong, and incomes are rising a bit. GDP was better in Q1 than originally thought, and it looks like Q2 will be an improvement, as it has been in each of the past two years. But Europe remains a mess. And China? Well, China's hard to crack. Read More

May 2016

May 26, 2016
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Buying Pessimism

Tuesday's knockout new-home sales numbers were certainly a welcome sign of economic strength, but the stock market, which rose 1.4% that day, had already started climbing before the report, as Wall Street seems to be in one of its periodic "risk-on" modes after last week's "risk-off" worry about the Fed and the possibility of a higher fed funds rate. Maybe cooler heads have figured out that a Fed rate hike signals economic strength, not weakness. Read More

May 19, 2016
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Fed Up With Fed Fortune-Telling

Though they aren't meeting for almost another four weeks, the action in the stock and bond markets of late has been all about the Federal Reserve. Will they or won't they? My goodness, how many times have we been through this? Inflation (or as I like to say, the almost total lack thereof) sparked the questions and the downside moves. Reports on April inflation showed that the PPI came in flat for the month while the CPI is showing a bit more inflation but nothing extraordinary. Read More

May 12, 2016
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Treading Water

Since we last spoke, I'd say that the most noteworthy economic data I've seen was last Friday's employment report. The unemployment rate held at 5.0%—what's generally considered "full employment." Job creation did slow in April, but what Dan and I have often said about the overall economy also applies here: Slowing jobs growth is not no jobs growth. Since October 2010, the U.S. economy has created 13.5 million new jobs over 67 consecutive months of gains. That's an impressive stretch of job creation by any measure. Read More

May 5, 2016
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Slow Growth in the Driver's Seat

First, the headline that's the talk of the town: Donald Trump will be the Republican nominee for President, while Hillary Clinton and Bernie Sanders continue to duke it out on the Democratic side. Jeff and I will have more to say on elections and investing in the months ahead, but keep in mind that mixing politics and portfolios is rarely a recipe for strong long-term profits. While it becomes increasingly difficult as the election heats up and the decibel level climbs, my advice is to tune out the pundits as much as you can. We will continue to do our best to keep you focused on the longterm, and also on the evidence that neither political party has a lock on economic or market success. Read More

April 2016

April 28, 2016
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Selling Selected Value

I've got changes recommended for two of our Model Portfolios, which I detail in this week's Hotline. Despite today's decline, a relative calm seems to have settled over Wall Street of late. Volatility is down, stocks are up, and high yield is back in favor. Since quarter-end, the VIX, a gauge of investor anxiety, has fallen, and its year-to-date average is below its long-term average—if it sticks, this will be the fifth year in a row of below-average volatility. Earlier today, the Dow and S&P 500 indexes were trading within 1.5% and 1.7% of their all-time highs, respectively. Add in dividends, and the Dow has hit five all-time highs this month. 500 Index hit an all-time high last week. It's down just 0.3% from that high as of Wednesday night. And High-Yield Corporate is up 2.2% this month, putting it up 4.5% on the year. Compare that to Total Bond Market Index's 0.1% gain for April and its 3.2% rise on the year. Read More

April 21, 2016
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A Roof Over Our Heads

After a well-remarked upon start to the year the stock market has, as it is wont to do, defied the pundits. Yes, it's all calm again on the volatility front. Well, let's call it average. Over the past quarter century, the VIX, or the fear gauge, has averaged 19.83, with years that ran as high as 32.69 (2008) and as low as 12.42 (1995). Since 2011 the VIX has run below its long-term average. And earlier this year, emotions, and the VIX, were running high, averaging in the low-to-mid 20s, on par with 2010 and 2011. But through Wednesday night, the VIX average so far this year is running below its long-run average, at 19.75 and heading lower. Read More

April 14, 2016
MP3

Volatility—What Volatility?

After a well-remarked upon start to the year the stock market has, as it is wont to do, defied the pundits. Yes, it's all calm again on the volatility front. Well, let's call it average. Over the past quarter century, the VIX, or the fear gauge, has averaged 19.83, with years that ran as high as 32.69 (2008) and as low as 12.42 (1995). Since 2011 the VIX has run below its long-term average. And earlier this year, emotions, and the VIX, were running high, averaging in the low-to-mid 20s, on par with 2010 and 2011. But through Wednesday night, the VIX average so far this year is running below its long-run average, at 19.75 and heading lower. Read More

April 7, 2016
MP3

Inversion Reversion

Obviously, last Friday's employment report was the report of the week. It showed unemployment ticking up slightly to 5.0% from 4.9%, but that's based on more people actually getting off the couch and looking for work. That's a positive, not a negative.

Through all the election noise and the markets' rocky start to the year, and despite all the complaints about lack of wage growth for the middle class, consumer confidence has held steady. With housing growing and borrowing costs and inflation low, consumers are in better financial shape than they have been in a long time.  This confidence is reflected in people returning to the workforce. Read More

March 2016

March 31, 2016
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Money Yields Clear the Mat

Allow me to start with a quote from financial journalist Morgan Housel: "If we could go back seven years and tell everyone that the Dow is near 18,000, unemployment is 4.9% and gas is $1.90 a gallon, they would think we won the lottery and were drowning in prosperity. Instead, we're complaining about market volatility."

Well, I don't know if people are complaining about volatility this minute, given that fact that the fear gauge is near its lowest level in at least six or seven months, but the pundits certainly can find one thing or another to complain about. But think about Housel's observations for a moment. We're in really good shape, and yet investors are worried. Why? Well, this nicely captures how economic and market crises have long-lasting impacts on our psychology and behavior. The credit crisis (and the bursting of the tech bubble before it) has primed investors to worry that every market pullback and correction is the precursor to a financial and market crash. Though the economy and the markets have come a very long way from where they were seven years ago, our view today is still tainted by our experiences many yesterdays ago. Read More

March 24, 2016
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Nowhere Markets

If it feels like the stock market is a nowhere man's market and hasn't generated a return, or a point of view, over the last year—well, you're right. Since March 24, 2015, the total return for 500 Index has been a negative 0.6%. When you look at all the one-year returns for 500 Index going back to the 1980s, when my data on daily prices begins, you'll find that one-year returns within a range of -5% to 5% aren't all that common. In fact, one-year returns are in the plus-or-minus 5% range only 11% of the time. So our nowhere market is a bit out of the ordinary. Read More

March 17, 2016
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What Can You Control?

It was a report-heavy week, so let's run through the major items we saw. First, at the Fed., Janet Yellen & Co. are dialing back their estimates of where the fed funds rate will sit by year-end, with the median estimate of the 17 members of the Fed coming to just 0.875%, which implies only two increases of 25 basis points each between now and the end of 2016. In other words, with two hikes from today's 0.50% rate we'd be at 1.00%—or actually 0.75% to 1.00%—by year-end. Read More

March 10, 2016
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A Contrarian Year (So far)

The ECB cut rates today and expanded its stimulus and liquidity programs to boost Euro economies. Initially that put our markets on course for a rise, but later in the day other catalysts drove prices lower. What's rising this year? Gold. Oil. Precious Metals & Mining is up 28.6% for the year through Wednesday as gold has shot from $1,060 at 2015's end to $1,247, up about 17.6%. Energy is up 3.8% which may not sound like a lot unless you compare it to say, 500 Index, down 2.2% for the year. Oil, which fell in the early weeks of 2016, has risen from $37.10 per barrel at year's end to $38.26, pushing Energy up 8.1% so far in the first few trading days of March, more than twice the market's rise. Read More

March 3, 2016
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Focusing on Fundamentals

On Monday, the last trading day of February, oil prices jumped 3.5%, a huge leap like the ones that in the past few weeks have led to rising stock prices. Yet the stock market fell. What happened to the correlation between oil and stocks that Wall Street was so sure about just a week or so ago? Was it because it was a Leap Day? I don't think so. Read More

February 2016

February 25, 2016
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Focus on the Field

Well, on Tuesday, the stock market's six-day rally, which saw Total Stock Market gain 6.7%, came to a halt. On Wednesday, stocks looked to be on the same downward course as Tuesday, but staged a rally, and the S&P 500 index finished the day up 0.44%. What should investors make of the market's daily swings and intra-day reversals? Read More

February 18, 2016
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Oil, the Pope, and Russia

What a week. It's one thing when the Pope and Donald Trump get into a war of words. But you have to admit that watching Russia, the Saudis and Venezuela come together and agree NOT to increase oil production above already-astoundingly elevated levels is true theater. It's a bit like closing the barn door months after the horse, the cows and all the sheep have left. Ridiculous–and, of course, untenable, since Iran isn't about to agree to anything like this. Read More

February 11, 2016
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Wall Street's Recession Is Not an Economic Recession

Stocks have definitely been bumping, while bonds have been jumping. But Dan and I are in total agreement: This is a Wall Street recession, not an economic one. Wall Street goes through these periodic selloffs. As one manager has said to us, it's like flying and hitting an air pocket. The ride gets really bumpy, but then you get through it and the ride calms down and you end up at your destination—maybe a little worse for the wear, but safe and sound. Read More

February 4, 2016
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Looking for Correlation Where There Is None

Well, Jeff and I keep getting emails from Vanguard investors who say their account consolidations were totally messed up by Vanguard, and yes, some of them are considering leaving Vanguard entirely. Keep an eye on distributions. They're coming up again in March. Be very, very careful before you file taxes. Read More

January 2016

January 28, 2016
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Oil Is Not the Stock Market

Okay. First, the accepted Wall Street analysis seems to be that the stock market is moving in lockstep with the price of oil. Oil goes down (which, the equation would suggest, means China is slowing, which means global growth is in trouble) and, hence, stocks go down, too. Then, oil goes back up, because, well, maybe China isn't slowing that much, and stocks go up, too. So, how do you explain that on Wednesday, oil went up and stocks went down? Read More

January 21, 2016
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The End of Calm, Not the End of Days

Monday, which was the holiday here, was a non-event, but you might have noticed that on Tuesday, before markets opened, China reported that its economy grew at a 6.8% annualized rate in Q4 and that overall the Chinese economy grew 6.9% for all of 2015. Remarkably, the facts weren't half as bad as investor expectations, or something else was at play, because China's Shanghai market bounded 3.2% higher on the news. U.S. markets, which opened much later on Tuesday, bounced around, initially soaring, then falling, and ending the day almost flat. The Dow added 28 points, and the S&P 500 index added one point. Big deal, but at least it was a bit of green in what has turned into a sea of red this month. Read More

January 14, 2016
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Faulty January Barometer

It's been a tough start to the year for investors, as markets here and abroad have entered correction territory: The Dow, S&P 500 and NASDAQ all reached that "down 10%" mark yesterday. Small stocks have had it worse, with the Russell 2000 index falling into a bear market—by definition a 20% decline—on Wednesday.

Plus, you've probably seen the headlines that U.S. stocks are off to their "worst start ever." While I've already seen a few, you can expect to see even more articles and stories warning that as January goes, so goes the rest of the year. This so-called "January Barometer" gets trotted out every time the year starts with a decline. (You almost never read about it when January is in an uptrend.) But you shouldn't pay it much heed. Let me explain, and then we can talk a bit about what's been going on these past eight trading days. Read More

January 7, 2016
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2016 Opens With a Bang, and Another

The year opened with not one, but two bangs. The first was when a measure of China's manufacturing sector slipped in December as factories continued to battle overcapacity and weak demand. The manufacturing purchasing managers' index fell to 48.2 in December. This was the 10th straight month of a below-50 reading for the index. Readings above 50 indicate expansion, and under 50, well, first you're at stasis, and then you start moving into contraction. We already knew that China was in a slowdown, with more capacity than demand called for, but this latest reading may have been the bamboo shoot that broke the panda's back. Read More

January 4, 2016

Special Hotline: Hot Hands 2016

This is Jeff DeMaso with the 2016 Hot Hands fund announcement. The full analysis of this momentum strategy will be in the February issue, but as a preview, the Hot Hands strategy has generated a 13.2% annualized return since Dan first wrote about it in 1995, versus 8.1% for 500 Index and 8.2% for Total Stock Market. Read More

December 2015

December 31, 2015
MP3

Out With the Old, In With What?

Well, the year isn't exactly ending with a bang, is it? That Santa Claus rally that some were talking about failed to stick, and while the markets aren't yet closed, it looks like we're going to end the year with Dow and S&P indexes in the red, though dividends could make their total returns positive for the year. We'll have to see how the day settles out. And it's really tough to know what the new year will bring, though I'd posit that it won't look a lot different from where we're leaving the old year—volatility, uncertainty and the potential for gains if you're willing to stick your neck out just a bit. Read More

December 24, 2015
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Active to the Core

First, I have a warning. Vanguard is asking clients to consolidate their brokerage and mutual fund accounts into one, and for those who agree to do so, I'm getting reports that dividend distributions are being messed up big-time. If you wanted distributions to go to cash, well, sometimes they're being reinvested instead. You want them reinvested? Well you may find cash in your money market instead. One investor tells me he was "missing" $36,000 he expected to find in his money market account. Read More

December 17, 2015
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Yield, Don't Stop

I probably don't have to tell you that Fed chief Janet Yellen said yesterday that policy makers had decided to raise the fed funds rate by 25 basis points, or 0.25%. This was the most well-telegraphed rate hike in many, many moons, and the market barely flinched—the bond market that is. There was some action among short-term bonds—the yield on the 2-year Treasury went over 1.00% for the first time in, well, almost forever it seems. And Vanguard's taxable money funds, which have already been producing higher yields as the short-rate market began expecting the move, also saw yields rise. Read More

December 10, 2015
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Vanguard Gets Active–In ETFs

Falling oil and gas prices have been driving down stock prices, as investors have responded with a knee-jerk assumption that it is solely global demand, or the lack thereof, that is driving down oil's price. Worrying about demand for oil reflecting falling demand for global goods and services ignores the flip side of this low-price scenario: More fuel for spending.

The East Coast is heading into Christmas with warmer-than-normal temperatures and lower-than-normal heating costs. If that isn't a recipe, by itself, for more spending, then what is? While the energy majors hunker down, and smaller exploration and production companies suffer from prices that are too low to make their wells economical, the rest of the economy is fine and should benefit from a consumer who has more money in his and her pockets as well as a job market that is reaching full employment and getting to the point where wages will have to start rising. Read More

December 3, 2015
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A Low-to-No-Return Year

Porter Stansberry’s and Ron Paul’s nightmare scenario was put into play on Monday when the IMF conferred “reserve currency status” on China’s currency, the renminbi, or yuan. The change won’t go into effect until late next year, but so far the world is still spinning and the dollar hasn’t been crushed into oblivion. Read More

November 2015

November 25, 2015
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Heading into the Final Stretch

November doesn't end until Monday night, but we've got less than 12 hours of trading left before the markets open for the final month of 2015. It's been a volatile (though not that volatile) year which in the end hasn't left us up or down much from where we started. However, you and I have had some good successes. All in all, I'd say we have plenty to be thankful for this Thanksgiving eve. Read More

November 19, 2015
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Resilience In The Face of Tragedy

Sadly this week's comments have to start with Paris, where a coordinated terrorist attack led to the worst loss of civilian life in France since World War II. It's tragic. My thoughts and prayers are with those impacted by the event. ISIS grows by sowing fear and death, but I believe that these tragedies and challenges only bring us closer and more resolved that fear must not trump freedom. Setting aside the human toll, I had expected that the chaos of Friday night's events would have spilled over into the markets. But, demonstrating that resilience I just spoke of, on Monday stocks in France only fell fractionally, the Stoxx Europe 600 index (which is akin to our S&P 500 index) gained 0.3% and the S&P 500 index rallied 1.5%. Read More

November 12, 2015
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Wall Street is Fed Up With the Fed

Responding to my comments about his latest prediction that stocks will return 4% going forward, Jack Bogle says that his predictions in the press—whether on TV or radio or in print—aren't really predictions so much as "casual" comments and that his only "official numbers" are those he puts into papers like the one he's just now publishing in the Journal of Portfolio Management. In other words, investors should focus only on predictions he makes in papers that very few people will read, while any comments in media that is consumed by millions should be taken only as "casual" observations. Read More

November 5, 2015
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Jack Bogle and His Magic 8-Ball

Well, I was going to tell you all about the various signs across the U.S. that suggest the economy is pulling out of its third-quarter funk and revving up—signs that include the best pace of auto and light truck sales since this recovery began, strength in the housing industry, and a strong service sector reading. But the real story this week is the unremitting and uncritical press around Vanguard founder Jack Bogle's latest prediction for stock market returns. Read More

November 2, 2015

Special Hotline: October Hot Hands 2015

Jeff and I will have a full report on the October Hot Hands momentum strategy (which is different from the calendar-year Hot Hands strategy) in next month's newsletter issue. But for those who are following this trading plan, the official October Hot Hands fund for the period from the end of October 2015 through October 31, 2016, is U.S. Growth. Read More

October 2015

October 29, 2015
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A Strong Week for Central Bankers

Rate cutting is in the news here and abroad. Last week, global rate cuts, or the promise of them, drove markets sharply higher. First it was the ECB's Mario Draghi, who suggested on Thursday that further stimulus might be on tap as early as December. Then on Friday it was China tacitly acknowledging that its economy needs more stimulus and cutting both lending rates and bank reserve requirements in an effort to get more money into the hands of businesses and people, where it might spur some spending. Read More

October 22, 2015
MP3

Vanguard Tears Up Money Market Investors' IOU

This week was light on data, but the housing market went three-for-four. Homebuilder confidence for the month of October was stronger than expected, as present sales and expectations for future sales increased. Housing starts jumped 6.5%, largely on the back of a spike in multi-family units. Permits, which point to future construction projects, slipped in September, but allowing for some noise in the data, the overall trend of housing starts and permits shows steady incremental increases. And, finally, existing home sales, which make up 90% or so of the market, bounced back from a weak August, and are up 8.8% over the past year. The trend of the housing market continues to be positive. Read More

October 15, 2015
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Health, Financials and Your Financial Health

Earnings reporting season is upon us, but I have to say that (a) it's still very early, and (b) the big banks, which have been releasing their numbers, aren't giving us much to go on in terms of the broader economy and corporate profits. Financials ETF is off 4.4% for the year through Wednesday, underperforming Total Stock Market Index, and has underperformed so far in October as well, though it gained ground today on the backs of some of these better-than-expected reports. Read More

October 8, 2015
MP3

Putting Theory Into Practice Could Lead To Losses

It was a very quiet week in terms of getting new reads on the state of the U.S. economy. The ISM service sector survey came in weaker than expected for September, though overall the service sector remains quite strong. It appears that companies are working through inventories and, hence, aren't as busy making stuff as they have been in the past. This could augur a weaker third quarter read on GDP than was anticipated. One weird divergence was a strengthening in the employment component of the index, but this may simply signal what we've already learned about the employment numbers—which is that they are subject to revision and that revision usually takes them higher, rather than lower. Read More

October 1, 2015
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Here's to Your Health

September was lousy for stocks, but only half as bad as August, and the third quarter was one of the worst calendar quarters since 2011. Does that mean the sky's falling? Hardly. Jeff and I have been saying for many months now that a 10% to 15% correction was in the cards—we didn't say (or know) when, but simply figured that having gone for so long without one, we'd have to prepare emotionally, if nothing else, for the inevitability of a market downdraft. Well, we've had one with the Dow and S&P indexes falling at one point to just shy of 15% but ending the quarter off 11.1% and 9.9%, respectively, from their all-time highs. Read More

September 2015

September 30, 2015

Special Hotline: Trading Message From Dan Wiener

In January, Jeff and I told you about a contrarian trading strategy for aggressive investors. The signal for that strategy has been triggered as of last night's close, and represents an opportune moment to buy. Read More

September 24, 2015
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Bond Funds Are Plenty Liquid

What do most investors do when markets are at their worst? Absolutely nothing. Yet an article posted Monday night on The Wall Street Journal's website has raised hackles among bond fund managers and investors—and in particular, Vanguard investors. Read More

September 17, 2015
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Fedmageddon, or Why Are the Markets So Dumb, Daddy?

At a meeting this morning, I polled the participants on whether they thought the Fed would raise interest rates today. A minority thought they would, but the majority (including me) said they would stand pat, though it's really been a toss-up as far as I'm concerned, with employment data pointing very assuredly towards a hike, and inflation data and a slow-growth global economy pointing the other way. Read More

September 10, 2015
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Is China's Slowdown Good for the U.S.?

Japan's almost 8% rise on Wednesday and China's continuing stock market recovery (the Shanghai market is now off just 38.1% from its recent peak versus 43.3% off the high at its recent low) have spurred a bit of recovery across the globe after last month's sell-off. It's funny to think that the Chinese market now seems to be setting the tone for global markets in general, but then again, Japan did the same thing in the '80s. And look where that got them. Read More

September 3, 2015
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A BRIC to the Head

Remember the BRICs—Brazil, Russia, India and China, the four countries that were supposed to lead the emerging markets to dominance in the global marketplace? Well, that doesn't seem to have worked out all that well recently. And now it appears that China is throwing a considerable brick to the head of U.S. investors, who unwittingly seem to be taking their lumps despite a strong economy here at home and only tangential connections to the turmoil around the Chinese stock market and currency. Read More

August 2015

August 27, 2015
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Storm Before the Calm

It's been quite the week since last Thursday's Hotline. I'm going to assume that you've kept your cool, like any smart investor would, and tuned out the noise (and yes, it is noise) that accompanied heightened worries over China and the various machinations there that might or might not have an impact on our own economy and markets. Read More

August 24, 2015

The 3.5% Solution: Buying Fear

It was a rollercoaster day in the markets—but also one of opportunity. The Dow opened the day 1,000 points lower than its Friday closing price. By midday, stocks had rallied to nearly recover that entire decline, only to roll over in the afternoon. In the end, the S&P 500 index was down just shy of 4% and is now technically in a correction, having fallen 11.2% below the all-time high hit on May 21. Read More

August 20, 2015
MP3

The Fed's Quandary

Are you nervous? Anxious? Watching the stock market as it goes for a loss for "three days in a row" (as they like to say on the cable financial news networks) and wondering where the bottom is? Stop. Think. Take a breath, please. The stock market, whether the Dow or the S&P 500 or even one of the mid-cap or small-cap indexes, has been on a long tear, hitting all-time highs as recently as late July for the NASDAQ Composite and late May for the Dow and S&P 500. Read More

August 13, 2015
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China's Moving Yardstick

No matter how you spin it, China's got some problems. Dan and I have talked about the issues surrounding their ham-handed attempts to keep stocks rising on the mainland, but the latest out of China suggests there are even bigger problems besetting the world's second-largest economy. Read More

August 6, 2015
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Puerto Rico: "It's the Thought That Counts!"

