When Will The Debt Ceiling Affect Stocks?

Will the markets feel stress as the deadline to raise the debt limit approaches?

August 2 looms. That is the absolute deadline for raising the federal debt ceiling, according to Treasury Secretary Timothy Geithner. The U.S. actually “hit” the $14.3 trillion ceiling on May 16 but took “extraordinary measures”, in Geithner’s words, to avoid default. (Those measures included suspension of Treasury payments to the Civil Service Retirement and Disability Fund and the Federal Employees’ Retirement System Thrift Savings Plan.) While Congress will surely vote to raise the debt cap by August 2, our politicians are mostly transmitting contention.^1,2

Will other nations start to lose confidence in us? Our markets are pretty confident that Congress will resolve the issue. Still, the mere prospect of a default could end up doing some damage on Wall Street (and Main Street). The longer Congress dallies, the more the world questions how serious our politicians are about reaching an accord. Remember the headlines about the debt crises in Greece, Spain, Ireland and Portugal? Remember how that instability weighed on Wall Street? Well, we could give global investors a sense of déjà vu.

Bond yields could rise. We last hit the federal debt limit in 1995. Before Congress hiked it, Treasury yields rose in the preceding months. Some analysts think that if they head north just a quarter-percent as a result of this current impasse, taxpayers could collectively be on the hook for up to $500 million per month.³

If Treasury yields rise, businesses big and small will feel the pain. They want and need loans; they need to repay existing debts. They don’t need pressure on interest rates.

The world isn’t walking away from us yet. Our debt remains very attractive to foreign investors. Foreign ownership of U.S. Treasuries climbed from 37% in 1997 to 57% in 2010, and foreign governments were responsible for most of the increase.³

The dollar is still the world’s reserve currency. That fact alone will insulate us a bit in the short term. (What other currency could serve as a benchmark? The euro? Look what’s going on with that.)

When S&P downgraded the U.S. credit outlook this year, did global markets correct? No. Other economies hold a great deal of faith in ours. If our legislators get their act together, we can avoid anything reminiscent of what occurred recently in Europe.

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This material was prepared by MarketingLibrary.Net Inc., and does not necessarily represent the views of the presenting party, nor their affiliates. All information is believed to be from reliable sources; however we make no representation as to its completeness or accuracy. The publisher is not engaged in rendering legal, accounting or other professional services. If assistance is needed, the reader is advised to engage the services of a competent professional. This information should not be construed as investment, tax or legal advice and may not be relied on for the purpose of avoiding any Federal tax penalty.

Statler Financial Services, Inc. is registered as an investment adviser with the state of Florida. The presence of this Web site on the Internet shall in no direct or indirect way to be construed or interpreted to suggest Statler Financial Services, Inc. is soliciting to sell advisory services or offering to sell advisory services to residents of any other state other than the state of Florida.

Citations.
1 – guardian.co.uk/business/2011/may/16/us-government-hits-debt-ceiling [5/16/11]
2 – npr.org/blogs/thetwo-way/2011/05/16/136356437/debt-limit-reached-treasury-to-stop-investing-in-pension-plans [5/16/11]
3 – curiouscapitalist.blogs.time.com/2011/05/16/14292/ [5/16/11]

Weekly Economic Update, May 23, 2011

HOME SALES, HOUSING STARTS SLIP
Existing home sales decreased 0.9% in April, according to the National Association of Realtors. Annually, sales were off 12.9% from the pace of April 2010 (back when the homebuyer tax credit was in effect). The national median existing home price last month was $163,700, 5.0% below where it was a year before. The inventory of unsold residences increased to a 9.2-month supply, up from an 8.3-month supply in March. A new release from the Commerce Department said housing starts declined by 10.6% in April; building permits decreased by 4.0% last month.^1,2

CONFERENCE BOARD LEI INDEX DECLINES
The CB’s Leading Economic Index retreated in April for only the second time since March 2009. The 0.3% slip came after the index rose 0.7% in March and 0.9% in February. On the bright side, the CB’s coincident (i.e., current) economic index improved for the third straight month in April.³

GOLD GETS BACK ABOVE $1,500; GAS PRICES FALL
On Friday, gold prices topped the $1,500 level for the first time since May 12 – the settlement price on the COMEX was $1,508.90 an ounce, concluding a 1.0% advance for the week. Silver pulled off a 0.3% gain last week to settle Friday at $35.09 an ounce. Crude oil fell 0.2% on the week; retail gas prices decreased by almost $0.10 last week, according to AAA’s Fuel Gauge Survey. ^4,5,6

STOCKS RETREAT ON INDICATORS, DEBT ISSUES
Investors were largely left cold by this week’s economic reports, and anxieties over the debt of Spain and Greece also affected Wall Street. So, all three major U.S. indexes moved south. On the week, they performed like this: DJIA, -0.66% to 12,512.04; S&P 500, -0.77% to 1,333.27; NASDAQ, -0.71% to 2,803.32. In 2011, we are seeing selling in May: the DJIA and S&P 500 are currently on three-week losing streaks.⁷

THIS WEEK: Monday offers 1Q earnings from Campbell Soup, and Wall Street will also be eyeing the elections in debt-burdened Spain. Tuesday, we have the report on April new home sales. Wednesday brings us news about April durable goods orders, plus 1Q results out of Costco and Polo Ralph Lauren. Thursday provides weekly jobless claims data along with 1Q results from Sony and BigLots. The major economic releases of the week all arrive Friday: reports on April consumer spending and pending home sales, plus the final May consumer sentiment poll out of the University of Michigan.

Sources: cnbc.com, bigcharts.com, treasury.gov, treasurydirect.gov – 5/20/11^7,8,9,10
Indices are unmanaged, do not incur fees or expenses, and cannot be invested into directly.
These returns do not include dividends.

