Weekly Economic Update October 24, 2011

WEEKLY QUOTE “Jealousy is the tribute mediocrity pays to genius.” – Fulton J. Sheen     WEEKLY TIP Many small business owners don’t have succession plans. If you haven’t created one, now is as good a time as any to start; this will not only enable continuity, but also address possible gift, income and estate tax issues.     WEEKLY RIDDLE I am in the center of gravity, and part of every victory. I am clearly seen in the midst of a river. I could name three who are in love with me and have three associates in vice. What am I?     Last week’s riddle: Trains travel from one town to another town all day, always on the same track, always going nonstop and at the same speed. The noon train took 80 minutes to complete the trip, but the 4 PM train took an hour and 20 minutes. Why?     Last week’s answer: 80 minutes is the same as an hour and 20 minutes.	October 24, 2011 ANNUALIZED INFLATION HITS 3.9% So noted the Bureau of Labor Statistics last week. The Consumer Price Index rose 0.3% during the month of September, with core CPI rising 0.1%, the smallest such increase in six months. (Annualized core consumer inflation was at 2.0%.) The Producer Price Index climbed 0.8% for September after a flat August.1   HOMEBUYING TAPERS OFF IN SEPTEMBER Existing home sales decreased by 3.0% last month, according to the National Association of Realtors. At this rate, about 4.91 million previously occupied homes will be sold in 2011, matching the total for 2010. In a normal year, about 6 million residential resales occur in the real estate sector.2 HOUSING STARTS UP 15% Here’s a good sign for residential real estate: a sign of demand. Most of the 15.0% monthly increase in September came from apartment construction; the Commerce Department reported a 53% monthly jump in that category. Single-family construction improved by 1.7%. Overall, there were 658,000 housing starts last month, the best number in any month since April 2010.3 DOW EXTENDS WINNING STREAK Wall Street rallied Friday on the eve of the crucial summit meeting to address the Eurozone debt crisis, helped by news that a new aid package for Greece had been approved by EU finance ministers. The DJIA gained ground for the fourth week in a row; the S&P 500 also advanced. The weekly numbers: S&P 500, +1.12% to 1,238.25; DJIA, +1.41% to 11,808.79; NASDAQ, -1.14% to 2,637.46.4,5 THIS WEEK: Earnings season is in full swing. Monday, earnings reports from Netflix, Amgen, Caterpillar and Texas Instruments hit the Street. On Tuesday, BP, Deutsche Bank, Amazon.com, Broadcom, DuPont, UBS and 3M issue 3Q results … and the August Case/Shiller Home Price Index comes out along with the Conference Board’s October gauge of consumer confidence. On Wednesday, quarterly results arrive from Boeing, VISA, GlaxoSmithKline,Sprint, ConocoPhillips and Ford and we have data on September new home sales and durable goods orders. Thursday brings the initial estimate of 3Q GDP and the data on September pending home sales, plus earnings from ExxonMobil, Occidental Petroleum, Baidu, P&G, Aetna, Bristol-Myers Squibb, Time Warner Cable, Hershey and Motorola Solutions. Friday, earnings from Merck and Chevron come out along with the report on September consumer spending and October’s final University of Michigan consume r sentiment index. % CHANGE Y-T-D 1-YR CHG 5-YR AVG 10-YR AVG DJIA +2.00 +5.94 -0.32 +2.59 NASDAQ -0.58 +7.23 +2.52 +5.44 S&P 500 -1.54 +4.91 -1.90 +1.36 REAL YIELD 10/21 RATE 1 YR AGO 5 YRS AGO 10 YRS AGO 10 YR TIPS 0.23% 0.50% 2.53% 3.50% Sources: cnbc.com, bigcharts.com, treasury.gov, treasurydirect.gov – 10/21/114,5,6,7,8 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 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. Citations. 1 – nytimes.com/2011/10/20/business/economy/us-consumer-inflation-subdued-housing-starts-up.html [10/19/11] 2 – ajc.com/business/sales-of-previously-occupied-1206303.html [10/20/11] 3 – thestreet.com/story/11283665/1/raise-the-roof-housing-starts-up-15-in-september.html [10/20/11] 4 – montoyaregistry.com/Financial-Market.aspx?financial-market=an-introduction-to-the-stock-market&category=29 [10/21/11] 5 – cnbc.com/id/44988273 [10/21/11] 6 – bigcharts.marketwatch.com/historical/default.asp?symb=DJIA&closeDate=10%2F21%2F10&x=0&y=0 [10/21/11] 6 – bigcharts.marketwatch.com/historical/default.asp?symb=COMP&closeDate=10%2F21F2%2F10&x=10&y=18 [10/21/11] 6 – bigcharts.marketwatch.com/historical/default.asp?symb=SPX&closeDate=10%2F21%2F10&x=0&y=0 [10/21/11] 6 – bigcharts.marketwatch.com/historical/default.asp?symb=DJIA&closeDate=10%2F20%2F06&x=0&y=0 [10/21/11] 6 – bigcharts.marketwatch.com/historical/default.asp?symb=COMP&closeDate=10%2F20%2F06&x=0&y=0 [10/21/11] 6 – bigcharts.marketwatch.com/historical/default.asp?symb=SPX&closeDate=10%2F20%2F06&x=0&y=0 [10/21/11] 6 – bigcharts.marketwatch.com/historical/default.asp?symb=DJIA&closeDate=10%2F22%2F01&x=0&y=0 [10/21/11] 6 – bigcharts.marketwatch.com/historical/default.asp?symb=COMP&closeDate=10%2F22%2F01&x=0&y=0 [10/21/11] 6 – bigcharts.marketwatch.com/historical/default.asp?symb=SPX&closeDate=10%2F22%2F01&x=0&y=0 [10/21/11] 7 – treasury.gov/resource-center/data-chart-center/interest-rates/Pages/TextView.aspx?data=realyield [10/21/11] 7 – treasury.gov/resource-center/data-chart-center/interest-rates/Pages/TextView.aspx?data=realyieldAll [10/21/11] 8 – treasurydirect.gov/instit/annceresult/press/preanre/2001/ofm71101.pdf [7/11/01]