On Monday, a Puerto Rican agency defaulted on bonds for the first time. The agency paid just $628,000 of the $58 million that was due. At that point, why bother paying anything at all? Puerto Rico and its creditors will negotiate what to do about the island's $72 billion in debt, and the headlines will continue to roll in, but this wasn't a surprise for most investors. Puerto Rico's woes have been well-telegraphed, bond prices have already been cut, and the debt issues of Puerto Rico shouldn't spill over to other states and municipalities. Read More

July 2015

July 30, 2015
MP3

Maybe It Wasn't So Cold After All

Surprise! The U.S. economy actually grew a fraction in the first quarter of 2015, rather than contracting. This, according to new and revised figures from the Bureau of Economic Analysis, which says that we actually saw 0.6% annualized growth in Q1 rather than the prior data showing a 0.2% decline. Unfortunately, what the BEA gives, it also takes away: The initial estimate on Q2 growth was just 2.3%, which disappointed the consensus that was expecting at least 2.5% or so. Have no fear, though. I looked back at the years since the Great Recession and, based on revised numbers, the final number has come in higher than the initial estimate in six of the last seven Q2 GDP reports. That's a far sight better than any other quarter. Read More

July 23, 2015
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Sunny Summer Returns

Here's a news flash for you: Prime Money Market has been holding onto a 0.03% yield (that's 3 whole basis points) for a bit more than a week, which is incredible. Either Vanguard has found a way to make money out of thin air, or they are still slashing costs to the bone. Whatever it is, that 0.03% yield is up from the 0.02% they had been paying since early June. Good work, Vanguard! Read More

July 16, 2015
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A Nice Place To Visit, But …

The juggernaut that is the biotech, pharma, hospital and medical device industry just keeps piling up the mergers, the acquisitions and the profits for you and me. Health Care has gained 17.9% for the year through Wednesday compared to the 3.4% return for 500 Index. That's a whopper of a gain, but it's nothing new, really. Read More

July 9, 2015
MP3

China Syndrome?

Technology took its toll on Wednesday. First, United Airlines halted all of its flights because of technological problems with flight routing software. Then the New York Stock Exchange (NYSE) halted trading because of some kind of glitch. The NYSE said it had seen a problem prior to the market's 9:30 open and fixed that, but apparently there was more trouble to come. And The Wall Street Journal's website, which of course is heavily used during the business day, also went down, giving users a big error message when trying to access wsj.com. Read More

July 2, 2015
MP3

Neither a Borrower Nor a Lender Be

It's been a troubling week for the little guys in Greece and China—not to mention some investors here in the U.S.—and it isn't over yet. First off, with Greece's prime minister saying, "Let's put it to a vote!" but also trying to get the members of the European community to agree to yet another set of reforms that didn't go far enough, the German Bundestag said, "No. That's okay. We'll wait to see what the Greek people decide before we consider lending you any more money." Read More

June 2015

June 25, 2015
MP3

Old Stories Aren't Moving the Needle

The housing market has found its footing and is bouncing back from a snow-filled winter. Existing home sales data showed a big recovery in May, with national sales up 5.1% and up more than 9% over the past year. Prices are recovering as well, and the median home price of $228,700 was the highest since June 2007, near the peak of the housing market. New home sales, which are just 1/10th the size of existing home sales, also had a good month in May and are up almost 20% over the prior year. Supply of new homes is low, suggesting that construction activity may pick up to meet the demand. Read More

June 18, 2015
MP3

Fed Holds, Europe To Summit

After a two-day meeting that fed more speculation than a Donald Trump presidential bid, the Fed did not raise interest rates; but they did upgrade their assessments of some things such as labor, housing and consumer spending, while downgrading their view of GDP growth in 2015 to between 1.8% and 2.0% from about 2.5%. Read More

June 11, 2015
MP3

Getting an 'A' for Effort

Germany's stock market dropped into a correction on Monday, having fallen 10.6% from the high it hit on April 10. As of today's close, after a couple of up days, it's down 8.4% below that high. But don't feel too sorry for the Germans, as their market is still up 15.6% for the year. European Index is up just 8.9% for the year through last night's close, in part because of the dollar's strength, which reduces returns from foreign markets for U.S. investors. Read More

June 4, 2015
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All Is Well, Unless You Read The Headlines

The Greek debt drama continues to unfold in the headlines as Greece and its creditors, mainly the European Central Bank (ECB) and the International Monetary Fund (IMF), can't strike a deal. Today Greece said it would defer a payment to the IMF due tomorrow. "Defer" sounds like a polite way to say "default" to my ears, but Greece says it will bundle all of its payments due to the IMF into one lump sum at the end of June. So the dreaded d-word—default—is avoided for another day, and the headlines will continue to roll in and roil investors. Read More

May 2015

May 28, 2015
MP3

Divide, Then Conquer

We've just got one more day to go before May is over, and oops, that Sell in May strategy really seemed to work this time, didn't it? I know, I know, there are five more months to go before the Sell in May idea is fully borne out to be a dim bulb or a bright light, but at least this first month seems to have yielded a short-circuit. Read More

May 21, 2015
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Placing a Value on Stock Picking

Tuesday's report of a huge jump in housing starts (up 20% in April) was a nice kick in the prospects for a rebound from the winter's cold-edged consolidation. Not only were condos and apartments (those multi-family starts) strong, but so were single-family homes, which are where you really get a lot of economic bang for the buck driving material and labor spending. New building permits also were robust, which casts a pretty strong light on the potential for more good news on housing in the months to come. Read More

May 14, 2015
MP3

Vanguard Delays Muni ETF Yet Again

Friday was the day that Vanguard was slated to launch its new municipal bond index fund and ETF, Tax-Exempt Bond Index. That is, it was the day they'd postponed the original launch to. Well, now they've postponed the launch again. Read More

May 7, 2015
MP3

Domo Arigatou, Vanguard Roboto

Federal Reserve Chair Janet Yellen’s comments rocked the ship on Wednesday when she said that stock valuations were “quite high” and that long maturity bonds could be hurt if interest rates rise. Thanks for the news flash! Six years into a bull market, we would expect valuations to be high, and the warning bell of rising rates has been ringing for years now. Yellen also said that she sees signs of investors reaching for yield. Wasn’t that the point of holding interest rates at zero for so long? Read More

April 2015

April 30, 2015
MP3

Sell in May—No Way!

All eyes were on yesterday's GDP report—more so than on the Fed's meeting notes, which essentially left open the possibility that a rate hike is not completely baked into June's cake. The GDP report was a funny one, because while it showed just 0.2% annualized growth in the first quarter, the year-over-year growth in the economy actually sped up to 3.0%. This was an increase from the year-over-year growth number of 2.4% recorded in Q4 2014, and occurred because in 2014's first quarter (remember the Polar Vortex?) the economy actually contracted at a 2.1% rate. Read More

April 23, 2015
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NASDAQ's New Watermark

How does the stock market feel to you so far this year? I doubt many would say "average," but that's just what we've seen so far. Through Wednesday night, 500 Index was up 2.9%, which puts it on pace to deliver about 9% on the year—pretty average to me. While returns on the year have been average, the NASDAQ index just did something it hasn't done since the tech bubble peaked 15 years ago—close at a record high. Read More

April 16, 2015
MP3

Many Strong Markets

A few earnings reports and some economic data, both here and abroad, have made for what I'd consider a fairly calm week in the markets. Sure, there've been ups and downs, but it's mainly been ups, with the Russell 2000 index of small stocks hitting yet another record high on Wednesday and the European STOXX 600 index hitting a high on Monday, driven by a 22% gain in Germany's market. The NASDAQ Composite, solidly over 5000 now, is within reach of finally breaking through the high it hit more than 15 years ago on Mar. 10, 2000, and other domestic indexes are close to records as well. Read More

April 9, 2015
MP3

Trader Beware

Monday's report on the ISM Service Sector index didn't provide much of a contrast to the growing number of observations of a first-quarter economic slowdown. Yes, the service economy is still expanding, but it's not doing so quickly, and in some respects it's barely moving forward. Only the employment gauge improved, but not by much. In fact, jobs are where the strength is. Read More

April 2, 2015
MP3

The Economy Will Spring Ahead

While the first quarter ended on something of a sour note, you and I are doing just fine. Our active managers are making mincemeat of their index counterparts, and in combination are producing gains for us as U.S. markets hover between gains and losses. What’s going on? Well, I’d say that it’s uncertainty. Uncertainty about the economy mainly, but also about just how robust a recovery we can expect from the E.U. and uncertainty about exactly what will drive the Fed to begin raising interest rates. Read More

March 2015

March 26, 2015
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Soft Patch

The Dow Industrials slid into negative territory for the year on Wednesday, largely on the heels of somewhat weak economic reports and concerns that a strong dollar will hurt earnings. Before turning to those economic reports, keep in mind that though the Dow may be down on the year, it is only 3% or so from the high it hit in early March—nothing to panic about. Read More

March 19, 2015
MP3

Wall Street's Impatience

Well, all eyes were on the Fed statement coming out of its two-day meeting, and there was something for everyone in there, with the removal of the word "patient" signaling that we could see a rate increase at the June Fed meeting as well as lowered forecasts for growth and inflation signaling that maybe, just maybe, a rate increase could come later in the year, rather than sooner. What Janet Yellen said was that the removal of the "patient" word "doesn't mean we are going to be impatient." The breathlessness around this statement, the parsing of the wording and the predictions of yes or no on a rate increase make for great TV, if you're into that sort of thing, but it's nigh on useless for real investors who, rather than trying to make a market-timing call on yes or no for bonds or stocks, are more interested in the impact on individual companies and their business here and abroad. Read More

March 12, 2015
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Six Years From the Fall

Monday, March 9, marked the six-year anniversary of the U.S. stock market bottom following the credit crisis. Since the bottom, 500 Index has returned an outstanding 240%, or 22.6% a year. However, if we instead measure from the prior market top, about seven and a half years ago, in October 2007, 500 Index is only up 52%, or 5.8% a year. So, are we in a raging bull market or a ho-hum growth phase? It all depends on your perspective. It's fairly safe to say that the next six years won't see returns as strong as the last six were, but just because the last six were strong doesn't mean we are poised for a crash. Read More

March 5, 2015
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Remembering JDS Uniphase

We've seen a bit of excitement here in New York City, and I'm not talking about the plane that just skidded off the runway at La Guardia in today's snowstorm. Many market indices have set new records, and the NASDAQ Composite finally crossed 5000 again on Monday—which means absolutely nothing, except that it's a BRN, or big-round-number. Forget all the posturing around big round numbers and commentaries on how the NASDAQ is in a bubble. It's not. The NASDAQ is made up of companies that—unlike in 2000, during the heyday of stocks like JDS Uniphase—pay dividends, and are selling at robust, but hardly astronomical multiples of earnings. And note that I said they have earnings, which many of the highflyers of the dot-com age did not. Read More

February 2015

February 26, 2015
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Greece Lightning

Any way you slice it, Greece's newly elected government danced and danced and made it look like dropping out of the EU was going to be a "strategic career move." But in the end, well, they've basically got nothing more than they started with, no matter how they spin it. Greece and the EU have only agreed to a four-month extension, so there will be more chapters to this drama. Looking ahead, perhaps the most relevant line from Grease was delivered by Scorpions member Leo: "The rules are…there ain't no rules." Read More

February 19, 2015
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Markets on a High

While we had a day off on Monday for the Presidents' Day holiday, Japan reported that it emerged from recession, though hardly with all its afterburners aglow. GDP rose at a 2.2% annualized rate in the fourth quarter, which was okay, but still well below economists' expectations. Of course, the economists got it wrong (not surprisingly), but the markets seemed happy enough, pushing the Nikkei index up 0.5%. Read More

February 12, 2015
MP3

Bonds Change Course

Are rates going up or not? Investors keep flipping their focus when it comes to the Fed and the timing of a future rate hike. Does continuing low inflation means the Fed will be on hold for longer? Or does the steadily improving jobs market mean the Fed will be forced to raise rates sooner? Read More

February 5, 2015
MP3

Foreign Fillips

January’s auto sales were a huge jump from sales a year ago (during the Polar Vortex) and suggest that the consumer is far from dead—in fact, we all seem to be spending our extra money on big-ticket items. The U.S. Big Three had a huge month, and when cars and trucks are selling, that means jobs, jobs, jobs. It takes jobs to make these trucks and it takes jobs to earn enough money to buy these trucks. In fact, this morning’s unemployment claims numbers continue to show an economy that is producing jobs for almost everyone who wants one. Last week, one Federal Reserve governor said that he thinks our unemployment rate, currently at 5.6%, will drop below 5% before the year is out. Read More

January 2015

January 29, 2015
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Two Sides to Every Storm Front

There were seemingly two sides to every story this week. On the heels of quantitative easing in Europe, Greece voted for an anti-austerity party. New home sales surged in December, but durable goods orders were weak. Caterpillar's and Microsoft's earnings disappointed, while Apple had a record-breaking three months to close out calendar year 2014. And though winter storm Juno was a bust in New York, it dropped two feet of snow on Boston. Read More

January 22, 2015
MP3

Europe Kicks Stimulus into Higher Gear

Those who said that the Fed's three quantitative easing programs would spur massive inflation are probably back in their bunkers about now, given the impact falling oil prices have had on inflation. At year-end, the CPI, or "headline" inflation number, was so low, at 0.7%, that the deflation word was being uttered from time to time. But since we all know that energy costs are a big part of that equation, let's look at core CPI, which is running at 1.6%, about the level it's been at for two years or so (excluding a couple of minor spikes, including a 2.0% reading in mid-2014). Inflation just isn't an issue right now, which, of course, is one reason we've seen Treasury yields looking for new recent lows. Read More

January 15, 2015
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Swiss Miss

Friday's labor report was strong. As the year ended, unemployment fell to 5.6%, and total job creation at 2.952 million jobs for 2014 was the best since 1999. While there was no headway made on the U-6 number, as people continued to leave the workforce, the gap, at 5.6 percentage points, remains the lowest since October 2008, which was just before the recession's real job destruction took hold. Read More

January 8, 2015
MP3

Back At the Muni Bond Table

Well, the year has gotten off to a bumpy start. Monday's 331 point Dow drop was attributed to oil greasing the skids. Oil's price dropped below $50 per barrel at one point on Monday. But then it actually fell further and closed below $50 at $47.93 on Tuesday as the Dow fell another 130 points. On Wednesday, oil remained under $50 at $48.77, yet the market had a huge up day, rising 213 points. And today stocks are up another 1.8% or so. But what's all the concern surrounding oil, and why are markets apparently moving to the oil beat? Read More

January 2, 2015

Hot Hands 2015

Hot Hands is a momentum-based strategy using research I have conducted over the years—one that has left the market in the dust over the long haul. The full analysis of the strategy will be in the February issue, but as a preview, the Hot Hands strategy has generated a 14.9% annualized return since I first wrote about it in 1995, versus 9.8% for 500 Index and 9.9% for Total Stock Market. Read on for the 2015 Hot Hands fund. Read More

December 2014

December 31, 2014
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A Gainful 2014

Wow. What a year. The final numbers are still coming in and settling, but in broad strokes, natural gas fell, gold fell, oil plummeted, bonds soared, and stocks, despite a last-day drop, ended on very solid ground. Read More

December 24, 2014
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The Dow's Holiday Gift

It may be a holiday-shortened week, but that doesn't mean it has lacked for headlines. The latest milestone on the Dow, 18000, was a holiday gift that took just 173 days to achieve, with the Dow having pushed through 17000 in early July. Remember that these milestones, as headline-grabbing as they are, become easier and easier to achieve as the numbers get larger and larger. To get to 19000, we need just a 5.4% gain from yesterday's close, and 20000 is only an 11.0% gain from here. Read More

December 18, 2014
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To Cuba (and Russia and North Korea) With Love

It was steady as she goes in Washington. All eyes and ears were on yesterday's Fed statement and press conference, and Janet Yellen didn't disappoint. First off, with the Wall Street Journal having floated a trial balloon a week or so ago about whether the Fed would drop the "considerable time" language when referring to the timing of its first rate hike, it was fascinating to see how the Fed massaged that one. It introduced the word "patient," as in, "the Committee judges that it can be patient in beginning to normalize" interest rates. Then it went on to say that this was consistent with previous statements that it would continue to hold the fed funds rate at 0% to 0.25% for a "considerable time." Read More

December 11, 2014
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Oil Greases a Slippery Market

After a very bullish year, December is off to a rocky start, with 500 Index down 1.9% through Wednesday. Tuesday saw the first 200-plus point swing in the Dow since October, when we saw those kinds of swings on almost half of the trading days during the month. And in Wednesday's trading, the Dow slid 268 points, or 1.5%. Read More

December 4, 2014
MP3

Zero Down, No Financing, No Profits

Now, I don't want you jumping for the keyboard and logging into vanguard.com to trade into this one, but Vanguard has lowered the minimum on its Market Neutral fund to $0. Yes, that's right, $0. But there's a catch: That's only for investors working with financial advisers, because, as Vanguard puts it, "given the distinctive characteristics of the fund … [it's] not appropriate for retail investors broadly." Hence the $250,000 minimum remains in place for those retail investors. Read More

November 2014

November 26, 2014
MP3

NASDAQ Returns

Ending a run of three straight days of record closes, the Dow and the S&P 500 took tiny drops on Tuesday. While all eyes have been on these benchmarks, you may have missed the fact that as of Tuesday's close the NASDAQ index, which climbed as other indexes fell yesterday, only needs to gain 6.1% to fully return to the level it reach nearly 15 years ago on March 10, 2000 during the tech bubble. Does that mean we are near a similar peak today? I wouldn't say so. Fifteen years is a long, long time to wait for recovery and points to just how out-of-whack valuations were as technology stocks soared. Read More

November 20, 2014
MP3

Record Highs and Retail Swagger

The stock market is humming—at home, anyway. The Dow Jones Industrial Average has hit 27 new highs this year, including today's. The S&P 500 index has hit even more highs this year, rising to records 44 times. And many of those new highs have come over the past couple of weeks. Yes, the biggest U.S. companies are struttin' their stuff, whereas the smaller fare have tumbled a bit from the highs set during the first quarter. That's why you're seeing funds like Dividend Appreciation Index, up 2.2% this month, and High-Dividend Yield Index, up 2.1%, leading the charge in November. Read More

November 13, 2014
MP3

Diluting Alibaba

Last Friday's employment situation report outshined what has been a quiet week for economic reports so far. To recap, the unemployment rate dropped to 5.8% in October, its lowest level since July 2008, while new job creation surpassed 200,000 for the ninth month in a row. The lesser-known but equally important U-6 rate of total unemployment among the entire U.S. workforce declined by more than the headline unemployment rate. The job market continues to heal, and more workers depositing paychecks should mean a strong holiday shopping season. Read More

November 6, 2014
MP3

Land of the Rising Stock Market

Japan surprised the markets on Friday with greater stimulus for both its economy and the stock market. The central Bank of Japan said it would increase its annual asset purchase program from 60-70 trillion yen to 80 trilling yen, and it is going to triple the rate at which it buys stocks and property funds where in the past it was mainly a bond-focused purchase program. Read More

October 2014

October 30, 2014
MP3

Not a New Normal, Just Normal

We have one more day to go before the end of October, and after all the handwringing about the stock market's volatility and losses this month, it turns out that, well, volatility is still somewhere around what I'd call normal (below average, actually) and those losses have essentially been wiped out. Remember, I said that this was not a "new normal" but rather a "regular, run of the mill, old fashioned normal stock market." Now, what were you so worried about? Read More

October 23, 2014
MP3

China's Inevitably Slowing Growth

The recent shootings at Canada's parliament are tragic and prove that disruptions can come from anywhere, at any time. As long-term investors we have to expect there will be more disasters in our lifetimes, and as Dan and I explored in last month's issue, history suggests that long-term investors should actually view these events as opportunities—not cause for panic or kneejerk reactions. Read More

October 16, 2014
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Volatility in Context

Well, Dan was pretty much spot-on in last week's Hotline when he warned of more volatility and losses to come. As Dan mentioned, in order to see a correction of 10%, we'd have to see the Dow drop to 15,550. The Dow closed today at 16,117 so we aren't quite in official correction territory yet, at least according to the Dow. Read More

October 9, 2014
MP3

Back To Normal

To a certain extent, we're seeing investors taking gains in the funds and stocks that have done the best up to this point. October is turning out to match the old wives' tale prediction as being the worst month of the year for stocks, which isn't true historically, but in 2014 may, in fact, come true. This is not a "new normal" but rather a regular, run of the mill, old-fashioned, normal stock market. The Dow points look massive–down 273 points on Tuesday, up 275 points on Wednesday, and then down another 335 points today–but we're talking 1.6% to 2.1% moves, which aren't really that massive. Read More

October 2, 2014
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Ascending the Throne

All hail Joshua Barrickman, the new "Bond King." Joshua who? Barrickman heads Vanguard's bond indexing group and is the named portfolio manager on Total Bond Market. While we are still waiting for official numbers from Vanguard, I think it safe to say that Total Bond Market is now the largest bond fund in the world. Read More

September 2014

September 25, 2014
MP3

Disperse Returns

When Alibaba, the Chinese e-commerce giant, went public last Friday, it was priced at $68.00 and opened at $92.70 for an immediate 36.3% gain. It closed the day at $93.89, up 38.1% from the IPO price. At its current level, around $90, Alibaba would be a top-20 holding in 500 Index, but as a Chinese company I wouldn’t expect to see it in the indexes or index funds any time soon. Read More

September 18, 2014
MP3

Voting to Stay or Go

Voters in Scotland today are deciding whether to seek independence from the United Kingdom. The polls are too close to call, and results won't come in until tomorrow, but even if Scotland votes to separate, given its small size, I wouldn't expect this to disrupt the global economy. Whichever way the vote breaks, as Dan and I discussed in last month's issue, trying to trade around geopolitical events can be hazardous to your returns. Read More

September 11, 2014
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Open Sesame

Today is a solemn one for many Americans, and I include myself in taking a moment to remember where I was and what I saw on Sept. 11, 2001. With one child in her third day of high school just blocks from the World Trade Center and another who disobeyed his teachers' orders to stay put and instead ran home wanting to know where his sister was, we were just one family amongst millions across the country and around the world feeling the impact and the shockwaves of the terrorist attack on our soil. Read More

September 4, 2014
MP3

Green Across the Board

The incomes and spending report on Friday was kind of a non-event. But the report on inflation, as captured by the Fed's favorite metric, the PCE (or personal consumption expenditures) measure, showed that while inflation is running around 1.6% year-over-year, the recent three-month trend shows inflation at a 2.2% annualized rate. That may sound like we're moving into rate-hike territory, but actually that's down from the pace of the prior two months. The core PCE is running at a 1.7% annualized rate over the past three months, so inflation's not here yet. Read More

August 2014

August 28, 2014
MP3

Vanguard Goes for Brokerage

It hasn't been a particularly busy week from an economic signpost point of view, but it has been a record week as the S&P 500 index has hit a couple of consecutive records before falling back a bit today. The biggest news was probably today's second-quarter GDP revision. After first-quarter GDP was revised from a 2.9% contraction to a 2.1% contraction, second-quarter GDP has now been revised up from 4.0% to 4.2%. The economy definitely rebounded after the winter chill, and it appears more growth is on the way. Read More

August 21, 2014
MP3

What Correction?