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This material was prepared by MarketingLibrary.Net Inc., and does not necessarily represent the views of the presenting party, nor their affiliates. This information should not be construed as investment, tax or legal advice and may not be relied on for the purpose of avoiding any Federal tax penalty. The Dow Jones Industrial Average is a price-weighted index of 30 actively traded blue-chip stocks. The NASDAQ Composite Index is an unmanaged, market-weighted index of all over-the-counter common stocks traded on the National Association of Securities Dealers Automated Quotation System. The Standard & Poor’s 500 (S&P 500) is an unmanaged group of securities considered to be representative of the stock market in general. It is not possible to invest directly in an index. NYSE Group, Inc. (NYSE:NYX) operates two securities exchanges: the New York Stock Exchange (the “NYSE”) and NYSE Arca (formerly known as the Archipelago Exchange, or ArcaEx^®, and the Pacific Exchange). NYSE Group is a leading provider of securities listing, trading and market data products and services. The New York Mercantile Exchange, Inc. (NYMEX) is the world’s largest physical commodity futures exchange and the preeminent trading forum for energy and precious metals, with trading conducted through two divisions – the NYMEX Division, home to the energy, platinum, and palladium markets, and the COMEX Division, on which all other metals trade. Additional risks are associated with international investing, such as currency fluctuations, political and economic instability and differences in accounting standards. All information is believed to be from reliable sources; however we make no representation as to its completeness or accuracy. All economic and performance data is historical and not indicative of future results. Market indices discussed are unmanaged. Investors cannot invest in unmanaged indices. The publisher is not engaged in rendering legal, accounting or other professional services. If assistance is needed, the reader is advised to engage the services of a competent professional.

Statler Financial Services, Inc. is registered as an investment adviser with the state of Florida. The presence of this Web site on the Internet shall in no direct or indirect way to be construed or interpreted to suggest Statler Financial Services, Inc. is soliciting to sell advisory services or offering to sell advisory services to residents of any other state other than the state of Florida.

Citations.
1 – realtor.org/press_room/news_releases/2011/05/sales_ease [5/19/11]
2 – marketwatch.com/story/us-housing-starts-decline-106-in-april-2011-05-17 [5/17/11]
3 – conference-board.org/data/bcicountry.cfm?cid=1 [5/19/11]
4 – marketwatch.com/story/gold-futures-advance-in-tug-of-war-market-2011-05-20 [5/20/11]
5 – marketwatch.com/story/crude-oil-futures-retake-some-lost-ground-2011-05-20 [5/20/11]
6 – consumeraffairs.com/news04/2011/05/price-of-gasoline-down-a-dime-in-last-week.html [5/20/11]
7 – cnbc.com/id/43113773 [5/20/11]
8 – bigcharts.marketwatch.com/historical/default.asp?symb=DJIA&closeDate=5%2F20%2F10&x=0&y=0 [5/20/11]
8 – bigcharts.marketwatch.com/historical/default.asp?symb=COMP&closeDate=5%2F20%2F10&x=10&y=18 [5/20/11]
8 – bigcharts.marketwatch.com/historical/default.asp?symb=SPX&closeDate=5%2F20%2F10&x=0&y=0 [5/20/11]
8 – bigcharts.marketwatch.com/historical/default.asp?symb=DJIA&closeDate=5%2F19%2F06&x=0&y=0 [5/20/11]
8 – bigcharts.marketwatch.com/historical/default.asp?symb=COMP&closeDate=5%2F19%2F06&x=0&y=0 [5/20/11]
8 – bigcharts.marketwatch.com/historical/default.asp?symb=SPX&closeDate=5%2F19%2F06&x=0&y=0 [5/20/11]
8 – bigcharts.marketwatch.com/historical/default.asp?symb=DJIA&closeDate=5%2F21%2F01&x=0&y=0 [5/20/11]
8 – bigcharts.marketwatch.com/historical/default.asp?symb=COMP&closeDate=5%2F21%2F01&x=0&y=0 [5/20/11]
8 – bigcharts.marketwatch.com/historical/default.asp?symb=SPX&closeDate=5%2F21%2F01&x=0&y=0 [5/20/11]
9 – treasury.gov/resource-center/data-chart-center/interest-rates/Pages/TextView.aspx?data=realyield [5/20/11]
9 – treasury.gov/resource-center/data-chart-center/interest-rates/Pages/TextView.aspx?data=realyieldAll [5/20/11]
10 – treasurydirect.gov/instit/annceresult/press/preanre/2001/ofm11001.pdf [1/10/01]
11 – montoyaregistry.com/Financial-Market.aspx?financial-market=who-should-inherit-your-ira-andor-401k&category=22 [5/22/11]

The Debt Ceiling

Many Americans don’t want it to be raised. Could our economy hold up if it isn’t?

Congress must think (and act) fast. In the middle of May, the national debt limit of $14.3 trillion will be reached. This means the federal government must increase the debt ceiling sufficiently to cover U.S. obligations through the end of 2012. It will undoubtedly happen, but not before a loud round of partisan politics is finished.¹

What does the public think? In April, a CBS News poll showed that 63% of Americans opposed raising the debt ceiling. Polls often ask simple yes-or-no questions, and the respondents may not have understood the consequences here. If the debt ceiling isn’t raised, America will end up defaulting.²

What would default mean? Picture something like the Wall Street downturn of 2008-2009 happening again … but in a broader context.