Paying for College While Saving for Retirement

These two objectives are not mutually exclusive.

It can be done. All across America, families are meeting a mighty financial challenge – the challenge of paying college costs with retirement potentially on the horizon. How do they do it? They go about it consistently; they also get creative.

First, make sure the priorities are in the right order. Strange as it may sound, your retirement may need to take precedence over your child’s college education.

Think about it. Your son or daughter might qualify for student loans or financial aid. By the time they are 30 or 35, they will have the earnings potential to pay those loans back. Do you see any ads out there for “retirement loans” or “retirement aid”? For most, it is much harder to earn money at age 65 than at age 35. Because of this, many choose to allow the younger generation to assume the debt.

The following are some short-term and long-term ideas you may want to consider if you have college costs on your mind:

Save for college the DCA way. While dollar-cost averaging is a useful way to build retirement savings, its merit often goes unrecognized when it comes to saving for higher education. If you could put $40 a month even in a basic savings account with a tiny interest rate, over 10 years that is approaching $5,000. That’s nothing to sneeze at, and will certainly help out. Move the money from a checking account each month into a savings account, or …

Consider a tax-advantaged college savings plan. Contribute to a 529 plan, which features tax-advantaged growth and tax-free withdrawals when the withdrawn funds are used to pay qualified education costs. Not all 529 plans are the same – in fact, some of them will even provide a small cash “match” or “sign-up” bonus when you start your plan. Some 529 plans are even “prepaid” – that means you may be able to secure future tuition rates at current prices, usually at in-state public colleges. Another advantage of the prepaid plans – they are often guaranteed by the state.^1,2

Exploit your credit card. No, don’t pay for college with it … well, at least not directly. Some credit cards give you a cash-back rewards option. You may as well put the rewards toward college. Some of the major banks let you do this and so do online shopping websites such as Upromise.

Keep your income as low as possible in the base income year. That is the calendar year that starts as your child is in the middle of his or her junior year in high school. That is the year when college financial aid departments start to look at a family’s earned and received income. If you can avoid taking capital gains or a distribution from a 401(k) or 403(b) in that year, that will keep your taxable income low. Will Roth IRA conversions raise eyebrows? Yes, they will.