When the markets closed today, the S&P 500 index had set yet another record high, while the Dow index remains just 0.9% below its mid-July peak. We never got close to a "correction" over the past few weeks, though you wouldn't have known that from some of the hand-wringing that went on the minute the stock market fell from its July all-time high. Of course, you weren't worried, were you, thanks to several of my recent Hotlines. Read More

August 14, 2014
MP3

Tailwinds at Home, Headwinds Abroad

This week, we continue to see a divergence between the data at home and the reports from overseas. In the U.S., the reports have, for the most part, been positive. The employment situation continues to improve. The JOLTS report (Job Openings and Labor Turnover Survey) saw job openings rise to 4.671 million in June—the highest level since February 2001. Also within in this report we saw the “quits” rate tick higher. It is still below pre-crisis levels, but it is moving in the right direction. Remember, people don’t quit their jobs unless they are confident they can find another one or have already found something “better.” Read More

August 7, 2014
MP3

Just Another Summer Swoon

Last Thursday’s 317-point drop in the Dow got blood boiling, but that was about it. Greater volatility followed on Friday, but after dropping as much as 126 points, the index rebounded and bounced around, then closed the day down just 70 points. The decline and this week’s continuing ups and downs in the stock market have been blamed on a Portuguese bank, tensions in Ukraine, conflict in the Middle East and/or an outbreak of Ebola in Africa. It could be any of those, or maybe it’s the return to recession in Italy—or none of the above. Read More

July 2014

July 31, 2014
MP3

The 3.4% Correction

Today's 317-point decline in the Dow, a 1.9% fall, coupled with a 2.0% drop in the S&P 500 index coming on the final day of July, probably woke up a few Wall Street traders lying around their Hamptons beach houses. But really, it's nothing. Exactly why stocks dropped today—whether it was worries about Argentina's default, a risk that the Fed could raise rates sooner than anticipated (because, yes, the economy is picking up), or declines overseas—doesn't really matter. Stocks dropped. Big deal. Read More

July 24, 2014
MP3

Large Is Beautiful

In the category of "what goes up must come down," it's been a see-saw month in the stock markets at home, as large-cap indexes like the Dow and S&P have risen and small- and mid-caps have fallen—though some large-, mid- and small-cap indexes have hit record highs this month. The Dow and S&P indexes are up 3.1% and 7.5% for the year through Wednesday, and the S&P mid- and small-cap indexes are up 5.3% and 0.1%. Read More

July 17, 2014
MP3

More of the Same

In short, this week delivered more of the same from last week: We saw economic reports indicating that GDP growth picked up in the second quarter, we got word again that the Fed is on the track we thought they were, and more unsettling geopolitical headlines hit the wire. Through it all, markets edged higher, with the Dow closing at a new high yesterday. Read More

July 10, 2014
MP3

Can the Dow Drop a Thousand or Two?

Are you ready for a 1,700-point drop in the Dow? You should be, because that's what it'll take to get that 10% "correction" that is just waiting for us down the road. Is it going to happen tomorrow? I doubt it. But when I see commentary like the one I got Tuesday night from, I feel it's my duty to put some numbers in perspective. Read More

July 3, 2014
MP3

Stock Market Fireworks

We’re still in a slow-growth, not no-growth economy. Some indicators suggest a pickup, while others are more hazy. For instance, Monday’s numbers on pending home sales were very strong, but they don’t completely match with mortgage statistics suggesting that some of the housing activity may be coming from all-cash, non-resident buyers. Read More

June 2014

June 26, 2014
MP3

Man the Lifeboats: GDP is Sinking!

That GDP revision, a change of a full 3 percentage points from first estimate to final, does appear, at least on the surface, pretty outrageous, but in fact we saw the same thing happen in Q1 2011 when the first estimate of 1.7% growth turned into a 1.3% contraction. And in Q4 2008, admittedly a rough time for the economy, the final GDP report was 4.5% lower than the initial report. In Q1 2008, we saw a 3.3% revision. So, rather than focus on what was, let's focus on what is—and what we have is a recovering and expanding economy. Read More

June 19, 2014
MP3

Another Chef, Please!

Inflation's been in the news over the past week, primarily because, well, there's been a split in the data on consumer inflation and producer inflation. Producer inflation, or inflation at the front-end of the production cycle, declined for the second time in four months in May, though it is still running at about a 2.0% year-over-year rate, while consumer inflation ran up 0.4% this past month and is running at a 2.1% rate Read More

June 12, 2014
MP3

Slow But Steady

Last month I mentioned that Jeff and I would get back to you on the underperformance year-to-date for International Growth. Through Wednesday's close the fund has gained just 2.4% for the year versus Total International Stock's 5.1% gain. Now, a short period is really nothing to worry about, but I wanted to know (and apparently some of you did as well) whether we could pin the fund's lagging performance on anything in particular—for instance, Virginie Maisonneuve's leaving the fund, and Schroder late last year.

Read More

June 5, 2014
MP3

Calm Settles Over Markets

Trading volume is down, interest rates are low, stocks are at all-time highs, and the "complaint," if you could call it that, is that investors have become complacent. Well, are they complacent, or are investors simply figuring out that all that frenetic activity produces nothing more than a lot of noise without much signal? This morning's Wall Street Journal says that "investors see little reason to make big changes to their portfolios," to which I breathe a sigh of relief and say, "Hallelujah!" Read More

May 2014

May 29, 2014
MP3

Context Required

Last Friday's new-home sales numbers for April were a nice step in the right direction after a terrible winter, but the frost damage hasn't been fully recovered yet. Sales popped in April, and March's horrific numbers were modified higher, which made the month look less bad, but not good. But we've still seen four months in a row of year-over-year declines and actually saw a small drop in the median new-home price compared to April 2013. Coming on the heels of a better existing-home sales number, the data is, as I said, a step in the right direction, but a baby step at best. Read More

May 22, 2014
MP3

Correction Averted

Wow, after watching the Dow drop by 100 points or more over three days during the past week, and small stocks nearing an official correction, I was waiting for the doomsayers to jump out of their bomb shelters and safe rooms and proclaim, once again, that the end is nigh. In fact, despite all the supposedly big drops in the indexes, the Dow only got down to a 2% loss from the latest high hit on May 13, and with Wednesday's 159-point jump, well, the pessimists ran back to their caves. Read More

May 15, 2014
MP3

Slightly Better Than a Coin Toss

U.S. stocks hit three new highs in as many days this past week before taking a step back on Wednesday and Thursday. At times like these, you should be highly skeptical of pundits trying to call the exact market top—it's an impossible task. In fact, the more you can tune out the day-to-day market moves, the better. Out of the 1,307 trading days since the stock market bottomed on March 9, 2009, 500 Index only notched a positive return on 736 days, or 56% of the time. So on any given day it has been only slightly better than a coin toss whether stocks were up or down. However, through Wednesday, 500 Index has gained 209.7% since the bottom. For those investors who have been able to stay in the markets through the day-to-day noise, there have been some nice gains to be had. Read More

May 8, 2014
MP3

Bad Habits

While the markets dawdle and the economy appears to be gaining back some momentum, a couple of disturbing retirement-related trends seem to be rearing their ugly heads, from investors buying at the highs in their retirement accounts to people tapping their retirement accounts, like 401(k)s, to spend the money. Read More

May 1, 2014

A Spring in Spring's Step

Housing numbers continue to confuse, and the latest figures on pending home sales suggest that if the housing market remains in recovery, it's happening in a place where the data doesn't reflect it—namely, in multi-family housing. Think apartments and condos, which aren't counted in the sales figures. Read More

April 2014

April 24, 2014
MP3

Building Blahs

Economic numbers gave Wall Street plenty to ponder this past week. Existing home sales were flat in March, but prices are creeping higher as inventories remain relatively tight. Given that sales have actually been slowing since July, a couple of flat months like February and March are okay in my book. And this opens the door to a surge in the coming months, particularly when you consider the reports that mortgage lenders have eased their restrictions a bit as refinancing activity has slowed, giving them an incentive to start moving paper and collecting fees from new borrowers. Read More

April 17, 2014
MP3

End of Days? Not!

The seemingly endless fascination with an end-of-days scenario for the bull market just can't seem to get traction—though it's not for lack of trying. The false prophets of Wall Street foresee a terrible time ahead, with stocks falling at least 10%, inflation (or deflation—take your pick) coming down upon the consumer from on high, and a "rigged" market yielding famine and destruction upon all who attempt to profit from it. Read More

April 10, 2014
MP3

500 ... and One?

Friday's payroll report was one of those something-for-everyone reports with greater job creation but a stagnant unemployment number and a slight uptick in the U-6 overall unemployment figure. In short, the private sector continues to create new jobs, but not at the pace we saw in the fourth quarter of 2013, and there's been absolutely no job creation in the public sector. Also, the quality of new jobs remains low, as it's lower-paying industries that are doing the most job building. Read More

April 3, 2014
MP3

High Frequency Fallout

I expect you'll hear a lot more about HFT in the weeks ahead given that the SEC has announced it's got some investigations ongoing in the area, and of course Michael Lewis is "talking his book" heavily in the media. But then the conversation will die down and we can go back to thinking about the economy. Read More

March 2014

March 27, 2014
MP3

Candy Crushed

How sweet it is: Just when you thought the IPO market, which has been on fire, was about to go atomic, the debut of Candy Crush Saga game-maker King Digital Entertainment literally got crushed with a 15% decline in its first day of trading. Does a failed IPO, the worst of the year, make me happy? Not necessarily, but it does suggest that traders and investors aren't suffering a complete sugar high when it comes to stock prices. Read More

March 20, 2014
MP3

Has Spring Sprung?

It's the first day of Spring and I, for one, am hopeful that with warmer weather comes a spring in the step of the consumer, who has been notably absent as the polar vortex has wreaked havoc with our national pastime: shopping. But you have to wait and watch rather than try to guess, or use the Magic 8-Ball to know if, indeed consumers will come out in force in Q2. Read More

March 13, 2014
MP3

Off the Bench, But Not in the Game

Last Friday's jobs numbers had something for everyone, it seemed. The naysayers certainly could look at the increase in the unemployment rate and snicker. But the more realistic economic observers, including myself, saw greater job creation than had been expected and signs that those who'd stopped looking for work had come back off the sidelines and started the process once again. (The naysayers would, of course, claim that those better-than-expected numbers were better because expectations had been lowered, but then that's how people support their arguments, isn't it?) Read More

March 6, 2014
MP3

Putin On a Show

Last Friday's report showing that Q4 GDP growth was closer to 2.4% rather than the original estimate of 3.2% growth didn't surprise Wall Street, which continued to bid stocks higher through month-end, with the S&P 500 hitting yet another record high. Of course, the biggest news this week was Vladimir Putin and Russia entering the Ukraine's Crimean peninsula. What's remarkable is how well the stock market held up in the face of the Russian advance, with the market down less than 1% on Monday and then rebounding past the prior level on Tuesday when the S&P 500 index hit a new record. (It jumped further today.) Read More

February 2014

February 27, 2014
MP3

A Fabulously Flawed Five

Welcome to the biggest, most bullish market you've seen in five years. What am I talking about? Well, when February's trading ends at 4:00 pm Eastern tomorrow, those five-year return numbers for all manner of equity mutual funds are going to soar! Why? The last down month of the famous 2008–2009 market break was Feb. 2009, and as it falls out of the five-year calculation, well, you're going to see some pretty tasty-looking returns being reported. I'll have all of Vanguard's five-year returns in the newsletter, which we'll be finishing over the weekend, but I just want to warn you that there's a lot less in the five-year numbers than meets the eye. Forewarned is forearmed. Read More

February 20, 2014
MP3

Snow in the Data

There is no way around it: The housing data this week was weak, though it looks like there is some snow in the data. The home builders' Housing Market Index fell a record 10 points, from 56 a month ago to 46. The weakness was widespread with traffic, current sales and future sales down. Housing starts also were well below consensus and last month's read. Read More

February 13, 2014
MP3

Smoke Signals

January was a typical risk-off month, with bonds outperforming stocks and stocks, well, taking a loss for only the fourth month in 20. The $19 billion flow of money out of stock mutual funds and ETFs and more than $10 billion flow into taxable bond investments alone smacked of market-timing, bad portfolio management and maybe a bit of tax-selling, but it also smacked of “risk off.” Read More

February 6, 2014
MP3

Counting the Days

The ISM manufacturing report came in well below expectations at 51.3, which is a sharp drop from December's 56.5 read. Keep in mind that this report still signals growth and may have been negatively impacted by the severe weather of the polar vortex. Still, this disappointing report coupled with last week's weak durable goods report has the manufacturing sector on shakier ground than a month ago, and bears watching. Read More

January 2014

January 30, 2014
MP3

Early Bumps Amidst the Taper

As expected, the Fed is cutting their stimulus bond-buying by another $10 billion in February to $65 billion and, aside from changes to a few words here and there, issued an unremarkable statement at the end of their two-day meeting on Wednesday. One thing is certain. I told you that volatility would pick up (that it almost had to pick up from the low, low levels of the last year) and it has, with a vengeance. Not that it's anything to worry about, but it's something to get used to. Look at the VIX, or fear gauge (in the chart below), which jumped over 7% on Thursday and then jumped another 29.8% on Friday (it was down 2.6% on Monday, down 9.3% on Tuesday and then back up 10.8% on Wednesday). Read More

January 23, 2014
MP3

Hello, Here's My Wallet

Well, the trio of Managed Payout funds has gone from plural to singular, as all have been merged into one. The first iteration of this experiment has failed, so it now moves into Phase 2. We’ll see how that goes, but I would not rush to be a buyer of the newly reconstituted Managed Payout. Read More

January 17, 2014

Quietly Protecting Investors

You have to respect a team that will close a fund that is in high demand and forego the extra revenue that comes with more assets in order to protect a strategy and do right by shareholders. The team at PRIMECAP Management deserves that respect. Announced through a SEC filing, the PRIMECAP Management team is closing PRIMECAP Odyssey Aggressive Growth (ticker: POAGX) to most new investors on January 20, 2014. Read More

January 16, 2014
MP3

Merging Away

Vanguard has finally set a date to end an adoption that never quite worked out. On Friday, Feb. 21, Growth Equity will be merged into U.S. Growth, and by that Monday no one should be the wiser. Growth Equity will simply cease to exist, and its horror-show track record will disappear with it. Read More

January 9, 2014
MP3

A Lackluster Start

The year opened with a thud—the Dow dropping 0.8%, or 135 points, and the S&P 500 index dropping 0.9%. But that doesn't mean that 2014 is dead on arrival. As Dan and I discuss in the Outlook in the year-end issue, we expect to see stocks make gains in the year ahead, though we think those gains will be a little harder to come by than in 2013. Read More

January 2, 2014
MP3

Ringing in 2014

Happy New Year. Managed Payout fund investors probably got a bit of a surprise on Monday when their funds issued yet another series of distributions, ranging from $0.87 to $1.46, and prices dropped from 3.8% to 9.1%. While a good portion of each was a distribution of capital gains, as much as 60% of Managed Payout Distribution Focus’s distribution was characterized as a return of capital. These funds continue to disappoint, and I absolutely would not be a buyer. And, of course, the three will be merging into one shortly. Read More

December 2013

December 26, 2013
MP3

A Lump of Coal

First off, let me remind you that we are deep into distribution season and the wild changes in NAV that you are seeing are due to distributions and nothing else. No, Health Care didn’t lose 6.7% of its value on Tuesday, and Explorer did not drop 9.8% in value. PRIMECAP did not lose 5.2%, either. All of these NAV moves, and more, are distributions. If you are reinvesting, you received more shares for your dividends and capital gains, and if you’re taking distributions in cash, well, that cash is now sitting in your money market, waiting to be redeployed. Read More

December 19, 2013
MP3

Quantitative Tapering

First off, let me remind you that we are deep into distribution season and the wild changes in NAV that you are seeing are due to distributions and nothing else. No, Health Care didn’t lose 6.7% of its value on Tuesday, and Explorer did not drop 9.8% in value. PRIMECAP did not lose 5.2%, either. All of these NAV moves, and more, are distributions. If you are reinvesting, you received more shares for your dividends and capital gains, and if you’re taking distributions in cash, well, that cash is now sitting in your money market, waiting to be redeployed. Read More

December 12, 2013
MP3

Lowering the Bar

Like a touch-up rather than a restyling, the markets have been getting little haircuts this past week. The Dow hasn’t hit a high since the second-to-last trading day of November, while the S&P 500 index did indeed hit a high on Monday before trimming back a bit. Dan and I have said for some time now that a 10% correction would be healthy. It might flush out some of the “traders” who shouldn’t be in the market in the first place, and would hopefully revalue some of the stocks that may have become a bit too “rich” in this very calm bull market. But with stocks only 2% or so off their highs, it is far too soon to call this a correction. Read More

December 5, 2013
MP3

Mixed Signals

I am not foolish enough to believe for a second that whatever I say or write is going to move the markets. But I am kind of amused to see the market dropping in early December. As I said in my November 27 Hotline, and repeated in the lede of the December issue of the newsletter, I think a 10% correction in the stock market is warranted, and would be a cleansing that would benefit all of us who are long-term investors, rather than traders. Read More

November 2013

November 27, 2013
MP3

It's 2006 All Over Again

The personal income report on Friday showed good continued strong growth in incomes after several months of weaker numbers. On a year-over-year basis, incomes are up 3.7%, which is higher than inflation—always a good sign. Spending, on the other hand, ticked down as the savings rate went up. The savings rate is now about the average for the last decade, but it remains well below the average rate going back to the late 1950s. I wouldn't be too surprised by that as—quite honestly—saving money at 0.01% is really not a very attractive option these days. Yes, I do keep money in a Vanguard money fund for emergencies, and I remind myself all the time that it's for emergencies, not for investments, and hence even at 0.01%, at least it's there when I need it. Read More

November 21, 2013
MP3

A Dow Point Today

Retail sales were stronger in October than expected, even without a "lift" from the introduction of the new iPhone. Car sales zoomed ahead, as did sales of many of the items you might purchase if you were moving into a new home, like furniture, electronics and appliances. Existing home sales, on the other hand, seem to be slowing. Growth has been negative over the past couple of months. But, tempering that is higher prices and fairly tight inventory. Sales are at a high level, and just staying at that level, particularly when we consider that prices are rising, can power the economy higher. We won't see new home sales data, which comes from the Census Bureau rather than the National Association of Realtors, until early December. Read More

November 14, 2013
MP3

Predicting A Money Market's Five-Year Loss

The personal income report on Friday showed good continued strong growth in incomes after several months of weaker numbers. On a year-over-year basis, incomes are up 3.7%, which is higher than inflation—always a good sign. Spending, on the other hand, ticked down as the savings rate went up. The savings rate is now about the average for the last decade, but it remains well below the average rate going back to the late 1950s. I wouldn't be too surprised by that as—quite honestly—saving money at 0.01% is really not a very attractive option these days. Yes, I do keep money in a Vanguard money fund for emergencies, and I remind myself all the time that it's for emergencies, not for investments, and hence even at 0.01%, at least it's there when I need it. Read More

November 11, 2013

October Hot Hands Update

I can tell you that we’ve never seen a Hot Hands race come down to hundredths of a percent or a penny difference in price, but the facts are the facts: With Vanguard updating month-end net-asset values—something they do every month and which I’ve told you about in months past—there's been a change in the October Hot Hands selection. Read More

