The Budget Battle Begins

Written by Hoy Grimm | 06 April 2011

As Washington begins the budget battle, I am reminded of this:

"Let every nation know, whether it wishes us well or ill, that we shall pay any price, bear any burden, meet any hardship, support any friend, oppose any foe, in order to assure the survival and the success of liberty." John F. Kennedy .

As I watched this:

Isn't now the time our leaders in Washington should make the tough decisions to ensure this remains a fictional outcome?

First Quarter 2011 Market Commentary

Written by Commonwealth Financial Network | 05 April 2011

Markets show resiliency

U.S. equity markets proved resilient over the quarter. Despite heightened volatility, domestic equity markets finished strong, experiencing the best first quarter since 1999. Stocks sold off briefly on external shocks, including geopolitical unrest in North Africa and the Middle East and a natural disaster in Japan, but quickly rebounded (see Figure 1). The Dow Jones Industrial Average gained almost 750 points, returning 7.07 percent for the quarter, while the S&P 500 Index rose 5.92 percent.

International investors saw gains during the quarter as well, though international markets weren’t able to keep pace with the U.S. The MSCI EAFE Index returned 3.37 percent for the quarter, slowed by a 2.24-percent decline in March. Added volatility overseas left the MSCI Emerging Markets Index up only 1.69 percent, despite a 5.70-percent gain in March.

Bonds were additive to investor portfolios during the quarter. The Barclays Capital Aggregate Bond Index gained a modest 0.42 percent. Investors showed an appetite for riskier fixed income assets, demonstrated by the Barclays Capital High Yield Bond Index’s 1.65-percent gain for the quarter. Companies have built strong balance sheets and appear to be in good financial health. Refinancing activity has helped push down borrowing costs and made corporate and high-yield bonds appear more attractive. Although gains in those asset classes have brought pricing more in line with longer-term historical averages, they can still offer attractive coupons when compared with Treasuries.

Figure 1: First Quarter 2011: S&P 500 Performance Vs. Chicago Board Options Exchange Volatility Index

Continued unrest in the Middle East and North Africa

Unfolding turmoil in North Africa and the Middle East dominated headlines over much of the quarter. What began as civil unrest in Tunisia eventually spread across North Africa and the Middle East. The result, to date, has been regime change in Tunisia and Egypt and international intervention in Libya. Turbulence across the region hasn’t subsided; instead, protests have spread and become more violent.

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Do as I say, not as I do

Written by Kevin Painter | 01 April 2011

As we cautioned in our recent blog post about austerity, corporate America is using their cash to reward shareholders rather than create jobs.   As the public sector goes through a massive downsizing, it appears as if companies would rather reward its own than look to reduce the unemployment rate. These large Dow Jones components may be paying lip service to the media and the President on their efforts to hire some workers, but the reality of the unemployment situation lies in what  they’re doing.

Home Depot announced today that they are planning to buy back $1 billion of their stock and are refinancing another $1 billion in debt.  This number is in addition to their already announced buyback of $2.5 billion in stock in 2011. This is all on top of the 6% dividend increase announced earlier this year.  They’re using their excess cash to reward shareholders, not hire workers.  On February 15th, the company announced that they were hiring 60,000 workers (numbers that padded that month’s national jobs report).  The problem: these positions are part-time, seasonal workers from March to June that support all of us that are stocking up on potting soil and finding a way to spend our tax refund.

Intel, another Dow component, made headlines in February as President Obama championed their cutting edge technology and plans to hire 4,000 new workers in 2011 as a part of his weekly radio address.  The President had recently visited an Intel plant in Oregon and learned of the company’s plans to build a $5 billion facility in 2013 in Arizona.  Yet again, Intel said one thing while doing another.  They announced late last year that they were increasing their dividend by 15% and their board authorized the repurchase of an additional $10 billion of shares of their stock bringing the total to $14.2 billion for 2011.

In December, AT&T announced that it was increasing its dividend another 2.4%, costing the company an additional $59 million each time it pays a quarterly dividend and buying back $300 million of its shares.   More recently, the company also announced a merger with T-Mobile for $39 billion.   Mergers offer chances for cost-cutting (no need for two marketing departments) and usually results in job losses rather than any net employment gains.

An Unforgettable Ride

Written by Hoy Grimm | 30 March 2011

This is how it has felt navigating the waves of market and economic data for the past 2 years:

VCA 2010 RACE RUN from changoman on Vimeo.