However, don’t stop contributing to your own retirement savings accounts, and feel free to pay off consumer debts with the money from your savings and checking accounts – the assets in these accounts aren’t used in financial aid formulas.¹

Let the college know if your financial situation has changed. Has the value of your home fallen? Is your business netting you far less than it once did? Financial aid departments should be willing to review these developments and may be able to adjust aid for your student accordingly.

Make it a family affair. In some cultures, it is common for all members of a family to pitch in on the down payment or mortgage payments for a home. Consider this strategy as your family saves for college. Close friends and family members may be willing (or even excited) to make ongoing contributions to a college savings plan for your child, and/or an annual “birthday” contribution. They may find giving such a gift to be much more meaningful and fulfilling than a mere toy or item of clothing.

In short, hunting for every scholarship or alumni connection you can and finding a great school at a reasonable price – that’s important. But it may be just as useful (if not more) to be both creative and consistent as you save for college. While it has always been a challenge, by putting some thought into it, most families and students can find ways to respond.

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 advice. Statler Financial Services, Inc. does not give tax or legal advice. 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 other expert assistance is needed, the reader is advised to engage the services of a competent professional. Please consult your Financial Advisor for further information.. http://www.petermontoya.com, http://www.montoyaregistry.com, http://www.marketinglibrary.net

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 – articles.moneycentral.msn.com/CollegeAndFamily/CutCollegeCosts/financial-aid-101-how-to-get-more-cash.aspx [7/16/10]

2 – money.usnews.com/money/blogs/On-Retirement/2010/07/23/how-to-pay-for-college-without-sacrificing-your-retirement [7/23/10]

Why People Want Independent Financial Advisors

A new perception has taken hold: “independent” is better.

Times have changed – and so have financial advisors. Today, people don’t want financial advice from a salesman. Instead, they want a relationship with a financial professional who is candid, trustworthy and thoroughly educated, who provides personalized financial consulting for each client.

That search often leads them to a fee-based or fee-only financial advisor or a Registered Investment Advisor.

A pleasant alternative to Wall Street. A paradigm shift is happening, and the traditional brokerage houses are lagging. While old-school “stock brokers” have gone the way of the wooly mammoth, you still have a sales-first mentality in place at big banks and Wall Street brokerages. If you’re employed by one of them, the mantra is simple: make a sale, earn a commission.

As they try to serve their clients, these “wirehouse” brokers regularly contend with sales quotas and the inherent potential for conflicts of interest. It wears on them: a 2010 survey revealed that only 15% were “very satisfied” at their firms, and another 20% wanted to leave within two years.¹

Given the tarnished reputations of so many giant banks and brokerages, it isn’t surprising that consumers are turning elsewhere for financial advice. Here are three popular destinations.

A fee-based financial advisor has structured his or her practice to promote earning income from fees instead of commissions. The emphasis is on advice. An independent, fee-based financial advisor also has freedom – freedom to choose the most appropriate products and services for your risk tolerance and investment goals. (More about that in a moment.)

Fee-only financial advisors earn no commissions at all. They derive 100% of their income from client fees – annual management fees or hourly or per-project consulting fees. With this compensation arrangement, you know that a fee-only advisor is available to help you address myriad issues in your financial life, not simply those that could lead to a commission.

A Registered Investment Advisor (RIA) usually works to manage the assets of high net worth investors. An RIA receives management fees and does not receive commissions. The management fees usually represent a percentage of the assets a client has invested. RIAs have to register with the Securities and Exchange Commission and any states in which they operate.² Individuals, couples, families and institutions with sizable wealth management concerns often turn toward RIAs.

Even as the market has struggled since the end of 2007, independent Registered Investment Advisors have gained a greater share of assets under management in the U.S.³

People need unbiased advice. That’s probably the #1 reason why people seek an independent financial advisor. They know that the advice they receive is not influenced by sales incentives or directives. There is often a candor to the discussion that may not always be present at a bank or a brokerage.

People want more investment choices. An independent financial advisor is free to offer investments from dozens, maybe hundreds of companies, rather the investments of a single company. In addition, that independent advisor can unhesitatingly tell you if an investment is or isn’t appropriate for your financial situation.

This is the age of independence. When it comes to the financial future, no one wants to be “sold” – just advised. That’s why we’ve seen the rise of a new kind of financial advisor who puts the client relationship first.