November 7, 2013
MP3

Markets Are All A-Twitter

For some market participants, Twitter's IPO was the highlight of the week. Last night Twitter raised $1.8 billion in its initial offering, selling 70 million shares at $26 a share, for an $18.1 billion valuation. Today the stock opened at $45.10 a share and has been trading around that level, valuing the company at about $30 billion. For a company that is not yet profitable, this brings back shades of 2000 and the tech bubble in terms of stock valuations. But in this case, it's Twitter rather than the sector as a whole which sports what looks like a very high valuation. The broader tech sector still appears relatively (and that's relatively) cheap. Read More

November 1, 2013

October Hot Hands

We will be reviewing the October Hot Hands strategy in full in the December issue when we have finalized all the numbers, but for those who are trading on this strategy, here is the final word on which fund to trade into. Read More

October 2013

October 31, 2013
MP3

Hot Hands in Tech Winter

It's the last week of October, and with the government open and operating again, key economic data for September is finally rolling in. Overall, the picture hasn't change that much—we remain in an economy that is growing, albeit slowly. The Federal Reserve seems to agree. Having met for two days this week, they plan to stay the course: They will continue purchasing $85 billion of bonds each month and will keep the fed funds target rate pegged near zero. The Fed also reaffirmed their target levels of 6.5% unemployment and 2.0% inflation—though they'd accept inflation up to 2.5%. Tapering seems to be off the table right now, and its start will likely be the responsibility of Chairman Ben Bernanke's successor in 2014. Read More

October 24, 2013
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Watch Those Numbers

The government is open again, and economic data is beginning to flow. That said, the shutdown delayed some numbers, delayed capturing some other numbers, and generally will continue to have an impact on all the numbers we see over the next few weeks, from what I’ve been told. In particular, inflation data, because of the way it is collected and processed, could give a wrong impression about the state of inflation in the economy for the next six months. Why? Because some of the data for the inflation numbers, in particular rent numbers, are only collected every six months. And other data will be affected, for a while at least, due to sampling error in the October data due to the shutdown. It’s a mess, particularly given the fact that inflation is one of the two benchmarks the Fed says it is using to determine when to begin tapering of its $85 billion per month bond purchases. From the analysis I’ve seen, it’s important to keep an eye on 12-month numbers and not get carried away with monthly numbers, which could be all over the map. Read More

October 17, 2013
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Taking Default Off the Table—For Now

Default will be avoided, at least for a few months. Policymakers in Washington agreed to a last-minute deal Wednesday night to end the 16-day government shutdown and raise the U.S. debt limit. As the unsettling practice of governing by crisis becomes all too common in Washington, you can't blame the analysts at Fitch Ratings for giving the U.S. government's AAA-rating a negative outlook—it's literally the least they could do. Remember, it was in the aftermath of the debt ceiling debate in 2011 when S&P downgraded U.S. debt from AAA to AA+. Read More

October 10, 2013
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Mr. Washington Goes to Market

On Wednesday, October 9, President Obama nominated Janet Yellen to succeed Ben Bernanke as Fed chair, which would make her, upon confirmation, the first woman Federal Reserve chair in its 100-year history. Yellen will, of course, not take her seat until January when Ben Bernanke's term expires, so there's still plenty of time for the Fed to cogitate over tapering, or not. But given where the government is right now, with its shutdown and arguments over short-term debt ceiling hikes contingent on savings in the budget process, we would be surprised to see tapering begin in 2013 at all. Tapering will, in our opinion, be in Janet Yellen's court. Read More

October 3, 2013
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Shutdown: Day Three and Counting

Friday's personal income report showed some pretty robust growth in incomes, a welcome showing in a continuing slow-growth economy. Consumption also rose after a weak July. Year over year, incomes have risen faster than spending, and you can see this reflected in the savings rate, which, at 4.6%, is right on the average for the past decade after having dipped in January. Monday played out about as expected. The Senate and the House couldn't come together and agree to keep the government open, preferring to play games with the country, though it appears there may be some cracks opening in the opposition as of this afternoon. The government shut down some operations and furloughed 800,000 workers. Meantime, the S&P 400, the S&P 600 and the Russell 2000 indexes all hit record highs on October 1, the first day of the shutdown. Read More

September 2013

September 26, 2013
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Stocks Down a Little, Bonds Up Big

It's been quite a week with the stock averages moving lower and bond prices moving higher. The Dow, for instance, fell for five consecutive days and, while that made for headline fodder, it didn't mean very much, as the losses, in total, were small and came from an all-time high that was set just a week ago on Wednesday the 18th. With today's small, 55-point gain, the Dow is just 2.2% off that high. Through Wednesday, foreign funds are leading the charge for the month, with gains ranging from 7.4% for International Explorer to 9.3% for Emerging Markets Stock Index.  Industrials and small growth stocks are also at the fore. Read More

September 19, 2013
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The Token Taper

I can't really figure out exactly why "the market" was so certain the Fed was going to begin to trim its quantitative easing program, given the state of both inflation (nonexistent) and unemployment (still too high). You can be sure that the talking heads are going to have all kinds of criticisms and comments about the lack of a taper and the lack of confirmation of their own biases, but no one is going to do a mea culpa. They're simply going to find fault with Ben Bernanke's thought process. Read More

September 12, 2013
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Will They or Won't They?

Will they or won’t they? You might be wondering if I mean, "Will they or won’t they bomb Syria?" or "Will they or won’t they force a government shutdown over the debt ceiling?" But on Wall Street right now, the “will they or won’t they” refers to the Federal Reserve, which begins a two-day meeting on Tuesday and will make an announcement Wednesday afternoon that’ll have all eyes and ears tuned in. I still think the Fed will put off tapering until later this year, but if I’m wrong, then the taper they engage in will be incremental—maybe a $5 billion or $10 billion taper off of the current $85 billion in stimulus currently being provided. As I’ve said before, while there’s some disagreement about whether this quantitative easing is helping, it’s pretty clear that, at least in the short term, it isn’t hurting. Read More

September 5, 2013
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The Headlines Are Coming

It’s not flashy, but the slow-growth economic story remains on track. The ISM Manufacturing index showed strong growth for the second straight month, as it came in above expectations at 55.7. Today, the ISM Services index was also higher than predicted at 58.6, which is the highest level since December 2005. Remember, readings above 50 indicate growth. otor vehicle sales were up 1.9% in August to a 16.1 million annual rate—the highest since November 2007. Notably light trucks, like pickups, which often point to strength or weakness in small businesses and construction, led the gains. Read More

August 2013

August 29, 2013
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Taper On, Taper Off

Remember "risk on, risk off"? Well, according to my "bond guy," we're now in a "taper on, taper off" environment. As the economic data enhances the prospect for tapering, stocks and bonds fall, while data that suggests the Fed will hold off on cutting back on its $85 billion per month bond-buying program sparks a short-term bond and stock rally. Last Thursday, the 10-year Treasury's yield jumped as high as 2.92%. Yet, three trading days later, it was as low as 2.71%. For those who don't follow the daily twitches in the bond market, that's a mighty big range to be trading in over the course of just a few days. I've shown you a chart of the 10-year Treasury's yield many times over the past several months, and if you look again you can see that we seemed to push outside what I thought would be the new trading range for bond yields, but have since come back in to between, say, 2.5% and 2.8%. Read More

August 22, 2013
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A Nasdaq Lunch (And Siesta)

3,631.17. That’s the number the Nasdaq was stopped at for over three hours today as trading was halted due to software malfunctions. Though the Nasdaq was down, traders did not panic. U.S. stocks, measured by the S&P 500 and Dow indexes, held on to gains throughout the afternoon. And when trading resumed on the Nasdaq at 3:25 p.m., stock prices initially rallied and then sold off a little, with the Nasdaq finishing the day at 3,638.71, or up 1.1%. Read More

August 15, 2013
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Brightening Outlook, Darkening Markets

The jobs picture continues to brighten, slowly. The spending picture also looks fine. And inflation is nowhere to be found. Yet investors remain cautious, taking the stock market down off of its early August highs and pushing bond prices lower and yields higher. Why? Well, Thursday’s early sell-off in both the bond and stock markets was on fears that, yes, the economy might be doing so well that we could shortly come to see the beginning of the end of the Fed’s QE3 stimulus program. However, you don’t need to look very hard to find a wide range of opinions over whether the economy is running faster or slower than the numbers indicate—or, even more important, whether the Fed will indeed announce it is starting to taper at its mid-September meeting, or whether it’ll be several more months at least before the bond market really has to get antsy about the reality of tapering, rather than the mere expectations of tapering. Read More

August 8, 2013
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Bonds Holding Ground

Friday’s personal income and consumption report was another slow-growth reading, and the accompanying report on inflation, using the Fed’s favored gauge, showed nothing going on on the inflation front. The personal consumption expenditures index is up just 1.3%, and the core reading, which excludes food and energy, is up 1.2%. Read More

August 1, 2013
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Taper On Hold

August opened with a bang. The Dow, the S&P 500, the S&P 400, the S&P 600 and the Russell 2000 all hit all-time highs today as traders and investors apparently digested all the news that has come out this week and decided that yes, the economy is improving, but no, it doesn’t look like the Fed’s going to taper just yet. That being said, the 10-year Treasury has been bouncing all over the place this week and is now at a yield of 2.72%, which is the highest we’ve seen in this cycle and which also means its price has declined by about 6.5% so far this year. Read More

July 2013

July 25, 2013
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High Returns, Low Volatility

Remember when the market's volatility spiked in June? The VIX (or fear index) popped to 20.49 on June 20 as the Dow was dumping 550 points over a two-day sell-off. Well, as I record this, the VIX is below 13.20. If you're worried about volatility, your biggest worry should be volatility in the volatility index, suggesting traders have a schizoid personality. It's kind of like the old risk-on, risk-off debate we were having about a year ago or more. Well, no one's talking risk right now, with returns as high as they are in the stock market, but I think we may head into a more risky and more volatile environment as we head into September and the inevitable showdown within Congress over the debt ceiling and spending limits. Read More

July 18, 2013
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Berkanke Makes It Simple for Congress

Testifying before Congress this week, Fed Chairman Ben Bernanke keeps finding new and different ways to convince people that tapering is not a foregone conclusion, and there aren't any imminent changes to the fed funds rate. Bernanke continues to try and clear up the confusion that seemed to stem from the post-Fed meeting press conference that spurred the 10-year Treasury yield to spike over 2.7%. His message may be getting through, finally, as the stock market has hit new highs and bond yields have dropped closer to 2.5%, touching 2.46% during yesterday's trading. Read More

July 11, 2013
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Home, Home on the Trading Range

For all the worries over the bond market (much of which I think is vastly overdone and overwrought), the stock market has been pushing toward new highs. Over the past week, small-cap stocks have been on a tear to new highs, with both the Russell 2000 and S&P SmallCap 600 taking the lead. Many Vanguard funds are also sitting at all-time highs. On the index side, of course, funds like SmallCap Growth Index and SmallCap Index are at records as of Wednesday night's close. But active managers from small to large are also doing well for their shareholders. Read More

July 3, 2013

Why We Still Don't Own Treasurys

We’ve spent a lot of time covering the bond markets and fixed-income funds over the last several months. (For Dan’s update on Vanguard’s tax-exempt funds, check out the July issue of the newsletter.) Here’s another piece of the story: For the first time in seven years, bond market indexers have lost money over a 12-month period. Total Bond Market Index was down 2.54% for the first half of 2013, but the end of June also marked a 0.95% decline from a year ago. The 45% allocation to plain-vanilla Treasurys, as Dan has warned it could, caused returns to suffer. Read More

June 2013

June 27, 2013
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The Taper Trauma

There are changes recommended for the Growth and Growth Index Model Portfolios. Grab a notepad and a pencil, and I'll give them to you in a moment. Last week, Jeff and I expressed surprise at the negative take that the Street and individual investors seemed to have after Fed Chairman Ben Bernanke spoke. The market's reaction was so strong I thought maybe I'd misheard what he said. Read More

June 20, 2013
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If, If, If ...

If the Fed’s estimates about where the economy is headed are correct, and if its estimates about the pace at which the economy is growing are correct, and if unemployment drops substantially, and if inflation begins to tick up … then, the Fed’s chairman, Ben Bernanke, says, the Fed will begin to taper or slow its purchases of bonds, and if things continue on that path they could (not will, but could) end their bond purchases sometime next year. Those are huge “ifs.” Read More

June 13, 2013
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Bond Funds Absorb Stock Market Shocks

The Friday payrolls report had something for everyone, it seems. The rise in the unemployment rate back to March’s 7.6% from 7.5% in April was either an indicator of faltering job creation or increased job seeking. The revisions to the prior two months sent the three-month average down substantially. But the bottom line is that in the face of continued job destruction on the government side of the ledger, private businesses are continuing to add workers—slowly yes, but surely. Since the job market turned around a little over three years ago, more than 6.3 million new jobs have been created. This morning we also saw jobless claims decline, which points to continued slow improvement in the employment picture. Read More

June 6, 2013
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Coping With Rising Market Volatility

The markets have been volatile, as you’ve probably seen, with the Dow dropping 2.4% off of its high through Thursday. I wouldn’t call this anything major. But take a look overseas. You’ve probably heard there’s been some volatility in Japan. Well, as investors have begun to ask the first questions about the viability of Abenomics in a country where the population is aging rapidly, the government is subsidizing power prices, and corporate and investor culture remains locked in decades-old strictures that are hard to break, stock prices have begun to drop. Just 11 trading days ago, the Nikkei was up 50.3% for the year. As of this morning’s close in Tokyo (remember, they are 13 hours ahead of us), the Nikkei is up just 24.1% for the year, having lost more than half its gains. That’s what I call volatility. Read More

May 2013

May 30, 2013
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Hotline

Stocks hit highs and then gave up some gains. And economic signposts continue to point towards a slow growth, not no growth economic expansion. But maybe not in Japan. Last week investors began to question whether more money will really lead to sustainable growth in Japan, and stocks headed the other way—quickly. Last Wednesday night, Japanese stocks fell 7% in a single trading day. And after declining another 5% last night, Japanese stocks are down about 13% in the past week. Read More

May 23, 2013
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Hotline

If you've been watching the news, you know that a pullback in Chinese manufacturing suggesting contraction rather than expansion caused a minor tsunami amongst Pac Rim stock markets overnight. While China's market fell just 1.2%, Japan, which relies on major exports to China, saw its market fall 7.3%. Hong Kong was down over 2.5%, and as European markets opened they also fell, mainly in sympathy or in reaction rather than due to any overwhelming fundamental reason for concern. Of course, the way news travels around the world these days, investors tend to shoot first and ask questions later–if they ask questions at all. Many European bourses were down between 2% and 3% on the day. And I wouldn't lose a lot of sleep over the Japanese market's decline. The Nikkei was up 50.3% for the year before the little tumble this morning. Read More

May 16, 2013
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Hotline

Two different measures of inflation released this week both point to an inflation situation that remains stable. The Producer Price Index (PPI) reported headline inflation of 0.7% and core inflation (which excludes energy and food) of 1.7%. The Consumer Price Index (CPI) numbers were very similar, showing headline inflation at 1.1% and core inflation at 1.7%. As long as inflation remains low and below its 2.0% to 2.5% comfort level, we can expect the Fed to continue its easy money policy and focus on stimulating growth to bring down the unemployment rate. With jobless claims coming in higher than expected this week, it looks like the Fed still has some work to do on the employment front. Read More

May 9, 2013
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Hotline

The stock markets continue to serve up all-time highs as our slow-growth, not no-growth economy slugs it out with the naysayers who constantly find plenty of reasons to be negative. The fact is that companies continue to find markets for their goods and services; they continue to cut costs where they can to run as lean and mean as possible; borrowing costs remain extremely low; and the consumer is loosening the purse strings a bit. The current earnings season hasn't been anything to write home about because, frankly, there've been no big blow outs or blow-ups. It's business as usual. Read More

May 2, 2013
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Hotline

Friday’s GDP report of 2.5% growth for Q1 didn’t meet expectations, but it's a far sight better than 0.4%, the meager rate at which the economy expanded in Q4. This week saw a range of economic reports. Not to be dismissive, but to my eye not a whole lot changed. Manufacturing slowed a bit, but consumers showed improvement, with increased levels of incomes and spending. Motor vehicle sales were strong, and housing prices continue to recover. Inflation remains in check. The employment situation continues to slowly mend; jobless claims came in at the lowest level in five years, though we will get the official read on employment tomorrow. Read More

April 2013

April 25, 2013
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Hotline

Vanguard’s tax-exempt money fund yields are jumping, having risen from 0.01% for all funds on April 11 to, in some cases, 0.08% for funds like Tax-Exempt Money Market, NY Tax-Exempt Money Market and Ohio Tax-Exempt Money Market. The last time we saw a spike like this was in October, when we saw yields get as high as 0.08% before quickly doing an about-face. From those highs, yields went back to the 1 basis-point level in a bit less than two months. I can’t think of any reason this won’t happen again, as there is no good, fundamental reason for yields to be rising at the moment. Read More

April 18, 2013
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The big news out of Vanguard this week is that, as of Wednesday, most of Vanguard's transitions of index funds from MSCI indexes to CRSP and FTSE benchmarks are complete. Congratulations to them. What's left to finish is Total Stock Market, Total International, Tax-Managed International and Emerging Markets Index. As we said when the changes were first announced, investors shouldn't feel a thing and, as far as we can tell, they didn't. The transitions have gone smoothly from the shareholders' perspective. Read More

April 11, 2013
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Hotline

While the unemployment numbers released Friday were disappointing, showing that job creation over the past three months was the slowest it’s been since October, the continued disconnect between a falling unemployment number—now down to 7.6% from 8.2% a year ago—and the shrinking labor force has the skeptics and the bears growling mightily. Read More

April 4, 2013
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Hotline

Last Friday was the Good Friday holiday. Nonetheless we saw consumer sentiment and personal income reports released to a closed stock market. On consumer confidence, the University of Michigan numbers, showing a 1.3% rise in confidence from the prior month, once again seemed to disagree with the Conference Board numbers, which showed March numbers dropping 12.2%. Read More

March 2013

March 28, 2013
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Hotline

Think back one quarter to the end of 2012. The economy was slowing. Earnings growth was coming off of its peak. And with stocks returning better than 16% for the year, and better than 11% compounded over the prior three years, it seemed almost ludicrous that 2013 could yield even more profits. Read More

March 21, 2013
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Hotline

Remember that over the past couple months I've been saying that the manufacturing side of our economy appeared to be picking up some strength after flagging towards the end of 2012? Well, Friday's industrial production report was better than expected and appears to confirm the notion that inventories are being rebuilt, and yes, people are buying. Auto production helped, and we already know that car and truck sales have been strong. So, that's a confirmation of that trend. Only the mining business seemed to contract a bit during February—but it's been doing so for several months now. It didn't change the broad trend in these positive economic numbers, though. Read More

March 14, 2013
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Hotline

The Friday jobs report was better than expected and a welcome capper to a week of records set by the Dow index. While government jobs continue to be cut—and may be cut much further given the impact of sequestration—overall job creation has been strong. The unemployment rate, at 7.7%, doesn’t tell us much, since there are many workers who’ve given up looking for jobs and hence aren’t counted in the numbers, plus there’s the demographic of older workers who’ve simply moved into retirement—albeit maybe a bit earlier than they’d expected. But, be that as it may, the 236,000 new jobs in the month of February, added to almost 340,000 in the prior two months, is a good number. And today’s jobless claims numbers came in at 332,000 and, when smoothed over the last four weeks, is the lowest we’ve seen since early 2008 and is certainly a post-recession low. Read More

March 7, 2013
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Hotline

Unless you’ve been traveling by dogsled in the outer reaches of the Antarctic where cellphone coverage and Wi-Fi simply doesn’t reach, you know that the stock market, as measured by the Dow, hit a new all-time closing high on Tuesday, did so again yesterday and hit a third “record” today. Of course, if you have been reading my postings at adviseronline.com or maybe heard my take on the record on National Public Radio on Tuesday, you also probably know that this “record” has less to do with actual “highs” and more to do with headlines. On a total return basis, the Dow has hit 18 records this year, after hitting 31 records in 2012. Read More

February 2013

February 28, 2013
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Hotline

Monday’s market action, which seemed to be following the Italian elections with great interest, saw the Dow drop over 216 points, which in and of itself isn’t that big a deal, measuring just 1.6% or so. But it was the first time this year that the index moved intraday in a better-than-2% swing, something we only saw happen four times last year but an average of 42 times in the prior four years—2008 through 2011. We haven’t seen a lot of volatility in the markets for quite some time, and this might be a one-off; however, the fact that investors were so skittish over the Italian vote means anxiety is definitely high. The VIX, better known to some as the “fear gauge,” rose a whopping 34.0% on the day from very, very low levels. Read More

February 21, 2013
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Hotline

Merger mania continues unabated and, to my way of thinking, tells us that values still exist in the marketplace and that cash is finding a home in what should result in more efficient, higher-growth-rate combinations. To recap, last Thursday saw a spate of deals announced, and since then we’ve had more. We’re talking about more than $150 billion in deals so far this year. Read More

February 14, 2013
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Hotline

It was a relatively quiet week on the news front, and markets reflected that with 500 Index up only 0.8% and Total Bond Market down a fraction, -0.2%. What news we did get continued to show signs of a slow-growth environment. Friday’s international trade report showed the U.S. trade balance in December narrowed sharply to a deficit of $38.5 billion from a deficit of $48.6 billion in November. Exports increased 2.1% and imports declined 2.7%. The U.S. continues to reemerge as a major energy producer and we are seeing manufacturing return to our shores. These long-term trends could continue to chip away at the U.S. trade deficit. Read More