As Treasury Secretary Timothy Geithner explained succinctly in a letter to Senate Majority Leader Harry Reid (D-NV), a default would mean that “the Treasury would be prevented by law from borrowing in order to pay obligations the Nation is legally required to pay, an event that has no precedent in American history.” A default would limit, halt or impact Social Security and unemployment benefits, veterans’ benefits, federal worker salaries and payments to members of the armed forces.³

These aren’t the only calamities that would happen. America sells Treasuries to finance its federal government operations, and other nations and investors have bought them with absolute confidence – we haven’t defaulted since 1933. A default would elevate borrowing costs across the board. It would act like a tax. You would see higher interest rates, with implicit damage to equity prices and home values. The ripple from this could hurt retirement savings, consumer spending and investment.⁴

Moreover, a default would shatter the conviction other nations have in our political framework. It might be decades before we could count on cheap debt again.

GOP’s memo to Obama: no higher debt limit unless we cut trillions. The President is adamant about raising the debt ceiling. On May 9, Speaker of the House John Boehner (R-OH) said it could only happen if “significant” cuts to the federal budget could be made: “We’re not talking about billions here. We should be talking about cuts in trillions if we’re serious about addressing America’s fiscal problems.”¹

The GOP leadership does not want to see emergency tax increases. Addressing the Economic Club of New York, Boehner said that “raising taxes is off the table” because “it will have a devastating impact on our economy.” On May 7, Senate Minority Leader John Kyl (R-AZ) requested that revisions to the tax code to address the deficit be kept “totally off the table” as such moves would only amount to backhanded tax hikes.⁵

“We do not have a revenue problem; we have a spending problem,” Boehner noted. “Let’s address the spending problem.”⁵

How would privatizing Medicare help? House Budget Committee Chairman Paul D. Ryan (R-WI) claims that his controversial plan to privatize Medicare by 2022 would save the federal government $5.8 trillion over the next ten years. Ryan’s proposed voucher system would assign $8,000 annually to a typical 65-year-old for purposes of buying a private health plan. (The voucher amount would vary per person, with richer and/or healthier seniors getting less.)⁶

The non-partisan Congressional Budget Office disagrees and says out-of-pocket medical costs would double for seniors through Ryan’s plan. The CBO estimates that with this voucher system, the typical 65-year-old would pay about $12,510 out-of-pocket each year for medical care above the $8,000 of “premium support” provided. In contrast, it says that under the current Medicare structure, the same 65-year-old would pay $6,150 out-of-pocket in 2022 (providing Medicare payments to doctors are not greatly reduced).⁶

How long before this impasse gives way to agreement? It could take days, it could take weeks. “I am guarded in my optimism,” House Majority Leader Eric Cantor (R-VA) remarked on Bloomberg Television this week. Secretary Geithner claims that the federal government could use “extraordinary measures” to keep borrowing money into the beginning of August. Noting that there was “no hard date” to hike the debt limit, Boehner said that “allowing America to default would be irresponsible. But it would be more irresponsible to raise the debt ceiling without simultaneously taking dramatic steps to reduce spending and reform the budget process.”

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This material was prepared by MarketingLibrary.Net Inc., and does not necessarily represent the views Statler Financial Services, Inc. All information is believed to be from reliable sources; however we make no representation as to its completeness or accuracy. The publisher is not engaged in rendering legal, accounting or other professional services. If assistance is needed, the reader is advised to engage the services of a competent professional. This information should not be construed as investment, tax or legal advice and may not be relied on for the purpose of avoiding any Federal tax penalty.

Statler Financial Services, Inc. is registered as an investment adviser with the state of Florida. The presence of this Web site on the Internet shall in no direct or indirect way to be construed or interpreted to suggest Statler Financial Services, Inc. is soliciting to sell advisory services or offering to sell advisory services to residents of any other state other than the state of Florida.

Citations.
1 – advisorone.com/article/boehner-demands-obama-cut-spending-get-debt-limit-deal [5/10/11]
2 – mercurynews.com/breaking-news/ci_18041062 [5/11/11]
3 – economix.blogs.nytimes.com/2011/01/04/fearing-another-u-s-debt-default/ [4/1/11]
4 – treasury.gov/connect/blog/Pages/letter.aspx [1/6/11]
5 – businessweek.com/news/2011-05-10/republicans-rule-out-tax-increases-in-debate-over-debt-cap.html [5/10/11]
5 – businessweek.com/news/2011-05-10/republicans-rule-out-tax-increases-in-debate-over-debt-cap.html [5/10/11]
6 – articles.latimes.com/print/2011/apr/07/nation/la-na-gop-budget-20110408 [4/7/11]
7 – montoyaregistry.com/Financial-Market.aspx?financial-market=common-financial-mistakes-and-how-to-avoid-them&category=29 [5/12/11]

Weekly Economic Update, March 16, 2011

INFLATION SPRINGS AHEAD
Consumer inflation increased by 0.4% in April after rising 0.5% in March. (You can cite food and energy costs – gasoline prices rose 3.3% alone last month.) Annualized inflation is the real story here: the federal government’s Consumer Price Index has advanced 3.2% in the past 12 months. That is the biggest annual gain since October 2008. As for wholesale inflation, the Producer Price Index was up 0.8% for April; it showed an annual increase of 6.8% (the most since September 2008).^1,2,3

GAINS IN RETAIL SALES, Consumer SENTIMENT
The Census Bureau announced that retail sales were up 0.5% in April; it also revised the March gain from 0.4% to 0.9%. The University of Michigan’s preliminary April consumer sentiment survey came in at 72.4, better than the 70.0 forecast by economists polled by Reuters and the final April reading of 69.8.^1,4

KEY Commodities BOUNCE BACK
Last week, there was a bit of a rebound in precious metals and energy futures. Gold actually advanced 0.15% for the week; silver’s five-day loss was 0.77%. Oil futures gained 2.5% for the week on the NYMEX, while RBOB gasoline futures lost 0.6%.^5,6