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 advice. Statler Financial Services, Inc. does not give tax or legal advice. 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 other expert assistance is needed, the reader is advised to engage the services of a competent professional. Please consult your Financial Advisor for further information.. http://www.petermontoya.com, http://www.montoyaregistry.com, http://www.marketinglibrary.net
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 – bankinvestmentconsultant.com/news/pirker-aite-wirehouse-advisors-2667209-1.html [6/1/10]

2 – investopedia.com/articles/financialcareers/06/whatisaRIA.asp [6/11/10]

3 – fa-mag.com/fa-news/5548-independents-make-headway-despite-downturn.html [5/10/10]

Breaking the Surface

Four tips for recovering from unemployment.

Any period of unemployment is fraught with stress – both personal and financial. While landing that formerly-elusive new job can be a relief, it is only the first step on the road to recovery from unemployment. This transition time is akin to breaking the surface after being underwater for several minutes. It’s a relief to be breathing again and feel the sun on your face, but it’s no time to relax. You must start swimming right away to get back to a healthy financial shore.

Here are four steps you can take to help make sure your recent unemployment doesn’t cast a long shadow across your future financial health.

Continue to live lean. More likely than not, you weren’t buying $4 coffees while unemployed. Five star restaurants were out too. Hamburger may have replaced steak. You may want to continue to follow that pattern. We tend to grow into our incomes, our budgets bloating along with our salaries. Fighting that urge will help with the rest of the steps to unemployment recovery.

Protect yourself ASAP. The longer your unemployment lasts the more important basic survival becomes. Someone who is unemployed may let life insurance, disability insurance or health insurance policies lapse as they try to keep current on the mortgage, pay utilities and put groceries in the pantry. Sometime during the first few days of your employment you should enroll in whatever benefits you need that your company offers. If the new firm does not offer the coverage you need, make an appointment with an insurance professional and use part of your first paycheck to protect you and your family. Remember, the income from your new job won’t benefit anyone if a catastrophic illness, disability or death suddenly takes it away.

Develop a plan to pay down your debts. When you have a job, debts are a nuisance. When you don’t have a job, they may become a threat to your future financial well-being. While it’s normal to hope that you never have to go through unemployment again, you must start preparing for the possibility.

If you are behind on your mortgage, call your lender to let them know of your new job and to work with them on a plan to catch up on your payments. If they are unwilling to work with you, consider using a Federal resource such as those offered by the U.S. Housing and Urban Development Administration.

While there are fewer similar programs for car loans, calling your lender and trying to develop a plan for a loan you’re behind on should be your first step.

All too often during unemployment, credit cards may be used to get by when cash is low. While your interest rates may have been low when you initially signed up for the card, new legislation has caused a spike in credit card rates.¹ Rates of 20% – 30% are not uncommon as banks react to new rules. Paying down these balances should also be a primary goal.

Remember to start paying yourself. Whether you call it a rainy day fund, a nest egg or emergency cash, slowly, paycheck by paycheck, begin paying yourself a fraction of your salary. Some experts will argue that a family should keep six months to one year’s worth of expenses in the bank for unexpected events such as a blown car engine, the roof caving in, or another round of unemployment.¹ For many families, that may feel like an insurmountable sum. But as the old joke goes “How do you eat an elephant?” The answer: “One bite at a time”. Paying yourself has to be done paycheck-to-paycheck, little by little.

These are the views of Peter Montoya, Inc., not Statler Financials Services Inc., and should not be construed as investment advice. Statler Financial Services, Inc. does not give tax or legal advice. All information is believed to be from reliable sources; however, we make no representation as to its completeness or accuracy. Please consult your Financial Advisor for further information.

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.