February 7, 2013
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Hotline

It’s been an up-and-down week, with investors ending pretty much where they started. Friday’s employment report, despite showing that unemployment rose from 7.8% to 7.9%, was well received. In part, this was due to upward revisions to December data. Additionally, investors expect the Fed to remain accommodative as long as unemployment remains above the 6.5% threshold. The market also got a boost from the ISM manufacturing report, which surprised to the upside, showing stronger growth than expected. Read More

January 2013

January 31, 2013
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Hotline

After a massive run-up this month, the markets are pulling back a bit on fundamentals, rather than pure, unadulterated optimism. What kinds of fundamentals? Well, how about GDP? Much as Q3 GDP benefitted from a surge in defense spending, the retreat in spending in Q4 hurt GDP growth and added to woes along with Hurricane Sandy and the debate over the fiscal cliff. Analysts attributed uncertainty on the part of businesses and consumers to the mix and the 0.1% annualized rate of decline in GDP was unexpected but maybe not so surprising after all. And there may be a bit of accounting acrobatics going on here, as the Defense Department was looking for ways to get ahead of sequestration and the Treasury was also looking for ways to forestall banging its head on the debt ceiling. Read More

January 24, 2013
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Hotline

Our slow-growth, not no-growth economy continues to march ahead. Today, the Labor Department reported that last week saw the lowest level of jobless claims in five years—in fact, since the exact same week in January, 2008. That’s a significant repair in the labor markets. Tuesday’s report on existing home sales capped the year, with a small decline from November, but a 12.8% rise for all of 2012. The median price of a home was up 11.5% over the course of the year. Again, that’s another sign of the economy’s continued recovery. Read More

January 17, 2013
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This morning’s weekly jobless claims report was a bit of a surprise, posting the lowest number of new claims since Feb. 2008, right before the great financial debacle really began to pick up steam and just as the recession was setting in. After that low, unemployment claims crested at almost twice the current rate. Jobs are steadily, if not swiftly, being added as the economy continues on its slow-growth, not no-growth trajectory. Read More

January 10, 2013
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Hotline

China reported that exports rose more than expected in December, which is a good thing given that this means markets around the world are generating increasing demand. This harbinger of improving economic activity, along with higher oil prices, gives some hope that 2013 could see further mending of frayed economic activity. Read More

January 3, 2013
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We’re past the cliff, but the ceiling (the debt ceiling, that is) looks shaky and may be getting ready to fall in on us. We have two months before sequestered spending cuts take effect. (That’s the delay that was agreed upon in the bill passed on Tuesday.) If you think the posturing and arguing were bad during the debt ceiling debacle of August 2011 and the cliff talks we just went through, well, you haven’t seen anything yet. Read More

December 2012

December 27, 2012
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As slow as it may have seemed in the news department, given the fact that Congress went home for the holidays, there’s actually been a fair bit of news on the economy this past week. Read More

December 20, 2012
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Fiscal cliff discussions have revved up a bit, and the trial balloons that are being floated ever more frequently are mainly a means of gauging how both the public and the legislators will react as the year-end deadline and desires to get home for the holidays draw ever closer. You can see the markets moving on every whisper out of House Speaker Boehner’s or the White House’s mouth. It’s time for a deal. Read More

December 13, 2012
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Distribution season is here. It starts in earnest on Monday, Dec. 17, when funds like Capital Opportunity, MidCap Growth and others go ex-dividend. MidCap Growth, by the way, is slated to have the largest distribution among all Vanguard's funds, with 5.7% of NAV scheduled to be paid out, based on the latest numbers from Vanguard. Global ex-U.S. Real Estate, which will pay out 4.2%, goes ex two days later. So, watch your distributions and, if you haven't done so yet, consider taking them in cash and redeploying across your portfolio if you're investing in a taxable account. By the way, as of Wednesday night's close, Capital Opportunity is at a record high. Read More

December 6, 2012
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We continue to see plenty of reports on the state of the economy that both suggest optimism and pessimism, but I would caution that everything we are hearing right now should probably not be taken too, too seriously, as the Hurricane Sandy impact remains substantial–skewing the numbers in ways we won't understand for at least several more months, if ever. Read More

November 2012

November 29, 2012
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It feels as though volatility is up, even if it’s not showing up in the VIX or other market gauges that the media likes to track. And it’s not showing up in the actual numbers in terms of how the market indexes are moving—particularly when you look and compare to the past few years. Yet, the fact that the market has taken some swoops up and down recently, and that the uncertainty around the fiscal cliff remains so… well… uncertain, is making investors nervous. But they really should look at the numbers. The markets are up and stocks have come well off their November lows. Read More

November 21, 2012
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The data on existing home sales continues to point to a broad recovery, up 2.1% in October and up 10.9% over October a year ago. Prices are up more than 11% above where they were a year ago. Plus, the inventory of homes on the market, at 5.4 months of supply, is the lowest since mid-2006. And Tuesday’s data on housing starts was well above even the most optimistic of projections. Housing is on the comeback trail, period! Read More

November 15, 2012
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Investors are focused on the fiscal cliff, as well they should be… but remember that if the two sides in this political cat-fight don’t come together, then on January 1 the Democrats will get what they want, tax hikes, and the Republicans will get what they want, spending cuts. The issue is that the Democrats don’t exactly want the specific tax hikes that the new year will bring, and the Republicans don’t exactly want the spending cuts that are slated to go into effect either. So it behooves both sides to put their heads together, to stop their whining, and get on with helping to manage our country rather than managing their re-election campaigns. Read More

November 8, 2012
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One down and another to go. The election is history–and I don’t know about you, but I’m just glad it’s over. Sure, the stock market took a shellacking yesterday, with the Dow and S&P indexes both falling almost exactly the same 2.4% while the NASDAQ fell 2.5%. But post-election sell-offs are pretty meaningless. The stock market typically doesn’t like Democratic wins, but more importantly this was probably a case of buying on the rumor and selling on the news. The market dropped 5.0% after President Obama’s 2008 victory and it’s been rising ever since. It fell 4.5% after FDR’s first election and it fell 3.8% after Truman was elected. No big deal. Read More

November 1, 2012
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I’m sure you’ve seen the unsettling pictures of Sandy’s aftermath and, before turning a “cold” analytic eye to the story, I want to acknowledge the personal impact of the storm—lives have been lost, homes have been destroyed. It is tragic and all of us at The Independent Adviser for Vanguard Investors hope that the suffering ends quickly and lives return to normal as soon as possible. But as we begin to move forward, talk turns to other impacts. And of course, the naysayers are out in force claiming that lost productivity, lost tourism and the fact that, at least in New York, folks can't get to their jobs will mean a big hit to the economy. I don’t buy it and neither should you. Sure, there’ll be a short-term disruption to trade and commerce, which will no doubt lead to lots of “I told you so” moments for a few days or even weeks. And numbers released by government and private agencies will note weird blips—both down and up—in supplies and demand. Read More

October 2012

October 25, 2012
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Earnings season is far from over, but the news has been less than rosy—and with the press focusing particularly on companies that have missed estimates or are downgrading future prospects, the mood on Wall Street has turned a bit to the negative. Meanwhile, today’s durable goods report suggests that businesses are slowing down orders and purchases until some clarity around the election and the fiscal cliff comes through. Big business has also found a voice in over 80 CEOs who sent a letter to Congress telling them to get off their electioneering duffs and do something about the budget—and no, they didn’t just say that cutting was in order, they also suggested higher taxes are a necessary evil to close our yawning budget deficit and shrink our debt. Read More

October 18, 2012
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Tomorrow, Friday, marks the 25th anniversary of the 10/19/87 market crash better known as Black Monday. For those who can’t remember, the Dow had hit an all-time high that year on August 25. As is typical after hitting a high, the market consolidated a bit and bounced around, dropping as much as 8.4% before recovering more than half of that loss. But, after a relatively raucous three days when the Dow shed 10.4% and then-Treasury Secretary James Baker expressed some concerns over the weekend about the market’s fall, Monday saw markets tumble around the globe starting in the Far East and ending with our market dropping 508 points or 22.6%. Read More

October 11, 2012
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Last week’s unemployment report, which showed that the unemployment rate fell from 8.1% to 7.8% in September, was followed up today by a big improvement and a surprise in the weekly jobless claims numbers, which fell to their lowest level in over four-and-a-half years. The four-week average is the lowest it’s been since February—a sign of improvement, not economic lethargy. Read More

October 4, 2012
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The big news this week out of Malvern was an announcement that Vanguard is dropping index-provider MSCI's benchmarks from 22 index funds and ETFs. The changes, which impact signature funds including Total Stock Market and Emerging Markets Index, will take place over several months and are not expected to be completed until well into next year. For the six international index funds affected, Vanguard is dropping MSCI in favor of FTSE. The notable difference here is that MSCI classifies South Korea as an emerging market while FTSE considers it to be a developed country. As South Korea is the largest country in Emerging Markets Index at 15% or so of the portfolio, the difference is not insignificant. Read More

September 2012

September 27, 2012
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Far from being a terrible month and with just two trading days to go, Sept. 2012 is looking like one of the most meek months in over a decade. And I’m not talking about the fact that markets are up rather than down. I’m talking volatility. There’ve been 898 trading days since the market bottomed in Mar. 2009. Over the month of September, eight of the 17 trading days we’ve had so far have ranked in the bottom decile, meaning the bottom 10% of all those days, in terms of intra-day volatility. And four are within the 5% of least volatile days of the entire period. Now, I know that today the market has rallied on the news Spain might actually be getting its deficit-ridden act together and, hence, it’s been a bit more volatile today, but rather than a month to fear, September 2012 has been a month to cheer. Read More

September 20, 2012
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Compared to last week, this was a light week for news. After the market’s initial reaction to QE3, where stocks and commodities jumped up and bonds sold off, the markets were relatively subdued as investors digested the reality of further Fed support. On the concern side of the ledger, the employment environment continues to be challenged. Initial jobless claims came in above consensus at 382,000. But rather than focus on the specific number, note that initial claims have been coming in all year in the 350,000 to 400,000 range. This is a better range than 2011 and 2010 but still points to a slow-to-improve employment picture. Read More

September 13, 2012
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Yesterday was a big day on many continents. In Europe, a few clouds of uncertainty were cleared up. A German court ruled that a significant portion of the euro-zone rescue plan was constitutional and Germany can participate in it, removing a potentially huge impediment that added to investor uncertainty. Also, in the Netherlands, pro-euro parties were re-elected and maintain their majority, dispelling concerns that anti-euro parties would rise to the top. Dan and I are not convinced that the solution to too much debt is to buy more bonds, but the markets have given this news a vote of confidence: Outside of commodity-oriented funds like Precious Metals & Mining, which is up 7.3% this month, European Index is leading the way in September, up 5.0% through Wednesday. Read More

September 6, 2012
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While there's plenty of economic and political news out this week, the biggest news for you and me is the impending retirement of Health Care's Ed Owens. Ed announced he'll be leaving the fund and Wellington Management at the end of the year. I could go on and on about Ed's achievements. He basically did everything Vanguard said was impossible: He was an active manager who beat the index; he was an active manager who beat his sector's index; he was an active manager of a sector fund (and you know how dangerous those can be); he was an active manager of a sector fund that actually was less risky than the stock market overall; and, finally, he killed the index on a performance basis. Ed Owens is a legend and leaves with a tremendous track record (though he's got four more months, and I guess anything can happen, but I wouldn't bet on anything out of the ordinary sullying his long list of hits). Read More

August 2012

August 30, 2012
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While it seems as if someone hit the pause button on the markets, we did get some positive news this past week. The first revision to second-quarter GDP shows that the economy grew a bit faster than originally thought—but don’t confuse faster with fast. A 1.7% annualized growth rate is not going to produce lots of jobs. Of interest is the fact that consumer consumption was a major driver of the upward revision, while government spending cuts were a major drag on economic growth. In contrast to a shrinking public sector, corporate after-tax profits in the second quarter were up 13.3% over the past year. Read More

August 23, 2012
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It's been a pretty light week all around over the past several days. The stock market's been moving in a fairly narrow range, and there've been few economic indicators to get really worked up over. Housing is giving mixed reports, with the existing-homes data a bit under expectations and new-homes data a bit better. The Fed looks closer to going with a QE3, or third attempt to goose the economy with low, low interest rates, as if they weren't low already. (Though, this morning, one Fed Governor interviewed on TV suggested another stimulus is far from guaranteed, and the market sold off a bit on those comments.) Unemployment claims suggest the pickup in job creation may have been short-lived, but it's really too soon to tell. Read More

August 16, 2012
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The economic news this past week had a positive tilt, indicating the slow-growth rather than no-growth story remains on track. The big item was a nice positive surprise out of retail sales. After weak readings the past several months, retail sales rose 0.8% in July, well above consensus expectations. This continues the trend we’ve witnessed the past three years of weak retail sales in the April to June timeframe followed by a rebound as we approach fall. We’ll be watching back-to-school sales to see if this trend continues. Read More

August 9, 2012
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Risk off. Risk on. The markets seem to be defying the common wisdom, and risk is definitely on this month, as the tried-and-true “safe” stocks are taking a back seat once again to their more aggressive sibs. Utilities, telecoms, consumer staples and health care stocks are all lagging. Small-caps are leading big-caps, but more importantly mid-caps, the area I like the most, are in charge again. Read More

August 2, 2012
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The big news out of Malvern today is that AllianceBernstein has been fired from portfolio management positions on Global Equity, International Value and Windsor. AllianceBernstein oversaw roughly $5 billion for Vanguard, but a combination of poor performance, a series of manager changes and continuing questions about the firm's stability likely contributed to the decision. Turning to the economy, the Fed was in the news again, indicating that they see economic growth slowing and will maintain a highly accommodative policy. But markets were disappointed that additional stimulus was not hinted at more strongly. Read More

July 2012

July 26, 2012
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I'd hate to be a market-timer in this market (or any other, for that matter). The way the market's been moving this month has been nothing short of the ride I used to take when I took my pogo stick out on the sidewalk in the 1960s. Read More

July 19, 2012
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Last Friday, in spite of a lousy consumer confidence report, the markets rallied on other real fundamentals rather than "opinion." In a vacuum, people may focus on consumer confidence numbers, but they take a back seat when there is real data to be considered. This past week has provided plenty of positive data to consider. Read More

July 12, 2012
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I know what you’re thinking: The economy is in a funk, Europe’s a mess, the political infighting has reached epic and I’d say ridiculous proportions, and the Dow has dropped on six of the last seven trading days. Sounds dire, doesn’t it? Yet, at yesterday's close, the Dow was within about two points of where it was the day before the EU said it would work to put together a financial overseer to watch the banks, rather than let each country do it on their own. Read More

July 5, 2012
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One week ago, the Supreme Court let stand the Obama Affordable Care Act, and health stocks, while up roughly 2% since the announcement, have lagged the broad market. Investors seem to have expected this ruling from the Court or are continuing to assess its full impact. Read More

June 2012

June 28, 2012
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Obviously, one of the biggest news items this week is this morning’s Supreme Court decision on the Affordable Care Act, which has overshadowed much of the other news we’ve seen suggesting an economy that has slowed, but is far from broken, and a euro situation that is, for all intents and purposes, broken and simply being kicked down the road until someone either picks it up and glues it back together, or it falls apart completely. Read More

June 21, 2012
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A glorious bit of bullishness in the stock markets came to a bit of an end today as the Dow Jones Industrial Average took back 251 points of the more than 700-point gain it’s generated over the preceding dozen trading days. Does that mean the market’s about to roll over? Hardly. As you may have noticed, volatility has been rising a bit as sentiment swings from hopeful to helpless in Europe, China marks a slowdown, and flashpoints continue to erupt across Africa, the Middle East and portions of Southeast Asia. Read More

June 14, 2012
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Whether the Dow is dropping 140 points or rising 160, it's been a volatile week in the stock market as all eyes continue to follow the drama that is the euro zone. Greece is in trouble, and this weekend's elections may not solve anything, but they will probably replace one level of uncertainty with another. Read More

June 7, 2012
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The markets have been topsy-turvy since last Friday's unsettling jobs report. Unemployment ticked up from 8.1% to 8.2%, which, on the face of it, would have been acceptable given the re-entry of thousands of uncounted unemployed back into the job-seeking market. But the fact that there were only 69,000 new jobs created, which was less than half the consensus estimate and less than we need to just keep things on an even keel, was disheartening. And revisions (downward revisions) to the March and April data didn't help. Read More

May 2012

May 31, 2012
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Whether it was Japan’s tsunami, the Arab Spring, China’s attempts to slow its own economy or our own financial crisis, investors are rapidly coming to grips with the notion that short-term market gains and pullbacks are often driven by situations taking place far from home. Yesterday it was Greece. Today it’s Spain (and Greece). Read More

May 24, 2012
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You may think the big news this week has been the fallout from the Facebook IPO debacle, or the gamesmanship around the Greek bailout, or lack thereof. But in my book, the big news is that Vanguard has stripped the back-end loads off of virtually all of its funds. Announced yesterday, Vanguard has removed the onerous back-end trading fees on most of its foreign equity funds; the one-year, 2% loads on the sector funds; and the 1% back-end loads on closed funds like the PRIMECAP-run funds and High-Yield Corporate, as well as other funds like Selected Value. Only World ex-U.S. SmallCap and Global ex-U.S. Real Estate retain back-end loads or fees. Read More

May 17, 2012
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The week's wrenching drop in the stock market has been driven by Greece, but this is anything but an Olympian decline. In essence, the Greek government has failed in its attempts to use austerity to try and solve its budget issues. The Greek populace, at least those who vote, isn't willing to live with austerity, and so it's really only a matter of time before the country must opt out of the euro and start reissuing drachmas. Read More

May 10, 2012
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Like a light switch that can be flicked with ease, risk, which was on just a week ago, is now off. The 10-year Treasury yield fell to 1.84% yesterday, though it's rising today as stocks are rebounding against bonds. The Dow, which hit a high on May 1, fell 444.26 points over 6 days, which may, on the face of it, sound like a lot, but is actually just a 3.3% decline from that post-crisis high. Read More

May 3, 2012
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Economic data over the past week has been decidedly mixed. Friday's GDP report on Q1 disappointed with just 2.2% growth versus 3.0% growth in Q4. Yet, what continues to be missed in this discussion of growth rates is the fact that there is growth! Once again GDP, on an inflation-adjusted basis, is at an all-time high of $13.5 trillion ($15.5 trillion nominal). Would we like to see faster growth? Definitely. But compared to the U.K.'s double-dip, or negative growth rates in other euro countries, this looks pretty good to us. Read More

April 2012

April 26, 2012
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It's been a busy week, as earnings season has begun to roll open. We've also gotten a host of economic data points thrown at us, including some consumer confidence numbers (which I am not a big fan of), inflation numbers, retail sales and saving and spending numbers, and more. This morning's leading economic indicators showed, on the face of it, a slowing, but dig deeper and you find that the consumer confidence and stock market components were the biggest drags—so maybe, just maybe, the numbers are a bit skewed. Read More

April 19, 2012
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It's been a busy week, as earnings season has begun to roll open. We've also gotten a host of economic data points thrown at us, including some consumer confidence numbers (which I am not a big fan of), inflation numbers, retail sales and saving and spending numbers, and more. This morning's leading economic indicators showed, on the face of it, a slowing, but dig deeper and you find that the consumer confidence and stock market components were the biggest drags—so maybe, just maybe, the numbers are a bit skewed. Read More

April 12, 2012
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Last Friday’s unemployment report and renewed concerns over Europe combined to take markets off their multi-year highs on Monday and Tuesday. The bond market was a big winner, with the yield on the 10-year Treasury falling below 2.00%. The Dow shed 344 points over those two days and was off 550 points over five. Then came the rebound. And despite an unemployment claims report this morning that caused a bit of consternation for those expecting continued strong reductions in new claims, the market took off with the Dow closing up 181 points, or more than 200 points for the last two days. Read More

April 5, 2012
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Last Friday's report on spending had a kind of push-me/pull-you feel to it. On the one hand, consumers spent like drunken sailors despite a tiny increase in their incomes. This is good for the economy and may reflect a combination of pent-up demand and a sense that things are getting better, finally. But on the other hand the household savings rate dropped dramatically, to 3.7%, which is the average rate over the past decade. All that saving that folks were doing in the early part of the recovery seems to have been a lesson not fully learned. Read More

March 2012

March 29, 2012
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Friday's figures on new home sales were disappointing on the one hand, and encouraging on the other. The absolute pace of sales in Feb. 2012 declined for the second month in a row, although the December figures were revised upwards. Optimists see the three-month average, which tends to soften the month-to-month figures a bit, as having done better than just a few months ago, so they're happy. But the situation remains very tentative, as whether you look at the month-to-month or the three-month average, the fact is that the numbers continue to scrape the bottom of the curve. Read More

March 22, 2012
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Inflation continues to rise, though primarily on the back of higher gasoline prices. Otherwise, there's not much in the way of worrisome inflation in the economy just yet. The year-over-year inflation number of 2.9% is below the spike to 3.9% we saw in September, which was more of a mathematical anomaly coming off of very low inflation in 2010 rather than something more sinister. Read More

March 15, 2012
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As the Dow Jones Industrial Average pushes to new post-crisis highs, Vanguard's equity funds are pushing towards all-time highs, particularly when you look at them through a total return lens. Through Wednesday night's close, Morgan Growth is just 0.1% away from an all-time total return high (which might also be called the reinvesting shareholder's high), as are Health Care and Dividend Growth. Total Stock Market is just 0.3% below its all-time total return high along with Equity Income and Dividend Appreciation Index. 500 Index, a proxy for the S&P 500, is 2.1% away from a new high. Overall, about 30 funds are within 5% of their all-time total return highs. Read More