BLEAKER OUTLOOK FOR MEDICARE, SOCIAL SECURITY
New reports from trustees of the entitlement systems project that Medicare’s trust fund will be depleted by 2024 and that Social Security’s trust fund will be exhausted by 2036 … if no action is taken. (Prior respective estimates were 2029 and 2037.) By these forecasts, Medicare would only be able to pay out 90% of retiree hospital insurance costs after 2024; after 2036, Social Security would only be able to pay out about 77% of scheduled benefits.⁷

A FAIRLY FLAT WEEK
While the NASDAQ pulled off a tiny weekly advance (+0.03% to 2,828.47), the Dow and S&P 500 ended up with some minor weekly losses (DJIA, -0.34% to 12,595.67; S&P 500, -0.18% to 1,337.78.)¹

THIS WEEK: No major economic releases come out Monday, but Federal Reserve Chairman Ben Bernanke speaks at Georgetown University. Tuesday offers reports on April housing starts and industrial output plus 1Q results from Wal-Mart, Dell and Home Depot. Wednesday, the most recent FOMC minutes are released and we have earnings from Target and HP. Thursday brings weekly jobless claims figures, data on April existing home sales, the Conference Board’s April LEI index and 1Q results from Sears, Gap and GameStop. No economic releases are scheduled for Friday.

Sources: cnbc.com, bigcharts.com, treasury.gov, treasurydirect.gov – 5/13/11^1,8,9,10
Indices are unmanaged, do not incur fees or expenses, and cannot be invested into directly.
These returns do not include dividends.

---

This material was prepared by MarketingLibrary.Net Inc., and does not necessarily represent the views of the presenting party, nor their affiliates. This information should not be construed as investment, tax or legal advice and may not be relied on for the purpose of avoiding any Federal tax penalty. The Dow Jones Industrial Average is a price-weighted index of 30 actively traded blue-chip stocks. The NASDAQ Composite Index is an unmanaged, market-weighted index of all over-the-counter common stocks traded on the National Association of Securities Dealers Automated Quotation System. The Standard & Poor’s 500 (S&P 500) is an unmanaged group of securities considered to be representative of the stock market in general. It is not possible to invest directly in an index. NYSE Group, Inc. (NYSE:NYX) operates two securities exchanges: the New York Stock Exchange (the “NYSE”) and NYSE Arca (formerly known as the Archipelago Exchange, or ArcaEx^®, and the Pacific Exchange). NYSE Group is a leading provider of securities listing, trading and market data products and services. The New York Mercantile Exchange, Inc. (NYMEX) is the world’s largest physical commodity futures exchange and the preeminent trading forum for energy and precious metals, with trading conducted through two divisions – the NYMEX Division, home to the energy, platinum, and palladium markets, and the COMEX Division, on which all other metals trade. Additional risks are associated with international investing, such as currency fluctuations, political and economic instability and differences in accounting standards. All information is believed to be from reliable sources; however we make no representation as to its completeness or accuracy. All economic and performance data is historical and not indicative of future results. Market indices discussed are unmanaged. Investors cannot invest in unmanaged indices. The publisher is not engaged in rendering legal, accounting or other professional services. If assistance is needed, the reader is advised to engage the services of a competent professional.

Statler Financial Services, Inc. is registered as an investment adviser with the state of Florida. The presence of this Web site on the Internet shall in no direct or indirect way to be construed or interpreted to suggest Statler Financial Services, Inc. is soliciting to sell advisory services or offering to sell advisory services to residents of any other state other than the state of Florida.

Citations.
1 – cnbc.com/id/43026751 [5/13/11]
2 – nytimes.com/aponline/2011/05/13/business/AP-US-Consumer-Prices.html [5/13/11]
3 – bloomberg.com/news/2011-05-12/u-s-april-producer-price-index-report-text-.html [5/12/11]
4 – census.gov/retail/marts/www/marts_current.pdf [5/12/11]
5 – blogs.wsj.com/marketbeat/2011/05/13/silver-gold-have-a-divergent-week/ [5/13/11]
6 – marketwatch.com/story/oil-futures-ease-but-stay-above-98-a-barrel-2011-05-12 [5/13/11]
7 – money.usnews.com/money/blogs/planning-to-retire/2011/05/13/financial-outlook-worsens-for-social-security-medicare [5/13/11]
8 – bigcharts.marketwatch.com/historical/default.asp?symb=DJIA&closeDate=5%2F13%2F10&x=0&y=0 [5/13/11]
8 – bigcharts.marketwatch.com/historical/default.asp?symb=COMP&closeDate=5%2F13%2F10&x=10&y=18 [5/13/11]
8 – bigcharts.marketwatch.com/historical/default.asp?symb=SPX&closeDate=5%2F13%2F10&x=0&y=0 [5/13/11]
8 – bigcharts.marketwatch.com/historical/default.asp?symb=DJIA&closeDate=5%2F12%2F06&x=0&y=0 [5/13/11]
8 – bigcharts.marketwatch.com/historical/default.asp?symb=COMP&closeDate=5%2F12%2F06&x=0&y=0 [5/13/11]
8 – bigcharts.marketwatch.com/historical/default.asp?symb=SPX&closeDate=5%2F12%2F06&x=0&y=0 [5/13/11]
8 – bigcharts.marketwatch.com/historical/default.asp?symb=DJIA&closeDate=5%2F14%2F01&x=0&y=0 [5/13/11]
8 – bigcharts.marketwatch.com/historical/default.asp?symb=COMP&closeDate=5%2F14%2F01&x=0&y=0 [5/13/11]
8 – bigcharts.marketwatch.com/historical/default.asp?symb=SPX&closeDate=5%2F14%2F01&x=0&y=0 [5/13/11]
9 – treasury.gov/resource-center/data-chart-center/interest-rates/Pages/TextView.aspx?data=realyield [5/13/11]
9 – treasury.gov/resource-center/data-chart-center/interest-rates/Pages/TextView.aspx?data=realyieldAll [5/13/11]

10 – treasurydirect.gov/instit/annceresult/press/preanre/2001/ofm11001.pdf [1/10/01]

Osama Bin Laden’s Death and Global Markets

Obama announces bin Laden is gone.
What will this do for stocks and the economy? Perhaps not much.