1. http://www.marketwatch.com/story/credit-cards-gouge-consumers-ahead-of-new-law-2009-11-06 [11/10/09]

Weekly Economic Update for the Week of September 7, 2009

Market shrugs off jobless data. While the jobless rate climbed from 9.4% in July to 9.7% in August, the Labor Department reported a 22% reduction in the pace of job losses – payrolls were only trimmed by 216,000 last month. So there was no triple-digit shock to the Dow – it actually gained 96.66 Friday. Analysts polled by Bloomberg think the jobless rate will hit 10% in early 2010.^1,2

ISM manufacturing index hits 52.9. When was the last month in which the manufacturing industry expanded? January 2008. You can chalk some of this up to demand for autos, of course – but the August reading from the Institute for Supply Management seems “a sign that we’re on the path to economic recovery,” in the words of President Obama.³

Service sector gets closer to growth. As for the ISM’s other closely watched index … it improved to 48.4 for August. It was at 46.4 for July. Six of seven industries within the index reported growth last month, and ISM services survey chairman Anthony Nieves believes the service sector index may top 50 (indicating expansion) by fall.⁴

$1,000 gold on the horizon? Gold almost reached that psychological benchmark last week. December futures closed at $996.70 on the NYMEX Friday, after nearly hitting $1,000 an ounce Thursday. While gold gained 4.0% last week, silver did even better as interest in precious metals really picked up. Silver rose 9.9% last week to close Friday at $16.28 per ounce, after reaching a 13-month high of $16.40 per ounce earlier in the day. As for oil, it had its poorest week since mid-July, losing 6.5% across five trading days. Oil futures closed at $68.02 a barrel Friday.^5,6

A rally ends a week of hubbub. Last Monday, concerns about China troubled Wall Street. Last Tuesday, frets about bank failures pushed stocks down. Friday’s rally was welcome, but the S&P 500 still lost 1.22% for the week. U.S. stock markets are closed for Labor Day.¹ 

 

% Change	Y-T-D	1-Yr Avg	5-Yr Avg	10-Yr Avg
DJIA	+7.58	-15.61	-1.60	-1.48
NASDAQ	+28.01	-10.64	+1.89	-2.90
S&P 500	+12.53	-17.82	-1.75	-2.51
10YrTIPS Yd	-25.76	0.00	-1.91	-4.83

(Source: CNNMoney.com, ustreas.gov, bls.gov, 9/4/09)^7,8,9

Indices are unmanaged, do not incur fees or expenses, and cannot be invested into directly. These returns do not include dividends.

 

These views are those of Peter Montoya Inc., and not Statler Financial Services, Inc. and should not be construed as investment 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. 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. The 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 other expert assistance is needed, the reader is advised to engage the services of a competent professional. Please consult your Financial Advisor for further information. Additional risks are associated with international investing, such as currency fluctuations, political and economic instability and differences in accounting standards.

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. 

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 Citations.

 1 bloomberg.com/apps/news?pid=20601087&sid=aa.NY.SpFOnY# [9/4/09]
2 cnbc.com/id/32691370 [9/4/09]
3 marketwatch.com/story/obama-says-aug-ism-show-economy-on-right-path-2009-09-01 [9/1/09]
4 marketwatch.com/story/ism-services-sector-index-rebounds-in-august-2009-09-03 [9/3/09]
5 google.com/hostednews/ap/article/ALeqM5hLdQzzkk_vLW3OsMLzbo-eZnRKbAD9AGM8S82 [9/4/09]
6 marketwatch.com/column/Futures%20Movers [9/4/09]
7 money.cnn.com/data/markets/dow/ [9/4/09]
7 money.cnn.com/data/markets/nasdaq/ [9/4/09]
7 money.cnn.com/data/markets/sandp/? [9/4/09]
7 money.cnn.com/quote/historical/historical.html?pg=hi&close_date=9%2F4%2F08&mode=add&symb=DJIA[9/4/09]
7 money.cnn.com/quote/historical/historical.html?pg=hi&close_date=9%2F3%2F04&mode=add&symb=DJIA [9/4/09]
7 money.cnn.com/quote/historical/historical.html?pg=hi&close_date=9%2F3%2F99&mode=add&symb=DJIA [9/4/09]
7 money.cnn.com/quote/historical/historical.html?pg=hi&close_date=9%2F4%2F08&mode=add&symb=COMP [9/4/09]
7 money.cnn.com/quote/historical/historical.html?pg=hi&close_date=9%2F3%2F04&mode=add&symb=COMP [9/4/09]
7 money.cnn.com/quote/historical/historical.html?pg=hi&close_date=9%2F3%2F99&mode=add&symb=COMP [9/4/09]
7 money.cnn.com/quote/historical/historical.html?pg=hi&close_date=9%2F4%2F08&mode=add&symb=SPX [9/4/09]
7 money.cnn.com/quote/historical/historical.html?pg=hi&close_date=9%2F3%2F04&mode=add&symb=SPX [9/4/09]
7 money.cnn.com/quote/historical/historical.html?pg=hi&close_date=9%2F3%2F99&mode=add&symb=SPX [9/4/09]
8 ustreas.gov/offices/domestic-finance/debt-management/interest-rate/real_yield.shtml [9/4/09]
8 ustreas.gov/offices/domestic-finance/debt-management/interest-rate/real_yield_historical.shtml [9/4/09]
8 ustreas.gov/offices/domestic-finance/debt-management/interest-rate/yield_historical_1999.shtml [9/4/09]
9 bls.gov/news.release/history/cpi_10191999.txt [10/19/99]