March 8, 2012
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While the media had a field day with Tuesday's 200-plus point decline in the Dow Industrials, with screaming headlines about the "biggest drop" of the year and all manner of doom-and-gloom-sounding adjectives, what seemed lost in Tuesday's and Wednesday's clamor was the fact that the Dow had risen more than 22% in just five months and the S&P 500 index had risen 25%! Market gains like that are abnormal and, at some point, beg for correction. Read More

March 1, 2012
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A 70% haircut is not a default, and so as Greek bondholders take it on the chin in the coming weeks, those who made bets on a default will not be able to collect on the insurance they purchased…yet! The International Swaps and Derivatives Association, while ruling that the bond swap was not a default, also said that the Greek situation was “still evolving,” which leaves the door open for these credit-default swaps to actually make some good money. Read More

February 2012

February 23, 2012
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From the leading indicators, which continue to rise, to inflation, which may be slowing, last Friday's economic news was all positive for investors. Of course, that meant that coming into Monday, all eyes remained on Greece. With something of a fix agreed on for Greece (and I say "something" because frankly, I think the economy there is completely broken and will only be more so in a couple of years' time), we can start worrying now about Iran and the timing of a military strike on its nuclear facilities. The question on the strike is simply "when," and not "if," Israel takes the offensive. In the meantime, the "if" will be whether the U.S. provides any kind of support for such an extreme but probably necessary move. Read More

February 16, 2012
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Well, what could have been a one- or two-act play is turning into a modern-day version of Homer's Odyssey. The Greek bailout and austerity plan is sailing towards some kind of completion, but with its own whirlpools and siren-songs and battles along the way as we head towards a showdown on March 20, when Greece must either pay off its bonds or default—a prospect no one is really looking forward to. I'm not sure that a Greek bailout is in anyone's interests at this point—they might be better off going it alone and letting the eurozone sail on its own winds. Read More

February 9, 2012
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The stock market rally that is ricocheting around the globe seems to have some good momentum behind it. And, more than anything, the fact that foreign markets are ahead of our domestic ones with, for example, Germany up 14.4%, Hong Kong up 14.0% and Brazil up 16.0%, is a big turnaround from just a few months ago. Read More

February 2, 2012
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Markets have been pretty bullish so far this year with foreign markets outpacing our own, a big turnaround that Dan discusses in the February newsletter. It may not be that the trend continues, but at the moment it isn't hurting us to have some assets overseas. Through this afternoon's close, the U.S. market, measured by the S&P 500, has returned 5.4% for the year. China, Germany and Brazil all have notched double-digit gains, up between 12.5% and 13.8%. Read More

January 2012

January 26, 2012
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You'd think that Wall Street was in Missouri, not New York, as this quarter's earnings season has been turning into a "show me" season. Companies with great results and great futures are seeing their stocks bid up or at least staying flat after earnings announcements—Apple and McDonald's come to mind as Apple, a market darling, showed Wall Street it could manage to grow without founder Steve Jobs, and shareholders were rewarded. Mickey D also posted a big gain in earnings, but shares fell anyway as the company said it was facing some currency pressures from overseas. Read More

January 19, 2012
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All eyes remain on Europe, but I'm not talking about the cruise-ship disaster in Italy (more on that in a moment). I'm talking about last Friday, when after markets closed, S&P cut the triple-A rating on France and Austria one notch to AA-plus. At the same time, they affirmed Germany's triple-A rating. But they also lowered ratings on Spain (two notches to A), Italy (two notches to BBB+) and Portugal (two notches to BB). Read More

January 12, 2012
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Last Friday's jobs report was a short-lived optimistic view overshadowed, of course, by continued worries about the euro zone. That being said, today's better-than-expected bond rally in Europe, and in particular Italy, took some of the sting out of continued concerns of recession, in part due to a recognized slowdown in Germany's fourth quarter. In fact, with the Italian bond yield dropping well below 7%, Italian stocks were up over 2% for the day. Read More

January 5, 2012
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Looking back at 2011, all or virtually all of our funds and fund managers generated great relative performance. For instance, Dividend Growth, managed by Wellington's Don Kilbride, returned 9.4% in 2011, outpacing a gain of 2.0% for 500 Index. Read More

December 2011

December 29, 2011
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I hope you all had a great holiday weekend after the trades I recommended last week. If you haven't done those trades, you still have time to take losses in your small-cap foreign funds like International Explorer and World ex-U.S. SmallCap ETF, and move that money into Emerging Markets Index (either the fund or the ETF) as well as boost exposure to large-cap dividend payers. Of course, if you're investing through an IRA or other tax-deferred account, the tax losses are meaningless, but the trade is still a good one. Read More

December 22, 2011
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The final numbers on Q3 GDP showed growth was slower than originally estimated in the prior quarter, but with Q4 almost over and signs that economic activity picked up over the past few months, investors looked past the data and focused more on another positive jobs report showing new claims for unemployment falling yet again in the week past. Read More

December 15, 2011
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Retail sales numbers for November disappointed those who were expecting more, but while the headlines were focused on the relatively paltry increase for the month, the lowest since June, sales in both September and October were revised higher. So, the slowdown was not as bad as you might have thought if you'd only looked at the large print. Read More

December 8, 2011
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Today’s unemployment claims numbers were strong, and followed on Friday’s job stats showing that the unemployment rate fell from 9.0% to 8.6%, the lowest since March 2009. Not only that, but prior months’ numbers were revised up. Read More

December 1, 2011
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The continuing drag of the euro, sovereign-debt crisis is driving markets down, and up, as Wednesday's almost 500-point Dow rally showed. After shedding over 700 Dow points during the month, the final three days of November rallied back with more than 800 and while the S&P 500 index was off 0.5% for the month the Dow gained 0.8%. The Dow is up for the year, though still about 6% below its April peak, but other major market indexes are off anywhere from 1.0% to 2.5% or so with one month to go before the books are closed on this year. Read More

November 2011

November 23, 2011
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I believe I said I didn't think the Gang of 12 Congress-people would come up with a $1.2 trillion solution and, lo-and-behold, they didn't. I wasn't surprised by their inability to agree, but I was surprised that the stock market reacted so violently, with the Dow falling 2.1% on Monday. The outcome had been all but pre-ordained. In fact, in failing to agree on ways to cut the budget, they succeeded in finding a way to cut the budget—to the tune of $1.2 trillion. Again, pre-ordained. As I mentioned in a Bloomberg TV segment last night, the process is completely broken. Read More

November 17, 2011
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In an eventful year, we now have less than 30 trading days left before 2011 is in the history books. And, while Europe remains the weak kitten in the global litter, here in the U.S., economic indicators are looking up. Retail sales improved last month, surprising those who thought the September surge would be followed by a big slowdown. The consumer continues to spend. And inflation remains a non-event, though the data could begin to show a slight increase in year-over-year inflation over the next few months purely because of the math—don’t worry, we don’t think inflation is about to rear its ugly head anytime soon. Read More

November 10, 2011
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Ciao, Silvio. Like the chanting of "Italy, Italy, Italy" at a World Cup game, it's been all Italy, all the time this week. You might ask what the heck happened yesterday that put the markets into a tailspin given that we've been talking and worrying about Italy for nigh on two years. Read More

November 3, 2011
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Monday was a humdinger, and all week the markets have been reacting. The big news, of course, was Greece's Prime Minister, George Papandreou, announcing that he would hold a referendum on the eurozone bailout. To say that he threw the biggest monkey wrench into his own machinery would be a vast understatement. Luckily, the Germans and the French basically told him that any more dilly-dallying would essentially mean the country would be booted from the eurozone and would have to go back to issuing drachmas, which of course it wouldn't be able to do because the country would be bankrupt. So, after three-and-a-half days of turmoil, Papandreou has backed down, and the markets, not surprisingly, took off on that news plus a cut in interest rates by the European Central Bank from 1.50% to 1.25%, which leaves plenty of ammo available for further cuts if necessary to keep the eurozone on its feet. Read More

October 2011

October 27, 2011
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If anyone doubted that the stock markets around the globe have been moving almost solely on the ins-and-outs of the negotiations over Greece’s debt and the recapitalization plans for the euro banks, I hope today’s market moves have quelled those thoughts. A 50% haircut on Greek bonds and "happy talk" about repairs for the rest of the eurozone got markets moving around the globe today. Japan’s Nikkei ended with a 2.0% gain, and Hong Kong moved up more than 3.2%. London’s FTSE was up 2.9%, German’s DAX gained more than 5.3%, and in France the CAC 40 was up almost 6.3%. Read More

October 20, 2011
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Don't ever say that Vanguard lets the moss grow under its feet. Reaching out to the young investor, January will see the launch of the Target Retirement 2060 portfolio. At the same time, Vanguard will merge Target Retirement 2005 (which has been closed to new investors) into Target Retirement Income. There's nothing new under this sun other than the fact that this is the first Target fund to have finally landed after it's been on a glide path toward the Target Retirement Income portfolio, so it's a natural evolution of the funds. Read More

October 13, 2011
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Friday’s employment report didn’t give us a change in the headline rate of unemployment, which remains at 9.1%, but jobs were added—and more than anticipated—helped along by the return of striking Verizon workers, yes, but also with other industries providing a boost beyond what had been expected. On top of that, August’s “zero” was revised up to 57,000 new jobs. We aren’t creating enough new jobs to help the unemployment rate, but at least we aren’t in retreat. The private sector has added jobs in every month since Feb. 2010. The government has cut jobs in all but five of those 19 months, and we’ve been netting new jobs for 12 months now. The trend is moving in the right direction, but oh so slowly. Read More

October 6, 2011
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Market volatility continues apace. Not only have we been buffeted by one triple-digit Dow day after the next, but those triple-digit closings have masked much wider moves from low to high, and high to low. Tuesday's 153-point Dow gain came after a 4.0% swing from high to low and back. That move ranked, along with Sept. 22's, as one of the most volatile days since August, when the debt-ceiling debate and S&P downgrade were roiling markets. Read More

September 2011

September 29, 2011
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Whether it's the numbers on rail and boat shipments, tax revenues, durable goods orders and shipments, or auto sales, there's plenty in the U.S. economy that points to continued growth, albeit slower growth than we'd like, of course. Today's update on Q2 GDP was an improvement as well. I've seen some estimates that third quarter GDP is going to come in with better than 2% growth. Read More

September 22, 2011
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At the end of its two-day confab on Wednesday, the Fed said that—as expected—it would shift $400 billion of its enormous bond holdings from short-term to longer-term Treasurys in the hopes of knocking rates down further and stimulating the economy in what some are calling QE3, or "Quantitative Easing III." Read More

September 15, 2011
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Happy Anniversary Lehman Brothers. Three years ago, today, Lehman filed for bankruptcy protection. The Dow fell 4.4% that day, to 10917.51, not far from where we are today. The S&P 500 fell even more; 4.6% on the day. Volatility spiked, and the VIX went over 30. Read More

September 8, 2011
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Last Friday’s labor report was just plain lousy. While the Verizon strike had a small impact on the numbers, there were no new jobs created that would be worth speaking about. The job-creation machine is simply not engaged. This sets a perfect (or some might say, an imperfect) backdrop for the President’s speech tonight, though, with all the gridlock in Congress, it will take a minor miracle to get anything accomplished even if a good idea or two pokes through the rhetoric. This leaves the Congressional Gang of 12 to make policy for the next month or more. Read More

September 1, 2011
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After all the fireworks in the beginning of the month, August ended with a bit of a whimper on the one hand, but a bang on the other. I loved the headlines that spewed forth just minutes after the markets closed last night. "U.S. stocks rise to close turbulent month" followed by "Major indexes drop for fourth straight month," as well as, "Stocks gain, end worst month since 'flash crash'." Oh, and "S&P posts best eight-day gain since 2009." Wow! I just didn't have that eight-day record in my head, did you? Read More

August 2011

August 25, 2011
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Volatility reigns. But now it’s not only in the stock market, but also in the gold market. Gold, which recently crested to a high of $1,888.70, fell $104.20, or 5.6%, on Wednesday (though it rebounded $15 today after an initial fall). Precious Metals & Mining, down 6.3% for the year through Tuesday (it buys miners primarily, not the metals) lost another 1.5% yesterday and is now off 7.7% for the year. So, for those who’ve wondered why I don’t recommend buying the fund, here’s just another indication of why I think it’s too risky to play with, and certainly too risky to invest in. Trade it? Maybe. Invest in it? Hardly. Read More

August 18, 2011
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As many of you probably already know, the stock market took another big hit today. The Dow index dropped 420 points, or 3.7%. The S&P 500 index dropped 4.5%. And smaller and mid-cap stocks fell over 5% in what could be described as a flight to safety, though the safety was not in larger stocks but in bonds—the 10-year Treasury was in such demand at one point today that its yield fell below 2%. Read More

August 11, 2011
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The volatility we've seen in the markets over the past week has been exceptional. Looking back at more than a decade's worth of data on swings in the Dow, the moves on Monday and Tuesday rank within the top 50 most erratic or volatile days we've seen. They, of course, don't compare with the swings we saw in 2008 during the height of the financial crisis, and the current situation is nothing close—this is not a financial crisis, but a crisis of confidence in our political leadership, in the state of our economic health, and the broader economic health of many countries around the globe. That said, consumer health has improved dramatically since the mortgage crisis days, corporate health is astounding given the amount of cash on balance sheets and growth in profits, and once investors focus on this, the stock market's health will improve. This is not a replay of 2008 except in the minds of investors who, once again, are shooting first, and asking questions later, if at all. Read More

August 8, 2011
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Hotline

Hello, this is Seth Kennedy filling in for Dan Wiener with a special FFSA Vanguard Hotline update for Monday, August 8. With the fallout from the ratings downgrades shivering the markets today, Dan asked me to pass along the following message. Read More

August 4, 2011
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Hotline

I'm recording this Hotline before the trading day's end because I know some of you are anxious. Today's stock sell-off is certainly going to be reflected in even weaker returns for the equity holdings in our portfolios when their prices are updated later tonight. That's a given. But what's stoking the fear—and this is definitely fear—that is causing such a disruption? Well, here are several parts that make a piece of the whole. Read More

July 2011

July 28, 2011
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I’m not normally a bettin’ man, but while the Congress keeps arguing, I’m going to put money (figuratively anyway) on the fact that there will be (1) a hike to the debt ceiling by next Tuesday’s Aug. 2 deadline, and (2) a credit downgrade to AA from AAA on U.S. Treasury bonds. Whether there will be anything accomplished in tackling the budget deficit is still up for grabs. Read More

July 21, 2011
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The debt ceiling talks have become so convoluted that the President has been forced to have secret meetings. Now it’s the Gang of Six’s turn to come up with a solution by Friday. Meanwhile gold has moved over $1,600 per ounce as fears ratchet up. What happens when a deal is struck? Watch out below. Read More

July 14, 2011
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Last Thursday's ADP employment report certainly wasn't confirmed by Friday's broader report from the Bureau of Labor Statistics. And numbers for May were revised lower as well. Some analysts think that the wrangling over the debt ceiling, and the uncertainty surrounding how the Democrats and Republicans will resolve their differences, have businesses on hold when it comes to adding workers. The fog is going to have to clear, and yet the only good news we can muster out of this is that something is going to have to happen soon, as the August 2 deadline is approaching. Read More

July 7, 2011
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All eyes on are on tomorrow's jobs numbers after ADP issued an optimistic-sounding report on the state of private sector hiring, surprising investors and helping push stock prices higher from the opening bell. Read More

June 2011

June 30, 2011
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Friday’s GDP report showing 1st-quarter GDP growth of 1.9%, compared to 3.1% in the final quarter of 2010, was a slight improvement over initial estimates, but nothing to set the world on fire. Read More

June 23, 2011
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Hotline

First, the big picture. While chairman Ben Bernanke sounded his own version of a Greek tragedy in yesterday's press conference following a two-day Federal Reserve meeting, knocking down growth expectations for the economy, and hiring expectations for workers, FedEx was sounding a bugle, and several aircraft manufacturers' prospects were flying high. Read More

June 16, 2011
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Consumer spending dropped last month as it did in May 2010, and June 2010. But the drop of 0.2% was a far cry from the 0.7% and 0.3% declines last year. Growth in the preceding six months has been only slightly below growth in the six months prior to last year's two-month decline. But remember that it was only January when retail sales recovered to their pre-recession highs. We're in a new ball game of expansion, rather than recovery. Read More

June 9, 2011
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Jobs are on my mind, and there's been an interesting disconnect between two employment reports that both came out last Friday. The government's employment report and the employment component of the ISM service economy index for May seemed at odds. Read More

June 2, 2011
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Friday's report on consumer spending continued to show slow, steady growth. Plus, while the savings rate had to be revised down due to revisions to incomes and spending, the fact remains that American consumers continue to save at levels that are well beyond those seen over the last decade. The average savings rate between 1997 and 2007, before consumers pulled in their horns, was just 3.0%. Since the end of 2007, the savings rate has averaged 5.2%, a big jump. While this isn't our parents' savings rate—they saved a lot more in the '50s and '60s—it's an improvement worth noting. Read More

May 2011

May 26, 2011
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Hotline

Greece and its fellow PIGS are back in the news, scaring investors as the sovereign debt crisis threatens to rear its porcine head again. While the ECB says it's got things covered, the IMF is obviously in turmoil as it looks to find and confirm a new leader. Given what I've read and seen of the French finance minister Christine Lagarde, she may be the perfect person to fill the position left vacant by the disgraced Dominique Strauss-Kahn. But I had to laugh this morning when I saw in The Wall Street Journal that one of the big knocks against Lagarde is that she is not a trained economist! Wow. To my way of thinking that's something I'd put in the "plus" column, particularly given how well all these highly trained economists in the U.S. and Europe have handled things over the last five years. Keep that in mind as you watch this story unfold. Read More

May 19, 2011
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Hotline

Commodities remain in the headlines, yet, if a recent Bloomberg poll of investors, traders and analysts is to be believed, then more cash is going to be heading for money markets than to commodities in the next six months. (It should be said that all of the 1,300 or so respondents are relative professionals since they subscribe to Bloomberg terminals, which are not cheap.) And 40% of those pros think oil prices will fall over the next six months as well. Gasoline futures are already down, so surprisingly, as we head for the start of the summer driving season, prices at the pump may come down just in time for the three-day Memorial Day weekend. Read More

May 12, 2011
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Hotline

Microsoft's purchase of Skype may signal signs of a certain frothiness in the technology arena, where money is beginning to flow a lot more freely these days—reminiscent, at least a bit, of the dot-com bubble era. While valuations are still mostly lower for public companies, they've gone sky-high for private companies like Skype, Groupon, Facebook, Twitter and so on—not a particularly fortuitous sign unless you are a shareholder of one of these rocketships. Read More

May 5, 2011
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While April ended with another solid gain, up for the eighth month in a row, Capital Opportunity got whacked on that final day as one of its biggest holdings, Research In Motion, the BlackBerry maker, got hit hard, falling over 14% on the day. Ouch! The fund lagged the stock market by almost 1% on the day. That said, the fund is still hanging tough, lagging the market by less than 2 percentage points for the year. Read More

April 2011

April 28, 2011
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Hotline

The stock market juggernaut keeps rolling right along. Small caps remain front-and-center with the Russell 2000, S&P 600 and the S&P MidCap 400 all hitting record highs (not recent highs, but record highs) yesterday after Fed Chairman Bernanke gave his first-ever press conference. Read More

April 21, 2011
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Hotline

S&P, which made quite a name for itself rating collateralized debt obligations, or CDOs, made up of nasty mortgages it considered triple-A, must have wanted some additional press this week when it announced it was lowering the U.S. credit outlook to negative from stable, but keeping its rating at triple-A. S&P says they might have to lower U.S. credit by a notch from triple-A to double-A if something isn't done about the budget deficit. S&P, by the way, gave a 1-in-3 chance of the U.S. seeing a downgrade. That got the markets pretty worked up with long bonds falling, short-term bonds rising, and stocks diving. But it didn't seem to move the needle in Washington very much at all. Read More

April 14, 2011
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Hotline

Alcoa kicked off earnings season on Monday with an expected rebound to profitability, though rising commodity prices are definitely having an impact on margins in the aluminum business. China, emerging markets and the aerospace and auto industries are leading demand, and Alcoa's expectation is for growing demand in the quarters ahead. Read More

April 7, 2011
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Hotline

Friday's unemployment/employment report was better than expected with 230,000 new private-sector job gains—about matching the estimates from ADP and blowing through most economists' predictions. The unemployment rate fell to 8.8%, the lowest it's been in two years. More importantly, there were more people seeking jobs than in months past, so the decline in the unemployment rate is actually better than it appears given the larger pool of those looking for work. Read More

March 2011

March 31, 2011
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Hotline

Last Friday's GDP report confirmed that the fourth quarter of 2010 saw the nation's economic output hit a record, adjusting for inflation, surpassing the peak last seen in the fourth quarter of 2007. In other words, the economy is now bigger than it's ever been. The final revision to the BEA's numbers saw economic growth rising to 3.1% for the quarter for year-over-year growth of 2.8%. Read More

March 24, 2011
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Hotline

In Japan, Nissan said on Monday that it would be restarting production at its plants this week, but at the same time the supply chain issues I mentioned before have begun to crop up. Nissan says it can't get all the parts it needs so starting up plants isn't the same as keeping them running. And a small but critical air-flow component made by Hitachi for car-makers around the world is in short supply, which could bring production lines to a standstill as well. Read More

March 17, 2011
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Hotline

By now you've seen the heart-wrenching images of the aftermath of the earthquake and tsunami that has devastated the northeastern region of Japan. And, if you're like me, you're closely following the ongoing story of the dire conditions at the Fukushima nuclear power plant, which has suffered a number of explosions and partial meltdowns. While the scale of the human and environmental aftereffects of the quake are still being strongly felt around the world, it's important keep a few things in mind as you watch the Japanese stock market taking hit after hit after hit. Read More