A minor global rally follows a major geopolitical event. When Osama bin Laden’s death was announced, Wall Street rejoiced – albeit briefly. After Wall Street opened for business Monday, the S&P 500 started out trading 0.4% higher and the Dow was up 0.3% out of the gate. Germany’s DAX was up 0.5% and France’s CAC-40 rose 0.3% higher after their opening bells (with Air France and Lufthansa shares notably climbing). Japan’s Nikkei 225 was up 1.0%; South Korea’s KOSPI was up 0.9%.^1,2

However, Monday happened to be a market holiday in China, Singapore, Thailand, Hong Kong and Malaysia, so any effect on their benchmarks was muted. At the closing bell stateside, the U.S. indices ended up pretty much where they had begun the day – Dow, -0.02%; S&P 500, -0.18%; NASDAQ, -0.33%.^1,3

Andrew Wilkinson, the senior market analyst at Interactive Brokers in Montreal, was one of many analysts to downplay the effect. “It seems fanciful to accept that global equity markets had been restrained for a decade for fear that Osama bin Laden might pull off another terror attack somewhere around the globe,” he told Toronto’s Globe & Mail. “The world economy has lived through two recessions since 9/11.”¹

While there was no real “bin Laden bounce” Monday, what about a long-term effect?

Is there a “peace dividend” ahead? Osama bin Laden’s death may boost morale, but it is not likely to have any real impact on our military spending or our economy. “I don’t think this is a big market factor,” Warren Buffett simply told the Fox Business Network. As University of Central Florida economist Sean Snaith said to the Christian Science Monitor, “It’s not a panacea for the country. Oil prices are not coming down. If you still don’t have a job, this isn’t going to change things for the better.”⁴

When the Berlin Wall fell, the U.S. did get a “peace dividend”: our military spending shrunk by $188 billion (in today’s dollars) across 1985-1998. Today, we still have a presence in Afghanistan and Iraq, and Al Qaeda remains to be dismantled. The federal budget request for U.S. military operations in Afghanistan and Pakistan for FY 2012 is $107 billion, only mildly below the current $115 billion allocation. Osama bin Laden’s death provided a lift to many Americans; while the world may feel safer as a result, the stock market continues to take its cue from traditional financial indicators.⁴

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This material was prepared byPeter MontoyaInc., and does not necessarily represent the views of Statler Financial Services, Inc. This information should not be construed as investment, tax or legal advice. The publisher is not engaged in rendering legal, accounting or other professional services. All information is believed to be from reliable sources; however, we make no representation as to its completeness or accuracy. If assistance or further information is needed, the reader is advised to engage the services of a competent professional.

Statler Financial Services, Inc. is registered as an investment adviser with the state of Florida. The presence of this Web site on the Internet shall in no direct or indirect way to be construed or interpreted to suggest Statler Financial Services, Inc. is soliciting to sell advisory services or offering to sell advisory services to residents of any other state other than the state of Florida.

Citations.
1 -theglobeandmail.com/globe-investor/stocks-get-lift-from-bin-laden-death/article2006524/ [5/2/11]
2 – cnbc.com/id/42853059 [5/2/11]
3 – online.wsj.com/article/BT-CO-20110502-712469.html [5/2/11]
4 – csmonitor.com/Business/2011/0502/Osama-bin-Laden-dead-but-no-peace-dividend [5/2/11]

Weekly Economic Update, May 9, 2011

HIRING IMPROVES IN APRIL
The Labor Department’s latest jobs report contained some good news: the private sector added 268,000 new jobs last month, and overall non-farm payrolls increased by 244,000 in April. The private sector hasn’t seen this much month-over-month job creation since February 2006, and the net gain of 244,000 jobs was the best since June 2010. The unemployment rate went up to 9.0% in April, but Wall Street rallied Friday after the report was released.¹

PMI IndEX STRONG; SERVICE SECTOR INDEX SLIPS
Last week, the Institute for Supply Management released its April reports on the manufacturing and service sectors. While the manufacturing index came in at 60.4 – down slightly from March’s 61.2 – anything above 60 indicates a booming sector. The non-manufacturing index dropped to 52.8 from March’s 57.3 reading. Anything above 50 means growth, but the index hasn’t been this low in eight months.²

GOLD, SILVER & OIL PULL BACK
Are commodities overbought? That anxiety weighed on the futures markets last week, and it was amplified by a strengthening dollar. Silver took the biggest hit, retreating 27.4% across five days to $35.28 an ounce at the Friday COMEX close. Gold lost 4.2% to end the week at $1,491.20 per ounce; copper sank 4.9% for the week, leaving it 14% under its February 14 record close on Friday. Oil slid 14.7% last week, all the way down to $97.18 per barrel at the Friday close; crude had its poorest week since mid-December of 2008.^3,4

A VOLATILE WEEK SEES STOCKS RETREAT
Stocks rollercoastered a bit last week as closely watched indicators alternately came in positive and negative. By Friday’s close, the scorecard for May 3-6 looked like this: DJIA, -1.34% to 12,638.74; S&P 500, -1.72% to 1,340.20; NASDAQ, -1.60% to 2,827.56. (The “flash crash” occurred on May 6, 2010 – that’s why the 1-YR CHG column below shows such radical improvement this week.)⁵

THIS WEEK: No major economic releases are scheduled for Monday. On Tuesday, we have a report on March wholesale inventories and 1Q earnings from Disney. On Wednesday, three Federal Reserve Bank presidents speak and 1Q earnings from Toyota, Symantec and Cisco arrive. Thursday, the April PPI is released and the newest reports on initial jobless claims arrive; we get the Census Bureau’s report on April retail sales along with 1Q earnings from three titans of the mall – Nordstrom, Macy’s and Kohl’s. Friday, we get April’s CPI and the University of Michigan’s initial consumer sentiment survey for May.