Monthly Economic Update for September, 2009

The month in brief. Pessimists thought the market would pull back; it didn’t. Stocks did well and there was mounting evidence of a real estate rebound. We got news of a decline in the jobless rate, and better news from the manufacturing and service sectors. The government’s health care reform effort met with rowdy public opposition. Consumer spending inched up, and new cars sold like mad. The commodities markets had a mixed month with oil futures hitting a 2009 peak.

Domestic economic health. The jobless rate went down to 9.4% in July from 9.5% in June; perhaps it was an aberration, or perhaps (could we hope?) the start of a trend. It was the first time that America’s unemployment rate had dropped since April 2008.¹

Consumers managed to spend just a little bit more. Consumer spending rose 0.4% in June and 0.2% in July (while personal incomes fell 1.3% for June and stayed flat in July).^2,3 There will likely be a bump in the August consumer spending and durable goods orders – the C.A.R.S. program, although quickly replenished by Congress, went through its $3 billion allotment of rebates by August 24.⁴

In July, factory orders rose by 0.4% (economists thought they would fall) and industrial production went north 0.5% (the first increase in nine months).^5,6 Producer prices fell by 0.9%, and durable goods orders soared 4.9%, with an 18.4% leap in transportation orders.^7,8 In the wake of the C.A.R.S. program, the Institute for Supply Management’s gauge of manufacturing activity went above 50 in August for the first time since January 2008, coming in at 52.9.⁹

“The prospects for a return to growth in the near term appear good,” Federal Reserve Chairman Ben Bernanke said at the Kansas City Fed’s annual symposium in Wyoming. The Fed’s August policy meeting produced the opinions that “economic activity is leveling out” and that inflation will be “subdued for some time”.¹⁰ Public response to the government’s attempt to advance health care reform was not subdued at all, and the contention delayed any notion of progress until after the Congressional summer recess.

Global economic health. New Eurostat data gave us a look at how things were faring in the EU nations. The overall EU unemployment rate rose 0.1% in July to 9.5%. However, the jobless rate in its biggest economy (Germany) was just 8.3%. (Spain’s jobless rate for July: 18.5%.) A key purchasing managers survey had EU manufacturing output at a 14-month high in August.¹¹

In Asia, the big concern came late in August when the central bank of China issued an internal memo telling its branches to tighten lending practices. This hit stocks hard, but fresh data pointed to a nice recovery for some of the region’s economies. A pair of China’s PMI indexes stayed above 50 (indicating expansion). Hong Kong’s manufacturing pace increased for the first time since June 2008. South Korea had a surplus of $1.67 billion (U.S.) in August, compared to a $3.81 billion (U.S.) deficit in August 2008. Inflation in Indonesia had increased moderately to 2.75%, and consumer prices in Thailand had moderated their descent.¹²

World financial markets. The European indexes had a better month than the Asian indexes. Germany’s DAX gained 2.5%, but the real gains of note came in other nations. Great Britain’s FTSE 100 leapt north 6.5%; in France, the CAC 40 rose 6.6%. The two biggest monthly leaps in Europe came in Dublin, where the ISEQ rose 10.9%, and in Vienna, where the ATX pulled off an August gain of 11.2%. Turning to Asian markets, Australia’s All Ordinaries index was up 5.5% for August. The Nikkei 225 gained 1.3%. India’s Sensex was virtually flat last month. The August losers included the Singapore STRAITS Times index (-2.5%), Hong Kong’s Hang Seng (-4.1%), and the always entertaining Shanghai Composite (-21.8% in August after +15.3% in July). The MSCI World Index advanced 3.5% in August, but the MSCI Emerging Markets Index diverged, posting a 0.2% loss.¹³