March 15, 2011

Special Hotline

The building nuclear disaster scenario in Japan has obviously spooked the markets, and the Nikkei, already down 9.4% for the month through last night, fell another 10.6% today. Hong Kong fell 2.9%. Europe fell, as did the U.S. markets. So did oil. So did gold. Read More

March 10, 2011
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Hotline

It's been a fairly quiet week in terms of economic indicators. But it's been a busy week with continuing turmoil in the Middle East and Northern Africa, downgrades that have spurred renewed fears of financial risk in the smaller countries of Europe, higher oil prices and even a surprising economic report out of China that showed a trade deficit rather than surplus that, while a dramatic turn of events, was probably an anomaly created by the timing of the lunar new year and the fact that oil prices were moving up along with China's thirst. Read More

March 3, 2011
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Hotline

Oil markets have been extremely reactive to the goings-on in the Middle East, and even pronouncements from the U.S. on the state of our oil reserves. And of course, stock markets have followed suit. Until two weeks ago, the Dow had seen just three triple-digit days all year. Yet over the past couple of weeks, we've had four, or an average of one every other day. Today's 191-point Dow rally was a case in point. The violence in Libya remains, the U.S. has ratcheted up its rhetoric, and yet oil, which settled over $100 per barrel yesterday, dropped a fraction today. Read More

February 2011

February 24, 2011
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After what seemed a relatively peaceful (particularly in hindsight) putsch in Egypt, violence has been surging across the Middle East and northern Africa as the death toll among protesters is rising in both Bahrain and Libya where despot leaders are trying to hold on to their thrones. What worries investors is that the desire for some form of democracy could spread to Saudi Arabia where a government friendlier to the U.S. is currently in control. Read More

February 17, 2011
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The takeover of the New York Stock Exchange by the Deutsche Bourse is being touted as a merger, but it’s not, it’s a takeover. Still, there are lots of regulatory hurdles that will have to be overcome for this to be a sure thing. And frankly, I’m not sure how this harms us other than the fact that the U.S. loses one of its primary symbols of financial and market strength. In fact, greater global volume could mean even tighter spreads and lower costs of investing for all of us—but I wonder if it also won’t mean that there’s a bigger chance for some type of financial calamity like a Flash Crash, or worse, that we can’t foresee at the moment because, well, these things are not foreseeable. In any case, if there was ever a symbol of how our markets and economies have become globally entwined, this is a good one. Read More

February 10, 2011
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Hotline

The U.S. unemployment rate may have fallen to 9.0% in January, but more people dropped out of the work force, or the looking-for-work force, and only 36,000 new jobs were added. The data can and almost certainly will change, but it appears that horrible weather was one reason there weren't more people going to work (remember that construction is hoped to be a big piece of the recovery in jobs, and you can't build homes in rain, sleet, snow and ice), and maybe we'll get better numbers for February. Read More

February 3, 2011
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Hotline

With today's 20-point gain, the Dow is up 4.2% this year, its 12th high in 23 days of trading. The S&P 500 is up 3.9%, and the Russell 2000 is up 1.9%. Clearly, the large-caps are finally having their day, for the moment. Read More

January 2011

January 27, 2011
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Hotline

While the economic news is improving, the federal deficit news is not. I'm going to let the Congress deal with projections of ever-larger budget deficits, grossed up in large measure by the continuation of the tax cuts that many thought were ending, and you and I can talk a bit about non-policy topics. Read More

January 20, 2011
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On the economic front, last Friday saw reports suggesting consumer inflation picking up just enough to put fears of deflation aside for good, as well as signs that industrial production is continuing to gain ground. In addition, retail sales remained strong, showing consumers increasingly willing to open their pocketbooks and spend, despite tailing off a bit in December from prior strong months. The bottom line here is that consumer spending is up more than 7% over year-ago levels, which is quite robust, representing a huge snapback from the recession, while also reminiscent of spending growth in 2005 and 2006. Read More

January 13, 2011
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Hotline

On the eve of their expected introduction, Vanguard filed papers with the SEC this morning withdrawing its application to introduce three municipal bond index funds and ETFs. Vanguard tells me that it wouldn't be prudent to launch the funds into the teeth of the current volatility in the muni bond market. Read More

January 6, 2011
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Hotline

Reading the economic tea leaves, we closed out the year on a high note last Thursday when the Chicago ISM came in at its best level since the late 1980s, signaling once again what we already knew—that manufacturing, which was driving this recovery in the early months, continued to do so. Read More

December 2010

December 30, 2010
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Hotline

While New York City is mopping up and plowing up after a winter snowstorm, news about the holiday shopping period is painting a picture of a very, very GREEN Christmas. Stores were busy, and it turns out that online retail sales jumped about 15% this holiday season. Yup, computer shopping is the new normal. All of this means good things for folks like UPS and FedEx. UPS is a big holding at Dividend Growth, and FedEx is a top-5 holding at Capital Opportunity. Read More

December 23, 2010
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Hotline

The tax bill passed the Congress, taking that bit of uncertainty off the table as the year winds down, and the final look at Q3 GDP showed the economy growing at a slightly faster rate, 2.6%, rather than the early estimate of 2.0% or the more recent one of 2.5%. All good numbers, setting us up for more gains in the current quarter and well into 2011. Read More

December 16, 2010
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Hotline

The Dow closed higher again today, at its highest since September 2008, before Lehman blew up, of course. It's now up almost 76% from the March 2009 low and while the recent pace of gains is cause for some anxiety, we aren't in nosebleed territory and corporate earnings are once again coming in with solid gains and estimates of more to come as the year winds down. Read More

December 9, 2010
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Hotline

Last Friday's employment report was a big disappointment, with just 39,000 new jobs created rather than the 138,000 or so that had been expected, though revisions to September and October did add 38,000 jobs that hadn't been counted in the earlier estimates. Read More

December 2, 2010
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Hotline

It may have been Black Friday for retailers last week (the chain store sales numbers for November were impressive), but it was "Blechh Friday" for Wall Street as worries over Europe took precedence in a trade-shortened, post-Thanksgiving session. That said, "blechh" turned into "boffo" with the turn of the month as markets rallied yesterday on both a terrific jobs preview coming via ADP, and some good manufacturing data on the ISM, which marked the 16th month in a row that manufacturing has been in expansion territory. Read More

November 2010

November 24, 2010
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Hotline

It's a holiday-shortened week, but not a news-shortened one. First, there's the mess in Ireland with bailouts galore. Ireland finally admitted what many around the world seemed to know—that they need an EU bailout for their banks. The hope is that by bailing out Ireland, like Greece, the rest of the EU won't fall victim to the same sovereign debt issues that befell these countries' banks. Unlike Greece, Ireland's economy is actually on the mend with exporters making money and industrial output up in the double digits for the year. However, so far, the backlash is being felt in other so-called PIIGs, like Portugal. Read More

November 18, 2010
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Hotline

It's been a pretty topsy-turvy week with worries about China overheating, and Ireland going cold, sending shivers down Wall Street, not to mention a few foreign bourses as well. Read More

November 11, 2010
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Hotline

Friday's employment report had plenty to cheer. First, revisions to numbers from August and September were positives. Second, job creation picked up, although the overall unemployment number, at 9.6%, remained at the same level it's been at since August. Read More

November 4, 2010
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Hotline

The election didn't surprise, so much as confirm. The Fed's $600 billion, 8-month purchase plan caused some hiccups in the market on Wednesday but ultimately was seen as a net positive. The Dow, down over 91 points after the Fed's announcement, ended the day up more than 26 points to a fresh high for the year, and a high since the market's bottom on Mar. 9, 2009. Of course, today's rally is putting yesterday's close to shame. Read More

October 2010

October 28, 2010
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Hotline

QE2 is sailing through Wall Street, tossing stocks in its wake as traders seem, to my mind anyway, to be focused almost exclusively on what the Fed will announce next Wednesday while almost ignoring the surprisingly strong earnings reports we're seeing at home, or the strong economic news coming out of European powerhouses like Germany, where unemployment has fallen to the lowest level in 18 years in part because the government rightly subsidized salaries during the economic downturn, and England, where 0.8% economic growth in Q3 surprised to the upside given expectations of growth at about half that rate. Read More

October 21, 2010
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Hotline

Retail sales continue to surprise to the upside, and revised numbers for prior months also were better than originally reported. The weakness remains in the auto sector and gasoline sales. Take those two out of the equation, and retail sales are actually higher than their pre-recession peaks. Read More

October 14, 2010
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Hotline

Friday's unemployment report, following on last Thursday night's earnings kickoff from Alcoa, was the catalyst for the Dow's ascent above 11000 again, the first time it's been there since May, just a few days after BP's Deepwater Horizon drilling rig sank to the bottom of the sea. This time though, in a fair bit of turnabout, 33 Chilean miners have been lifted from the depths to near global relief. Read More

October 7, 2010
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Hotline

In the continuing battle over operating expenses and fund minimums, Vanguard has fired another shot across the bow of its competitors—only this time it's not about ETFs (directly anyway) but about regular old open-end funds—Admirals in particular. Read More

September 2010

September 30, 2010
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Hotline

The third quarter ended with a bang as the S&P 500 index gained 8.8% this month and 10.7% over the three months. It was the best September in over seven decades. Mid-sized companies were even stronger with the S&P MidCap 400 up 11.1% for the month and 12.7% for the quarter. It's up 10.4% for the year compared to the 500's 2.3% gain. While the S&P 500 index still needs another 37 % gain to get back to its October 2007 high, the S&P MidCap could hit its high with less than a 16% rise. I've always liked having a good allocation to this under-followed segment of the market. Read More

September 23, 2010
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Hotline

The Great Recession—all 18 months of it—officially ended more than a year ago, in June 2009 according to the National Bureau of Economic Research (NBER), which is the official arbiter of such things. At 18 months, this was the second-longest recession (though not by much) since the Depression that lasted 43 months from August 1929 to March 1933. Both the November 1973 to March 1975 and July 1980 to November 1982 recessions came close, at 16 months apiece. Read More

September 16, 2010
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Hotline

Retail sales in August were better than had been expected as back-to-school buying picked up a bit, yielding the largest monthly sales gain since March. The "no growth" economy is, as I've been saying for some time now, in reality a "slow growth" economy with a wary but not dead consumer. Read More

September 9, 2010
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Hotline

Last Friday's employment report was not only better than expected, despite an increase in the headline unemployment rate to 9.6% from 9.5%, but revisions to prior month's numbers show fewer jobs lost over the past three months and more private-sector jobs created than originally reported. That's a good sign. Read More

September 2, 2010
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Hotline

I probably don't have to tell you that the ISM Manufacturing survey released yesterday morning surprised economists with a gain in August after three months of declines, and of course the stock market went wild on the news with the Dow pushing up almost 255 points, or 2.5%, after the horrible performance we saw in August. Today's follow-through, with a more modest gain of almost 51 points, possibly reflects some reassessment of the state of the economy, given that there's been some recent evidence of a bit more spending and a bit more confidence on the part of consumers. Read More

August 2010

August 26, 2010
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Hotline

With earnings season essentially over and traders taking last-minute summer holidays, it's no surprise that negative sentiment and pessimistic economic updates, combined with low trading volumes, have been taking the market down over the past couple of weeks. Today's market decline was more of the same, with pundits claiming investors were becoming more skittish and pessimistic. How do they know that? Because prices are falling? The day-to-day read on what ails the market, or what makes it perky, is irrelevant, but it garners headlines. Read More

August 19, 2010
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Last week we talked about the low levels of interest rates and the fact that IBM had sold some three-year notes at just 1.0% yields. Well, corporate balance sheets continue to benefit: Johnson & Johnson set a record last week when it sold $1.1 billion in 10-year and 30-year bonds at the lowest yields on record for high-quality corporate debt. The 10-years sold at a yield of 2.95%, which was just 43 basis points above the yield on 10-year Treasurys. The 30-years had yields of 4.5%, or just 68 basis points over Treasurys. This continues the trend set by IBM as well as McDonald's, Wal-Mart and other blue chips. We're particularly happy when companies that we own (J&J and IBM are the second and third largest holdings at Dividend Growth) can put such cheap debt on their books. Read More

August 12, 2010
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Hotline

Big news at Vanguard: AXA Rosenberg is out, and Vanguard's quant group is in big-time, taking over all of the assets it didn't already run at both U.S. Value and Market Neutral. The 12% of assets at Explorer run by AXA are being doled out to existing managers. AXA has been under a cloud for a long while now after having failed to report on a computer glitch in its quantitative systems, and many institutions have been dumping the company. Just the other day, Barrow Hanley picked up some assets previously run by AXA. Now, Vanguard's cutting the firm loose. It'll be interesting to see if Vanguard goes out of house to find additional managers for U.S. Value and Market Neutral or not. At Explorer, the reduction of even one manager is a change for the good. It should go without saying that AXA's departure from the three funds will also impact the funds of funds that use them, including STAR, the Managed Payout funds and Diversified Equity. Read More

August 5, 2010
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Remember the old line "Sell in May and go away"? Apparently that's what mutual fund investors did in a big way, taking almost $27 billion out of stock and balanced funds and adding $15 billion to bond funds, meaning there was a net outflow from mutual funds of almost $12 billion in May, the first month of negative flows since March 2009, at the bottom of the bear market. Read More

July 2010

July 29, 2010
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Hotline

Wednesday's durable goods news was not good as orders declined 1.0% in June. Later in the day the Fed's beige book survey concluded that the economic expansion has "stalled" in some parts of the country but that overall we're still in slow-growth mode. Read More

July 22, 2010
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Hotline

President Obama signed a landmark financial reform bill into law yesterday, and now the real fun begins. First, everyone in Washington will have to read it. And of course the big push now moves to the regulatory side where the actual rules that will be developed based on the bill's broad mandates will have to be written and then enforced. This is where the banks, insurers and others with big lobbying budgets will have their greatest impact, and where regulators will have to stand up to the conflicting demands of private interests. Read More

July 15, 2010
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Hotline

While the profits of gloom have been talking up their dooms—most recently the Dow 1000 prediction that was hyped by the New York Times—the markets have had a different idea and risk has come back into the trading scheme of things with stocks heading higher. The Dow is up 6.0% so far this month through Thursday. Read More

July 8, 2010
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Hotline

Yesterday's explosive rally on positive news out of State Street, and possibly a sense that maybe the selling of the market has been overdone, was followed up by another rally today. And yet, investors have been pulling back. In June, Vanguard, which is still seeing positive inflows, had its worst inflow month since October 2008. Money is still being pulled out of money markets and being put primarily into ETFs. But the inflows are at much reduced levels. Read More

July 1, 2010
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Hotline

Treasury yields are pricing in another recession as the 10-year fell below 3% and ended the first half of the year at 2.95%, about where it sits after today's trading session as well. The rub is, however, that earnings are going up. Earnings don't typically go up during recessions. If investors would simply hang on for a few weeks until the second-quarter announcements begin to be made, they'll see that all the handwringing is uncalled for. Read More

June 2010

June 24, 2010
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Uncertainty is the watchword on Wall Street these days. Whether it's the tremors in Europe, questions about China's real motives and plans for a revaluing of the yuan, the BP oil disaster, the housing market, our military quagmire in Afghanistan, or interest rates, there are enough unknowns that it seems everyone is on tenterhooks. Read More

June 17, 2010
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Hotline

It turns out that Fridays aren't always good days in the economic indicator calendar. Two weeks ago it was a lousy employment report that upset the market applecart. This past Friday a decline in May retail sales set the stage as consumers reined in the increase in spending they'd been showing since September 2009. May's decline was the first, after seven months of rising spending. That being said, retail sales are still up dramatically from a year ago, and the May numbers indicate a slowdown in spending—not the end-of-spend. Still, it doesn't look as though consumers are going to lead the recovery, that's for sure. But, they are still out there. Read More

June 10, 2010
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Hotline

Last Friday's employment report was just the kind of negative news that gave traders an opportunity to sell, sell, sell before the weekend. Gains in employment in non-governmental jobs were much smaller than expected. Out of a total of 431,000 jobs gained in May, private payrolls accounted for just 41,000, or less than 10% of those jobs, many of which are temporary jobs associated with the Census. The Dow Jones Industrial Average and its ilk tumbled right from the start. Read More

June 3, 2010
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Hotline

Personal income gains continued in April for the sixth straight month, and yet savings are going up as well. While it's good that folks are saving money, it doesn't help economic growth if they don't spend it. And we're seeing that in the retail sales decline in April and the relatively moderate rise in May after seeing big gains from December through March. We'll have to see whether the next batch of numbers suggest more belt tightening, or if rising incomes finally allow some to begin spending again. Read More

May 2010

May 27, 2010
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Pessimism is running rampant on Wall Street despite today's rally. Just think about the list: The euro and the European Union, budget deficits, rising borrowing costs and lower liquidity in some markets, uncertainty over the sustainability of earnings growth and questions about top-line demand, the oil disaster in the Gulf of Mexico, saber-rattling in the Koreas, and of course the ongoing worries over terrorism here and abroad. It's enough to send you to your bomb shelter with a few bars of gold and lots of bottled water. Or, if you work on Wall Street, to the Hamptons for the long weekend. Read More

May 20, 2010
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Hotline

Today's economic hiccups, with jobless claims numbers up and leading indicators down are part and parcel of a halting, slow, and non-uniform economic recovery. While the markets have become much more volatile of late, even with all of the ups and downs, the S&P 500 is just 12.0% below its recent 2010 high of 1217.28. Read More

May 13, 2010
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Hotline

The 290,000 new jobs created in April are a whole lot more than the 190,000 economists had been expecting. But, with greater certainty of an economic recovery, more workers returned to the job search and hence, the headline unemployment rate jumped from 9.7% in March to 9.9% in April. It'll take more parsing of the data to understand where the jobs are and whether they are where the unemployed are, but the trend is, surely, a positive. Read More

May 6, 2010
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What started as a down and up and down day in the U.S. markets turned into a rout this afternoon and then a recovery of sorts as the Dow, at one point, fell almost 1,000 points before rebounding just as sharply ending the day with a not-insignificant loss of 3.2% or 347 points. (There are rumors, still unconfirmed, that a trade error was responsible for the enormous downward spike around 2:40 pm this afternoon.) That said, it could have been a whole lot worse. No doubt you're going to hear lots of repeats of the old saw that investors should "Sell in May and go away." Sure, right now that sounds great. But should the Europeans get their collective acts under control this might instead be the period when buying, rather than selling was in order. Read More

April 2010

April 29, 2010
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Caterpillar opened the week with stronger earnings and prospects for more as the year advances. CAT is something of a global bellwether since it sells its heavy machinery around the world and, of course, when sales grow that means customers have more projects at hand–a good measure of expansion. Another bellwether is UPS, where profits jumped 33% amid higher volumes, particularly overseas, mimicking the report of a week or so ago from FedEx. Read More

April 22, 2010
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Forget the volcano, or the car companies paying back their loans, or Apple blowing out its earnings numbers even before the iPad is factored into the equation. The big story concerns what Rolling Stone writer Matt Taibbi referred to as "that great vampire squid wrapped around the face of humanity," Goldman Sachs, which is now firmly in the SEC's crosshairs. After looking at the back-and-forth between Goldman and the SEC, and some of the interviews and articles that have been written, plus the comments of one of Dan's friends who's a regulator on Wall Street, it's his belief that the net result will be a settlement, not a trial, between the SEC and the firm that once said it was doing "God's work." Read More

April 15, 2010
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The Dow's move over 11000 had people cheering on Monday, but so what? It's just a number in my book and actually doesn't reflect how far the market's really come back because it doesn't factor in dividends. Through Wednesday night's close the Dow index is up 69.9%. But factor in dividends, and the Dow's up 75.3%. Meanwhile some of the funds in our portfolios are up even more. Read More

April 8, 2010
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Last Friday's jobs report was a positive, even if the headline number of 162,000 new jobs was tempered by the fact that many are temporary, Census-taking positions. Updated numbers for prior months show that there was net job creation in three of the last five months–nothing to sneeze at when this has become an all-so-important foundation for the economic and market recovery we've been witnessing. Of course, as those who stopped looking for work begin to go back into "search mode," the overall unemployment number, which has been sitting at 9.7%, could rise once again, and that will certainly throw some cold water on those who think it's all clear for growth going forward. Read More

April 1, 2010
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It may be April Fool's Day for some, but there was nothing foolish about the stock market's returns in the first quarter of the year. The S&P 500 index gained 4.9% in the January to March period, while small- and mid-cap stocks continued to race ahead, with the S&P 600 SmallCap Index up 8.3% and the S&P 400 MidCap Index up 8.7%. Overseas, we saw some solid gains in Japan, where markets were up 5.2%, and Mexico, where markets hit an all-time high this week while delivering a 3.6% return over the quarter. Of course Europe was a weak man, and European Index showed it, down 1.4% for the first three months. It wasn't that markets didn't move higher, per se, with London rising 4.9% and Germany up 3.3%. But the currency tailwind that U.S. investors got when the euro was ascendant last year turned into a headwind this year, turning gains in foreign bourses into losses for dollar-denominated investors. Worse than a falling euro, possibly, and obviously a factor in all of this, is the fact that the EU has had to turn to the IMF, which generally works with developing, not developed countries, to forge a bailout package for Greece. Read More

March 2010

March 25, 2010
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The health care reform bill passed on Sunday 3/21/10 and signed into law on Tuesday 3/23/10 is the biggest change in the way we deal with health care in this country in 40 years. Uncertainty about the state and shape of reform has, however, only been reduced, not eliminated. The bill's required changes begin now, but extend out five years, to 2014. Read More