Sources: cnbc.com, bigcharts.com, treasury.gov, treasurydirect.gov – 5/6/11^5,6,7,8
Indices are unmanaged, do not incur fees or expenses, and cannot be invested into directly.
These returns do not include dividends.

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This material was prepared by Peter Montoya Inc., and does not necessarily represent the views of the Statler Financial Services, Inc. This information should not be construed as investment, tax or legal advice. The Dow Jones Industrial Average is a price-weighted index of 30 actively traded blue-chip stocks. The NASDAQ Composite Index is an unmanaged, market-weighted index of all over-the-counter common stocks traded on the National Association of Securities Dealers Automated Quotation System. The Standard & Poor’s 500 (S&P 500) is an unmanaged group of securities considered to be representative of the stock market in general. It is not possible to invest directly in an index. NYSE Group, Inc. (NYSE:NYX) operates two securities exchanges: the New York Stock Exchange (the “NYSE”) and NYSE Arca (formerly known as the Archipelago Exchange, or ArcaEx^®, and the Pacific Exchange). NYSE Group is a leading provider of securities listing, trading and market data products and services. The New York Mercantile Exchange, Inc. (NYMEX) is the world’s largest physical commodity futures exchange and the preeminent trading forum for energy and precious metals, with trading conducted through two divisions – the NYMEX Division, home to the energy, platinum, and palladium markets, and the COMEX Division, on which all other metals trade. Additional risks are associated with international investing, such as currency fluctuations, political and economic instability and differences in accounting standards. All information is believed to be from reliable sources; however we make no representation as to its completeness or accuracy. All economic and performance data is historical and not indicative of future results. Market indices discussed are unmanaged. Investors cannot invest in unmanaged indices. The publisher is not engaged in rendering legal, accounting or other professional services. If assistance is needed, the reader is advised to engage the services of a competent professional.

Statler Financial Services, Inc. is registered as an investment adviser with the state of Florida. The presence of this Web site on the Internet shall in no direct or indirect way to be construed or interpreted to suggest Statler Financial Services, Inc. is soliciting to sell advisory services or offering to sell advisory services to residents of any other state other than the state of Florida.

Citations.
1 – cnbc.com/id/42928731/ [5/6/11]
2 – zacks.com/stock/news/52612/ISM+Service+Index+Disappoints [5/4/11]
3 – blogs.wsj.com/marketbeat/2011/05/06/silver-finishes-its-brutal-week-with-a-whimper/ [5/6/11]
4 – blogs.wsj.com/marketbeat/2011/05/06/data-points-energy-metals-489/ [5/6/11]
5 – cnbc.com/id/42935357 [5/6/11]
6 – bigcharts.marketwatch.com/historical/default.asp?symb=DJIA&closeDate=5%2F6%2F10&x=0&y=0 [5/6/11]
6 – bigcharts.marketwatch.com/historical/default.asp?symb=COMP&closeDate=5%2F6%2F10&x=10&y=18 [5/6/11]
6 – bigcharts.marketwatch.com/historical/default.asp?symb=SPX&closeDate=5%2F6%2F10&x=0&y=0 [5/6/11]
6 – bigcharts.marketwatch.com/historical/default.asp?symb=DJIA&closeDate=5%2F5%2F06&x=0&y=0 [5/6/11]
6 – bigcharts.marketwatch.com/historical/default.asp?symb=COMP&closeDate=5%2F5%2F06&x=0&y=0 [5/6/11]
6 – bigcharts.marketwatch.com/historical/default.asp?symb=SPX&closeDate=5%2F5%2F06&x=0&y=0 [5/6/11]
6 – bigcharts.marketwatch.com/historical/default.asp?symb=DJIA&closeDate=5%2F7%2F01&x=0&y=0 [5/6/11]
6 – bigcharts.marketwatch.com/historical/default.asp?symb=COMP&closeDate=5%2F7%2F01&x=0&y=0 [5/6/11]
6 – bigcharts.marketwatch.com/historical/default.asp?symb=SPX&closeDate=5%2F7%2F01&x=0&y=0 [5/6/11]
7 – treasury.gov/resource-center/data-chart-center/interest-rates/Pages/TextView.aspx?data=realyield [5/6/11]
7 – treasury.gov/resource-center/data-chart-center/interest-rates/Pages/TextView.aspx?data=realyieldAll [5/6/11]
8 – treasurydirect.gov/instit/annceresult/press/preanre/2001/ofm11001.pdf [1/10/01]
9 – montoyaregistry.com/Financial-Market.aspx?financial-market=an-introduction-to-the-stock-market&category=29 [5/8/11]

Will Gas Hit $5 A Gallon?

How about $6? $7? When will we see relief?

How high will pump prices go this summer? Many analysts think we will pay $5 a gallon for gas this summer – and some think gas will cost much more than that. On April 20, the AAA’s Daily Fuel Gauge Report had regular unleaded averaging more than $4 per gallon in six states – Hawaii, California, Alaska, Connecticut, Illinois and New York.¹

Is collusion behind this, or simple economics? While the Justice Department has announced a task force to investigate fraud and manipulation in the oil industry, most economists see this as little more than a public relations move coming out of the Obama administration – the U.S. had no way to control global price pressures on oil in 1979 and it has no way to control the price of the commodity in 2011.