Commodities markets. Gold futures lost a little ground, and oil futures gained a little ground. Gold lost $2.00 in August to end the month at $951.70 an ounce; gold has had just one positive month in the last three. Copper, of course, is the story of the year in precious metals – copper futures gained for the eighth month in a row, rising 7.32% on the month to $2.81 per pound. At the end of August, copper was up more than 100% YTD. Oil gained 0.73% for the month. While prices crested above $75 a barrel in the last full trading week of August, they ended the month at $69.96 a barrel. Natural gas, beset by too much inventory, continued its poor 2009 – futures lost 18.51% on the month, the worst month they have had since January. In crops, the newsmakers for August were sugar and milk: milk futures gained more than 24% last month, and sugar futures more than 25%. Sugar was up almost 100% YTD as August drew to a close. At the pump, retail (unleaded) gas prices averaged $2.61 per gallon in late August – 28.61% under where they were a year before.^14,15

Housing & interest rates. Good news seemed everywhere (except when it came to foreclosure statistics). The National Association of Realtors said pending home sales rose 3.6% in June and 3.2% in July – that makes six consecutive months of increases.¹⁶ Existing home sales rose by 7.2% in July, helped by low prices, low mortgage rates and federal homebuyer credits.¹⁷ New home sales climbed 9.6% for July, with the inventory of new homes shrinking to a low unseen since March 1993.¹⁸ While overall housing starts slipped 1.0% in July, the pace of single-family home construction increased by 1.7%.¹⁹

 August also brought even lower mortgage rates. Checking Freddie Mac’s August 27 Primary Mortgage Market Survey, 30-year FRMs were averaging 5.14%, compared with 5.25% on July 30. Rates on 15-year FRMs also dropped slightly in that time frame, from 4.69% to 4.58%. Averages on 5-year ARMs went from 4.75% to 4.67% and rates on 1-year ARMs fell from 4.80% down to 4.69%.²⁰

Major indexes. The August numbers provided more evidence that 2009 was turning into a good year for stocks. The S&P 500 and NASDAQ posted their sixth straight monthly gains. At the end of August, the DJIA had advanced in five of the last six months.²¹

% Change	1-Month	Y-T-D
DJIA	+3.54	+8.20
NASDAQ	+1.54	+27.40
S&P 500	+3.36	+12.99
10Yr TIPS Yd	-1.12	-23.14

(Source: CNBC.com, ustreas.gov, 8/31/09)^21,22
Indices are unmanaged, do not incur fees or expenses, and cannot be invested into directly. These returns do not include dividends.

September outlook. Well, September started with a triple-digit hit to the Dow – you could hear bears growling, worrying about banks and wondering if the summer rally had been justified. Will everyone sell in September? Or will stocks defy expectations? Is this a cyclical bull market or a secular bull market? We do have some history to consider: on average, the Dow, S&P 500 and NASDAQ have declined a bit more than 1% during the typical September.²³ Many eyes are on the jobs report coming out September 4, and whether the jobless rate climbs or descends. Any descent (for the second month in a row) would provide a strong hint of an ebbing recession and a shot of reassurance to Wall Street. Even pessimists have to concede that many indicators are improving and that the economy is definitely recovering. 

The key economic releases for the balance of September: the August ISM services index (9/3), August unemployment (9/4), August wholesale inventories and preliminary September consumer sentiment (9/11), August PPI, retail sales and business inventories (9/15), August CPI and industrial production (9/16), August housing starts (9/17), August leading indicators (9/21), August durable goods orders (9/22), August existing home sales (9/24), August new home sales (9/25), and the Conference Board’s September survey of consumer confidence (9/29). We get the August personal income and personal spending numbers on October 1.