March 18, 2010
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It's inflation week, or at least it feels that way with reports on both the consumer and producer price indexes dominating the news, along with stories about investors pouring money into bond funds and inflation-protected bond funds. The fact is that inflation remains a non-event. The February measure of Producer Price inflation was characterized by a decline due to falling gasoline prices. While that's going to reverse in March, the core rate, or underlying inflation in the system remains minimal. Consumer prices were also flat in February. Read More

March 11, 2010
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Last Friday's unemployment report was much better than expected and a bit of a shocker, frankly, given all the doom and gloom that had preceded it, including worries that February's storms would cause the rate to rise. Instead, it remained steady at 9.7%. Not good, but certainly not worse. Read More

March 4, 2010
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There's lots of cash still sitting on the sidelines; both investor cash sitting in bank accounts, money markets and what-have-you, plus cash on corporate balance sheets and while investors continue to pour money mainly into bond funds corporate America is ramping up its acquisitiveness. Merger Monday remains a significant force for early-week gains. And we've had a mildly roller-coaster week since then. With tonight's close most major U.S. indexes are in the black for the year with the S&P 500 index up 0.7% and the Dow squeaking in with a 0.2% gain. Small- and mid-cap stocks are running ahead for the year with the S&P MidCap 400 index up 4.5%. Read More

February 2010

February 25, 2010
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For all the ups and downs, there's little obvious trend in the market as we hem and haw from greed to panic over everything from Greece's, and Europe's problems, to signs of life in the technology and housing markets (again, something that can change day-to-day with whatever indicator is current). For that matter, the worries over interest rate policy are also having a big impact on prices as Fed chief Bernanke's testimony yesterday made clear, with markets moving on his every word. Read More

February 18, 2010
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China told its banks for the second time that they need to boost reserves, a sign they are clamping down even harder on their runaway economic growth, worrying Wall Street that slowed Chinese demand will put a crimp in our exports. Unfortunately, the Chinese stock markets then went on a weeklong holiday for the new Year of the Tiger. Meanwhile, it turns out the Chinese have been trimming their Treasury holdings, leaving Japan once again the largest foreign owner of our debt. The two Asian nations remain our biggest creditors no matter who's in the lead. Read More

February 11, 2010
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Portugal, Ireland, Italy, Greece and Spain—the PIIGS of Europe as they've been dubbed—are giving the markets fits. The betting is that at least one, most likely Greece, will need help to keep from defaulting on its bonds. Germany's determination to keep Greece whole got the markets jumping on Tuesday, but by Wednesday other matters reared their bearish heads as snow shut down Washington again and worries grew that the weather would hamper economic recovery, or at least delay it. In fact, the notion that Germany can single-handedly pull Greece from its funk is a hard one to fathom given that there's little meat on its proposal's bones just yet. The details are supposed to be hammered out on Monday. We'll see. Read More

February 4, 2010
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The economic news continues to vacillate from good (Cisco's great sales and earnings report, and projections) to not so good (today's employment numbers), and the markets are becoming more volatile as a result. The lousy jobless claims numbers this morning took the markets down in a hurry, and weakness in Europe isn't helping matters either. A robust rebound still remains a cautious wish rather than a foregone conclusion. Read More

January 2010

January 28, 2010
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While unemployment remains front and center across the country, there's one person who, just moments away from a pink slip, has gotten a reprieve: The Federal Reserve's Ben Bernanke, whose term expires at the end of January, appears to have dodged the unemployment bullet. As the top Republican of the Senate Appropriations Committee said, the markets don't need more uncertainty piled on them. Read More

January 21, 2010
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Earnings season is revving up, and while Alcoa, which always starts it off, didn't impress, last Thursday night's Intel report, which kicked off the technology segment of the show, showed strong bottom- and top-line growth (one of the best quarters in the company's history and its highest-ever profit margins). And this past Tuesday, IBM confirmed that technology remains a good business as it posted a better-than-expected boost to profits and promised more in the coming year. Read More

January 14, 2010
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Hotline

Last Friday's employment report had something for everyone in it. There was the specter of job gains, as shown in the adjusted numbers for November indicating a total of 4,000 new jobs having been created during the month, but of course the return to losses (85,000) in December. But with some people giving up on looking for work, the unemployment rate remained at 10%. Temporary employment continues to grow, which means companies remain cautious and are willing to fill their needs with temps rather than full-timers. Read More

January 7, 2010
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The decade got off to a bang on Monday with the Dow Jones Industrial Average leaping more than 155 points on the first trading day of the year. There's been much noise made about all of those old wives' tales having to do with January's performance setting the direction for the year, but the bottom line is that the data's only as good as its average performance, and we're not making a bet on the market just because the Dow was up, or down, in the first month, or first week of trading. Read More

December 2009

December 31, 2009
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Christmas brought a bit more cheer to bricks-and-mortar retailers than had been expected, though the tough weather on the weekend before the holiday made it a nail-biter right to the bitter end. Overall sales, including those on the Internet, which were up nicely with the bad weather as some shoppers stayed home, were up 3.6% compared to a dismal 2008, when sales fell 3.4%. Read More

December 24, 2009
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This week we got word that GDP for Q3 was revised lower, to a 2.2% annualized rate of growth. The turn from recession to expansion remains on track, but it's just not as robust as originally forecast. Remember, Q3 started out with an estimate of 3.5% growth. Read More

December 17, 2009
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While hotter-than-expected producer inflation was an initial negative for the stock market on Tuesday, a report that industrial production expanded for the fifth month in a row in November was a balm on the economy's nerves (or maybe the market's) and marks continued improvement from the depths of our collective despair one year ago. Today's leading indicators report continued on that theme as the index was up, yet again, for the eighth month in a row. That said, this is going to be one slow recovery, something the Fed's Ben Bernanke made clear in recent testimony. Remember, though, that a slow recovery is NOT no recovery. Read More

December 10, 2009
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It feels like months ago, but last Friday's payroll report sent the markets rocketing and rocking. Not only did the unemployment rate decline from 10.2% to 10.0%, but the Labor Department recalculated some prior months (as they always do once their data collection is complete) and found fewer jobs lost over September and October than originally thought. Even better, the "average workweek" figures showed that businesses were extending hours, which eventually leads to hiring since you can't extend indefinitely. Read More

December 3, 2009
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Markets were certainly rattled last week during the Thanksgiving holiday. While Americans ate turkey and cranberry sauce, Dubai, which is considered a city-state, said its real estate and ports conglomerate, Dubai World, would restructure and that there would be a six-month standstill on debt payments, raising the specter of a default. Though U.S. bank exposure was fairly small, U.K. banks were reportedly on the hook for about $50 billion, and that led to a huge sell-off in European markets on Thanksgiving Thursday while our markets were closed. To say that the announcement also rattled Middle-East markets on the whole would be an understatement. While the Dow Jones Industrial Average opened on a trade-shortened Friday to a more than 233-point (or 2.2%) decline, cooler heads prevailed, and the Dow ended the day down a mere 1.5%. This week, the pressure seems to be coming off as Dubai says it is arranging for a restructuring. Read More

November 2009

November 25, 2009
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Monday's report that October existing-home sales rose 10.1% was not entirely unexpected given the stimulus the first-time homebuyer credit has been generating, and today's report that new-home sales were up in October was also a positive, but given the regional differences in the housing market—only the South saw new-home sales grow, and the Midwest saw sales decline by 20%—it's far too early to call the housing market recovered. Read More

November 19, 2009
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Vanguard launched its seven new bond index funds and ETFs today after delaying their proposed early November launch date. There are seven ETFs, seven Signal class shares and seven institutional shares. With bond markets surging and investor interest more than a little keen for bonds, this particular introduction appears perfectly timed to mark the market's mood. Read More

November 12, 2009
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Friday's revelation of a 10.2% unemployment rate for October should have been a huge downer for the markets, particularly after the optimism-fueled 204-point rally on the prior day. Yet, the Dow gained 17 points on the day and then on Monday despite the fact that the House passed health reform legislation on Saturday, which so many pundits see as a negative, prices exploded upwards as the G-20 basically confirmed that stimulus would continue to rule the global markets for some time to come. Read More

November 5, 2009
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Volatility has accelerated in the markets, as has fear, surpassing greed for the moment. The VIX, better known as the "fear index", zoomed up 24.0% on Friday. From the recent low on October 22 (20.69), when the Dow closed at its 2009 high of 10081, the VIX has risen 22.9%. Trading also indicates greater emotion in the markets, which translates into volatility. Over the last nine trading days, the Dow's daily high-to-low range has been run at 2.1% or higher on five of those days. We haven't seen a period like this since the GM bankruptcy days of the early summer. (Today, by the way, a 204-point gain in the Dow took the index over 10000 once again, pointing to the continued battle between fear and greed about one year after the financial crisis hit full tilt.) Read More

October 2009

October 29, 2009
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Despite all the ghoulish predictions coming into October, the month, with just one more trading day to go, has definitely been a mixed bag of tricks and treats. Of course, the ups and downs of the past week have certainly scared some investors, and consumer sentiment indicators suggest there's still a lot of gloom out there—but I'd remind you that a straight-up market gain like the one we've seen since the bottom on March 9 is just not sustainable. A pullback of 5%, 10% or even 15% would still leave us with great gains from the lows and would entice a new dose of cash into the markets from those who "missed out" the last time. Either way, the 10000 Dow is proving to be a hurdle we can't seem to stay over, for the moment. Read More

October 22, 2009
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It's earnings time, and this week the news has been coming out fast and furious.

Google reported that the online advertising business is coming back with strength, and showed profits in line with that thinking. Both IBM and Citigroup were able to show some profits as well, though not of the sort shown by Intel or JP Morgan Chase, for example. And Southwest Air's earnings announcement included their belief that the airline industry's bumpiest days are behind them. Apple and Caterpillar were two of the big names that came through with better-than-hoped-for earnings. Financials and tech are up strong. The new Windows 7 upgrade cycle could help the techs, though both Intel and Texas Instruments, despite counting out a big Windows 7 sell, still think things are on the upswing. Read More

October 15, 2009
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Yesterday's Dow close above 10000 is the first time since October 3, 2008, that we've seen a five-digit close for the stock market benchmark. But before you look for too many historical precedents, be glad that today, October 15, didn't mimic what happened exactly one year ago, when the Dow plunged 733 points, or 7.9%, throwing even more panic into the markets than had been there before. Read More

October 8, 2009
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The stock market's recent advance can be laid at the feet of the beginning of earnings reporting season and surprisingly better-than-expected results (at least on the profit front) from the first company out of the gate: Alcoa reported last night that while third-quarter sales fell 33% compared with a year ago, earnings were a different story, surprising on the upside, versus the loss that Wall Street had been expecting and reversing three straight quarters of losses. Now the back story and front story. Alcoa controlled costs well, but their overall business really sank. However, their executives say that they see key markets, other than aircraft, are stabilizing, prices are up, and this should mean that the worst is behind them. Read More

October 1, 2009
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Friday's report that durable goods orders shrank in August, coming after the prior day's report that existing home sales had also retreated that month, was not what a continuing stock market rally was looking for as assurance that recovery is at hand. And today's ISM Manufacturing report was definitely a downer, with the index slipping, rather than growing as had been expected, once again showing how rocky the recovery will be. Read More

September 2009

September 24, 2009
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Leading economic indicators are signaling a fairly strong rebound off the bottom of this recession, having already moved back up from their bottom in March to about where they were when the economy officially entered recession in December 2007. Read More

September 17, 2009
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The Wall Street Journal's survey of economists finds most in agreement that the worst of the economic crisis is over and that while unemployment hasn't yet peaked, the economy will begin adding jobs during the next 12 months. Maybe just as important, two-thirds of the economists surveyed believe the U.S. government, and hence taxpayers, will make a profit on the TARP money that was shoveled out to banks, car-makers and AIG in the middle of the crisis. Read More

September 10, 2009
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The pace of continuing job losses fell in August, which was a kind of pyrrhic victory given the fact that prior month's job losses were revised higher and the unemployment rate came in with a jump from 9.4% to 9.7%. What isn't reflected in the numbers are the people who've given up looking for work, which means the true unemployment numbers are even worse than they appear. Read More

September 3, 2009
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As I expected, or maybe just hoped for, when we spoke last week, the ISM Manufacturing index for August came in solidly in expansion territory, which is just what this economy ordered. But also, as expected, the service economy index, which did improve a bit, does not yet reflect expansion as jobs are just not being created fast enough to really give a boost to economic growth, or spending. Read More

August 2009

August 27, 2009
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The durable goods report for July continues to show manufacturing is rebounding with the largest monthly increase in the index in two years. Aircraft and the Cash for Clunkers program helped. Read More

August 20, 2009
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Treasury Secretary Geithner thinks the banks are healing, running with less leverage and holding more of a cushion on their balance sheets.

Germany, France and, yes, Japan appear to have moved from recession to expansion, leading the way for us to follow. Next Thursday we'll get another update on second-quarter GDP in the U.S., and expectations are that the numbers won't be as good as they first appeared, with maybe a 1.5% decline in GDP in Q2 versus the previously reported decline of 1.0%. Read More

August 13, 2009
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Obviously, Friday's report that the unemployment rate actually fell 0.1% was good news on its face and was cause for a rally, but the bottom line is that there are still lots of folks who have given up on looking for jobs, and so the numerator in the equation came down. Read More

August 6, 2009
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Monday's report that July manufacturing activity rose more than expected and almost broke into "expansionary" territory from "recessionary" levels was another sign, coming on the heels of Friday's report that GDP fell by just 1.0% in Q2, that we may be headed for positive GDP growth in the current quarter. We've seen an almost 49% bounce higher from the December 2008 depths of the manufacturing crisis in the country, a level that was lower than any time since May 1980. Read More

July 2009

July 30, 2009
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Today is the 100th trading day since the stock market hit its closing low on March 9. In those 100 days, the Dow has jumped over 2,600 points, or 39.8%. Volatility remains high this year—on the face of it, 2009 is looking a lot like 2002 in terms of the market's jumpiness. But volatility cuts in two directions, and right now it's cutting in the direction of "up." Read More

July 23, 2009
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Today's report that existing home sales were creeping back, up 3.6% in June for the third monthly increase, might have been foreshadowed in part by this week's earnings report from, of all companies, Sweden's Electrolux, one of the world's largest appliance makers after Westinghouse. The Swedes said they thought they were seeing the bottom in the U.S. economy, and of course, if appliance sales are beginning to turn around, then you might expect homes sales would be as well. Read More

July 16, 2009
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Given its size and scope, the Friday emergence of GM from bankruptcy had to set some kind of a record. Promising to pay back the U.S. taxpayer is a fine thing, but whether the U.S. consumer is going to be willing to buy enough GM cars to allow them to make good on the promise is something else. We wouldn't bet on it. Read More

July 9, 2009
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Calls for increased fiscal stimulus, despite the fact that only about 10% of the allotted money has yet been spent, are increasing as worries about the sustainability of what is perceived as an early attempt at a rebound are increasing. Read More

July 2, 2009
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As bad as the first quarter was, the second quarter was good—very good. But now we have to pause to see if expectations, which drove markets higher from early March through the end of June, are accurate, overblown, or maybe even still too pessimistic. Read More

June 2009

June 25, 2009

Hotline

From all appearances, I think we're going to continue to bump along in a fairly narrow range for a while until we have further evidence that both economic indicators and profit indicators are showing solid expansion. The situation of slowing declines is not going to help push the stock market much higher by itself. We're in something of a stair-step pattern, where the market has moved ahead and now investors are saying, "Show me," before they are willing to commit to even higher prices. Read More

June 18, 2009

Hotline

As I suggested last week, inflation readings remain muted. The PPI came in with a 0.2% increase, which is nothing, and the CPI was up just 0.1%. And you can guess what drove almost all this increase: fuel prices. Oil at $71 is a fair bit higher than the $45 it was at when 2008 turned into 2009. Read More

June 11, 2009

Hotline

Friday's 9.4% unemployment rate never looked so good—job losses in May fell to 345,000 amid expectations they would be in the 525,000 range, and numbers for the months of March and April were revised lower as well. Read More

June 4, 2009

Hotline

GM filed for bankruptcy and was dumped from the Dow, along with Citigroup, which is an ignominious sign for the global banker. Not only that, but Citi was replaced by its former division, Travelers Insurance, and Cisco, the networking company, took GM's place. So, instead of the rubber-meets-the-road, we now have the Internet Superhighway represented in the Dow, and there are now no auto companies in the venerable index—another sign of the times. Read More

May 2009

May 28, 2009

Hotline

In this holiday-shortened week Tuesday saw a big jump in consumer confidence on Main Street–courtesy of the Conference Board–which fueled a rally on Wall Street. But while the jump in confidence was impressive, it still leaves confidence well below the levels seen at the beginning of this decade (in fact, down 62% from the high of May 2000). And as I've often said over the past many years, while consumer confidence is one of those indicators that's easy to understand, and changes in confidence are also easy to digest, the fact is that consumer confidence is a pretty lousy economic indicator. Yes, it accurately gauges how consumers feel, but it doesn't necessarily translate into how the economy moves. In fact, it's backward looking; rising after some good news or market movement improves sentiment, and falling after bad news or sentiment has already occurred. Read More

May 21, 2009

Hotline

With earnings season pretty much past, the markets are looking at various economic signs for any glimmers of hope, or doom. In sum, most indicators suggest that the rate of decline, or contraction, is itself declining, which is a good thing. Industrial production in April fell just 0.5%, which was a whole lot better than the declines ranging as high as 4.0% that we've seen in prior months. New unemployment claims, though still very, very high, aren't coming in as high as they were—again, declining declines. And the Conference Board's index of leading economic indicators turned up for the first time in a year. Read More

May 14, 2009

Hotline

As Dan predicted last week, the unemployment numbers came in at 8.9% on Friday, May 8, but the underlying trend of job losses has begun to dissipate. This is still a far cry from job gains—but as has been said many times in the past, you have to stop losing before you can start winning. Read More

May 7, 2009

Hotline

For all the stress that has supposedly built up in the markets around the bank stress tests, investors seem to be taking things in stride, and pushing up the banks to boot. Vanguard's Financials ETF, while still down 2.6% for the year to date, is up 12.2% this month (after just 4 trading days through Wednesday), though it fell a minor 2.9% today and was up 14.6% in March and 19.2% in April. Read More

April 2009

April 30, 2009

Hotline

"Worse than expected." That's what we heard when the Bureau of Economic Analysis released its "advance" estimate of how much first-quarter GDP had contracted. The 6.14% annualized rate of decline was not as bad as the 6.34% decline in the fourth quarter, but it was still lousy and marked the worst six-month decline since 1958. But consumer spending was up in the first quarter at a 2.2% rate rather than falling at a 4% rate as it did in each of the last two quarters. So, as only a forward-looking discounting mechanism like the market can do, Wall Street took this as a sign the worst may be past, and the S&P 500 index gained 2.2% on the day while smaller stocks, which often lead out of a recession, were up 3.9%. Read More

April 23, 2009

Hotline

The big banks have pretty much all reported in now, and surprise of surprises (not!), they came up with billions in profits in the first quarter. The problems remain, however, that their balance sheets are still messy works-in-progress, and it's only by dint of the Fed's super-low borrowing rates that they can generate a nice bit of income from borrowing low and lending high—when lending at all. Investors apparently got religion on Monday when they decided the banks' earnings weren't all they were cracked up to be and took stocks down almost 4%, with the Financials ETF falling 10.5%. Since then, it's been a bit of a rough slog, particularly with revelations this morning that Bank of America CEO Ken Lewis says he was told by former Treasury Secretary Henry Paulson and Fed Chairman Ben Bernanke to stay mum about problems with its Merrill Lynch purchase, lest the whole financial house of cards collapse. Read More

April 16, 2009

Hotline

The past month and week have shown signs of increasing stability, if not downright improvement in our economy. The phrase "the worst is over" seems to be appearing with greater and greater frequency (a quick Google search finds almost 1,200 hits in the news for the past day versus about 725 over the past month). From rising exports in February (the first time in 7 months), or slightly less pessimism on the part of corporate CEOs in a Conference Board survey, or the continued decline in the TED-spread and improved liquidity in the commercial paper markets, all are small steps in the right direction. And the beige book was less red this past month as the pace of economic decline is declining. Read More

April 9, 2009

Hotline

Alcoa started earnings season off on about the foot I thought they would—a misstep, as aluminum demand faltered.

But Pulte Homes buying Centex in a $1.3 billion deal is an encouraging sign: Why would you want to buy or expand your home-building business if you thought you could wait a while and buy it, or expand it later at lower prices? This, along with the resurgence in buying and refinancing, could be marking a bottom, however prolonged, in the housing market. Read More

April 2, 2009

Hotline

All the world's got its eyes on the G-20 meeting in London, yet Wall Street reacted to events closer to home today: A change in FASB (Financial Accounting Standards Board) rules on "mark-to-market" accounting will give big financial institutions a lot more leeway in terms of how they manage their balance sheets. This will allow companies to use their judgment to value assets where markets aren't pricing consistently, or at all. This "fair value" accounting is something companies have been hoping to get for a long time, particularly since the credit markets seized up last fall, as it will allow them to appear healthier by accounting standards. The critics say it's not accurate, but companies, and apparently the rule-setters, think it's perfectly accountable. Read More

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Daniel P. Wiener is editor of The Independent Adviser for Vanguard Investors, a monthly newsletter that keeps abreast of recent developments at Vanguard, and the annual FFSA Independent Guide to the Vanguard Funds. Through his newsletter and guide book, Dan helps tens of thousands of Vanguard investors choose wisely among more than 100 Vanguard mutual funds. The Adviser is a five-time winner of the Newsletter Publishers Foundation's Editorial Excellence Award. View More »

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Growth 1.4% 11.4%
Conservative Growth 1.1% 10.6%
Income 0.7% 9.6%
Growth Index 1.1% 9.5%
The average
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0.6% 7.5%
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