One of the biggest influences on oil and gas prices can be found in your wallet: the U.S. dollar.

Commodities are priced in U.S. dollars on the world market, and we have a weak dollar right now. A feeble dollar means we have to pay more to buy foreign oil. It also means foreign currencies are able to buy more of the commodity for the same amount of money.

If foreign nations take advantage of a weak dollar and buy more oil, you’ve got rising global demand. When demand rises, oil prices are poised to rise. Since oil prices are set in U.S. dollars, we feel the impact of price spikes in a way that nations using other currencies may not.

Global Hunter Securities economist Richard Hastings attributes about one-third of pump prices to the weak buck. He recently raised eyebrows by stating to CNBC.com that gas could hit $6.50 a gallon this summer given high demand and the potential impact of “one or two hurricanes”.²

Emerging markets exert another big influence on oil and gas prices. Tremendous economic growth in China, India and other developing nations means they have a sustained demand for oil and gasoline, and it is not declining. Oil and gasoline prices are also subsidized in some emerging-market nations. This artificially breeds high demand.

Factor in recent political unrest in some oil-exporting nations, and you have the core reasons for $4 gas down the street.

One analyst sees potential for a new recession. Craig Johnson, president of the retail forecast firm Customer Growth Partners, just noted to CNBC that consumers are currently spending more than 6% of their income on energy costs. He cites that percentage as a “tipping point”, noting that five of the six recessions since 1970 have happened when personal consumption expenditures (PCE) for energy costs surpassed 6%. While rising fuel prices by themselves may not seem like a recession trigger, Johnson also mentioned the simultaneous jump in food prices – they are up 6.5% since the end of 2010. He estimates that consumers now spend about 15% of their incomes on food and energy prices.³

What would bring gas prices down? Well, boycotting the gas stations in your region for a day is not likely to do the trick. Relief might appear as follows: high oil prices often encourage oil producers to increase supply, as they can make even more profit from sustained demand. But that can lead to a glut – too much supply at prices too high, a circumstance in which prices would be poised to pull back. In fact, Saudi Arabian Oil Minister Ali Naimi recently commented that the world oil market was oversupplied.⁴

Another factor is our own consumer demand. You are hearing stories about people only driving on weekdays, or foregoing trips or cycling or taking the bus to work. Affirming this phenomenon, March credit card data from MasterCard SpendingPulse showed U.S. retail gasoline expenditures down 2.1% year-over-year.⁵

Tom Kloza, who is chief analyst for the Oil Price Information Service, recently shared his belief on NPR that prices will “correct or ease back a little bit and we’ll [see] a driving season where we pay something between $3.25 and $3.75 for gasoline” with moderating demand and a slightly less heated commodities market. Let’s hope he’s right.⁵

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This material was prepared by Peter Montoya Inc., and does not necessarily represent the views of Statler Financial Services, Inc. This information should not be construed as investment, tax or legal advice. The publisher is not engaged in rendering legal, accounting or other professional services. All information is believed to be from reliable sources; however, we make no representation as to its completeness or accuracy. If assistance or further information is needed, the reader is advised to engage the services of a competent professional.

Statler Financial Services, Inc. is registered as an investment adviser with the state of Florida. The presence of this Web site on the Internet shall in no direct or indirect way to be construed or interpreted to suggest Statler Financial Services, Inc. is soliciting to sell advisory services or offering to sell advisory services to residents of any other state other than the state of Florida.

Citations.
1 – cnbc.com/id/42681321 [4/20/11]
2 – cnbc.com/id/42683030 [4/20/11]
3 – cnbc.com/id/42704213 [4/21/11]
4 – abcnews.go.com/Business/gas-prices-hit-384-memorial-day-weekend-approaches/story?id=13399636 [4/18/11]
5 – npr.org/2011/04/21/135605266/-4-a-gallon-gas-prices-whos-to-blame [4/21/11]
6 -montoyaregistry.com/Financial-Market.aspx?financial-market=who-needs-wealth-management-services&category=4 [4/24/11]

Weekly Economic Update, May 1, 2011

CONSUMER SPENDING INCREASES 0.6%
This March gain wasn’t that surprising in light of rising food and energy costs. (The Commerce Department just revised February’s gain to 0.9%). Disposable incomes were up by 0.1% in March while the personal savings rate held steady at 5.5%. The Commerce Department also released its initial estimate of 1Q 2011 GDP Friday (+1.8%) and 1Q consumer spending (+2.7%).¹

CONSUMER CONFIDENCE REBOUNDS
The University of Michigan’s final April consumer sentiment survey came in at 69.8, up from March’s final reading of 67.5. The one-year inflation expectation was 4.6%, the same as last month. The Conference Board’s April consumer confidence poll came in at 65.4, better than the median projection of economists surveyed by Bloomberg. Both indices improved despite gas prices rising – AAA said a gallon of regular unleaded averaged $3.87 on April 27, the highest price since August 2008.^1,2

CASE-SHILLER INDEX WITHIN .01% OF DOUBLE-DIP
February’s Case-Shiller Home Price Index revealed a 3.3% year-over-year drop in prices across 20 metro areas. Most notably, the index was down 1.1% from January to just .01% above its April 2009 trough. Prices in 14 of the index’s 20 metro areas have declined for six months or more. In more positive news, the Census Bureau said new home sales increased by 11.1% from February’s record low. The National Association of Realtors said pending home sales were 5.1% better in March than in February.^3,4