These views are those of Peter Montoya Inc., and not Statler Financial Services, Inc. and should not be construed as investment 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. The DAX 30 is a Blue Chip stock market index consisting of the 30 major German companies trading on the Frankfurt Stock Exchange. The FTSE 100 Index is a share index of the 100 most highly capitalized companies listed on the London Stock Exchange. The CAC-40 Index is a narrow-based, modified capitalization-weighted index of 40 companies listed on the Paris Bourse. The Irish Stock Exchange (ISE) (Irish: Stocmhalartán na hÉireann) is Ireland’s stock exchange. The ATX (Austrian Traded Index) is the largest stock market index on the Vienna Stock Exchange. The Australian All Ordinaries Index is the major stock price index in Australia, a capitalization-weighted index made up of the largest 500 companies (as measured by market capitalization) listed on the Australian Stock Exchange. Nikkei 225 (Ticker: ^N225) is a stock market index for the Tokyo Stock Exchange (TSE). The Nikkei average is the most watched index of Asian stocks. The Bombay Stock Exchange Sensitive Index (Sensex) is a cap-weighted index of 30 stocks; selection of the index members has been made on the basis of liquidity, depth, and floating-stock-adjustment depth and industry representation. The Straits Times Index (STI) is a market value-weighted stock market index based on the stocks of 30 representative companies listed on the Singapore Exchange. The Hang Seng Index is a free-float capitalization-weighted index of selection of companies from the Stock Exchange of Hong Kong. The Shanghai Stock Exchange Composite Index is a capitalization-weighted index that tracks the daily price performance of all A-shares and B-shares listed on the Shanghai Stock Exchange. The MSCI World Index is a free-float weighted equity index that includes developed world markets, and does not include emerging markets. The MSCI Emerging Markets Index is a float-adjusted market capitalization index consisting of indices in more than 25 emerging economies. These are the views of Peter Montoya Inc., not Statler Financial Services, Inc., and should not be construed as investment advice. Statler Financial Services, Inc. does not give tax or legal advice. 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. The 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 other expert assistance is needed, the reader is advised to engage the services of a competent professional. Please consult your Financial Advisor for further information. Additional risks are associated with international investing, such as currency fluctuations, political and economic instability and differences in accounting standards.

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. 

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Citations.

1 smartmoney.com/investing/stocks/market-update-friday-aug-7-2009-19182/ [8/7/09]
2 bloomberg.com/apps/news?pid=20601068&sid=av57GRI3gom0 [8/4/09]
3 nytimes.com/2009/08/29/business/economy/29econ.html?ref=business [8/28/09]
4 bloomberg.com/apps/news?pid=20601103&sid=a0IhboIoG_Fg [8/21/09]
5 reuters.com/article/businessNews/idUSTRE5743NT20090805 [8/5/09]
6 money.cnn.com/2009/08/14/markets/markets_newyork/?postversion=2009081416 [8/14/09]
7 marketwatch.com/story/home-depot-target-housing-starts-in-focus-2009-08-18 [8/18/09]
8 marketwatch.com/story/durable-orders-jump-49-on-aircraft-bookings-2009-08-26-83100 [8/26/09]
9 cnbc.com/id/32641014/ [9/1/09]
10 nytimes.com/2009/08/13/business/economy/13fed.html?_r=1 [8/13/09]
11 nytimes.com/2009/09/02/business/global/02euro.html?_r=1&pagewanted=print [9/1/09]
12 online.wsj.com/article/SB125179598266175553.html [9/1/09]
13 investmentpostcards.com [9/1/09]
14 cnbc.com/id/32600731/page/2/ [8/28/09]
15 blogs.wsj.com/marketbeat/2009/08/31/data-points-energy-metals-112/ [8/31/09]
16 money.cnn.com/2009/09/01/real_estate/pending_home_sales_july/ [9/1/09]
17 bloomberg.com/apps/news?pid=20601087&sid=aaCRVTkj_Idk [8/21/09]
18 washingtonpost.com/wp-dyn/content/article/2009/08/26/AR2009082601876.html?hpid=topnews [8/26/09]
19 bloomberg.com/apps/news?pid=20601087&sid=afRgwPDl9Yk4/ [8/18/09]
20 freddiemac.com/pmms/ [9/2/09]
21 cnbc.com/id/32629007 [8/31/09]
22 ustreas.gov/offices/domestic-finance/debt-management/interest-rate/real_yield_historical.shtml [9/2/09]
23 cnbc.com/id/32629649/ [8/31/09]