STOCKS FINISH APRIL WITH A FLOURISH
Stocks took their cues from earnings last week, and earnings were mostly strong. The weekly performance numbers: DJIA, +2.44% to 12,810.54; S&P 500, +1.96% to 1,363.60; NASDAQ, +1.89% to 2,873.54. The DJIA rose 3.98% in April.⁵

THIS WEEK: On Monday, ISM’s April manufacturing index comes out, we get data on March construction spending, and we have 1Q results from Humana. Tuesday brings 1Q earnings from Pfizer, CBS, MasterCard and Comcast along with reports on March factory orders and auto sales. Wednesday, we get quarterly results from AOL, MetLife, Kellogg and Anheuser-Busch and the ISM April service sector index. On Thursday, GM, AIG, Kraft, VISA and CVS all release 1Q earnings reports, Fed chairman Ben Bernanke speaks at a Chicago Fed conference, the European Central Bank makes a rate decision, and weekly jobless claims are released. Friday offers the March jobs report and 1Q results out of Berkshire Hathaway.

Sources: cnbc.com, bigcharts.com, treasury.gov, treasurydirect.gov – 4/29/11^5,6,7,8
Indices are unmanaged, do not incur fees or expenses, and cannot be invested into directly.
These returns do not include dividends.

This material was prepared by Peter Montoya Inc., and does not necessarily represent the views of Statler Financial Services, Inc. This information should not be construed as investment, tax or legal advice. The Dow Jones Industrial Average is a price-weighted index of 30 actively traded blue-chip stocks. The NASDAQ Composite Index is an unmanaged, market-weighted index of all over-the-counter common stocks traded on the National Association of Securities Dealers Automated Quotation System. The Standard & Poor’s 500 (S&P 500) is an unmanaged group of securities considered to be representative of the stock market in general. It is not possible to invest directly in an index. NYSE Group, Inc. (NYSE:NYX) operates two securities exchanges: the New York Stock Exchange (the “NYSE”) and NYSE Arca (formerly known as the Archipelago Exchange, or ArcaEx^®, and the Pacific Exchange). NYSE Group is a leading provider of securities listing, trading and market data products and services. The New York Mercantile Exchange, Inc. (NYMEX) is the world’s largest physical commodity futures exchange and the preeminent trading forum for energy and precious metals, with trading conducted through two divisions – the NYMEX Division, home to the energy, platinum, and palladium markets, and the COMEX Division, on which all other metals trade. Additional risks are associated with international investing, such as currency fluctuations, political and economic instability and differences in accounting standards. All information is believed to be from reliable sources; however we make no representation as to its completeness or accuracy. All economic and performance data is historical and not indicative of future results. Market indices discussed are unmanaged. Investors cannot invest in unmanaged indices. The publisher is not engaged in rendering legal, accounting or other professional services. If assistance is needed, the reader is advised to engage the services of a competent professional.

Statler Financial Services, Inc. is registered as an investment adviser with the state of Florida. The presence of this Web site on the Internet shall in no direct or indirect way to be construed or interpreted to suggest Statler Financial Services, Inc. is soliciting to sell advisory services or offering to sell advisory services to residents of any other state other than the state of Florida.

Citations.
1 – bloomberg.com/news/2011-04-29/personal-spending-in-u-s-rises-0-6-incomes-climb-more-than-forecast.html [4/29/11]
2 – bloomberg.com/news/2011-04-29/u-s-consumer-sentiment-gains-as-index-climbs-to-69-8-from-67-5-in-march.html [4/29/11]
3 – seattlepi.com/realestate/article/Home-prices-continue-to-slide-nationwide-more-so-1353033.php [4/26/11]
4 – bloomberg.com/news/2011-04-28/pending-sales-of-existing-homes-in-u-s-increase-5-1-more-than-estimated.html [4/28/11]
5 – cnbc.com/id/42827178 [4/29/11]
6 – bigcharts.marketwatch.com/historical/default.asp?symb=DJIA&closeDate=4%2F29%2F10&x=0&y=0 [4/29/11]
6 – bigcharts.marketwatch.com/historical/default.asp?symb=COMP&closeDate=4%2F29%2F10&x=10&y=18 [4/29/11]
6 – bigcharts.marketwatch.com/historical/default.asp?symb=SPX&closeDate=4%2F29%2F10&x=0&y=0 [4/29/11]
6 – bigcharts.marketwatch.com/historical/default.asp?symb=DJIA&closeDate=4%2F28%2F06&x=0&y=0 [4/29/11]
6 – bigcharts.marketwatch.com/historical/default.asp?symb=COMP&closeDate=4%2F28%2F06&x=0&y=0 [4/29/11]
6 – bigcharts.marketwatch.com/historical/default.asp?symb=SPX&closeDate=4%2F28%2F06&x=0&y=0 [4/29/11]
6 – bigcharts.marketwatch.com/historical/default.asp?symb=DJIA&closeDate=4%2F30%2F01&x=0&y=0 [4/29/11]
6 – bigcharts.marketwatch.com/historical/default.asp?symb=COMP&closeDate=4%2F30%2F01&x=0&y=0 [4/29/11]
6 – bigcharts.marketwatch.com/historical/default.asp?symb=SPX&closeDate=4%2F30%2F01&x=0&y=0 [4/29/11]
7 – treasury.gov/resource-center/data-chart-center/interest-rates/Pages/TextView.aspx?data=realyield [4/29/11]
7 – treasury.gov/resource-center/data-chart-center/interest-rates/Pages/TextView.aspx?data=realyieldAll [4/29/11]
8 – treasurydirect.gov/instit/annceresult/press/preanre/2001/ofm11001.pdf [1/10/01]
9 – montoyaregistry.com/Financial-Market.aspx?financial-market=power-of-attorney-why-its-so-important&category=30 [5/1/11]