Archives For Todd Burkhalter

3Q 2012 Quarterly Edition
October 1, 2012

Wall Street closed its best third quarter since 2010 after a wave of central bank actions across the globe (and expectations of future action) drove up equities in an unexpected summer rally. However, signs of weakness in the economy pushed markets down in the final week of September and may lead to further bearish sentiment. For the quarter, the S&P rose 5.76%, the Dow increased 4.32% and the Nasdaq rose 6.17%.[i] Lets take a quick look back.

July: July was a volatile month for stocks. Markets were kicked around by domestic indicators and news surrounding the debt crisis in Europe. During the final weeks of July we saw the release of
corporate earnings reports for many major companies. Across the board, most companies showed weak revenue, with less than half exceeding revenue expectations. Even so, a number of companies were still able to beat earnings expectations, meaning they are getting better at doing more with less.[ii]

 

August: August was the month of the summer sugar high rally as investors drove up stock prices on hopes that the Fed would undertake further quantitative easing. Retail sales in August beat expectations
due to a strong back-to-school season, which could forecast robust holiday sales. These two shopping seasons are the most important for retailers, so a strong performance could lead to upbeat corporate earnings reports next quarter.[iii]

 

September: Several market-moving events took place last month; markets were dominated by expectations of major Federal Reserve stimulus action and hope that the European Central Bank would unveil a
new plan. Despite the Fed’s historical reluctance to become involved in the election cycle, under the pressure of a disappointing August jobs report, the Fed finally launched the long-awaited additional quantitative easing. Under QE3, the Fed has made an open-ended commitment to buy mortgage-backed
securities to the tune of $40 billion per month. The move is designed to lower long-term interest rates and spur more lending to businesses and consumers.[iv] In a similar move, the ECB launched a bold bond-buying program designed to reassure European investors and lower interest rates on Spanish and Italian bonds.[v]

What’s Next: The first week of October will provide plenty of market-moving data, with the release of third-quarter reports on GDP, manufacturing, consumer sentiment, and more. We will also see the FOMC minutes from last week’s Fed meeting, which will provide more clarity into possible Fed moves this year. Earnings reports for Q3 will start trickling in during coming weeks, and although predictions indicate revenues and profits may be down across the board, we could get some surprises.

 

As we look ahead to the final quarter of the year, markets could decline from their summer peak or rise to new highs. The market rallies of the summer indicate that investors are poised to respond to positive news, and should the economy show further signs of recovery, we may see more bullish market behavior. With the election cycle nearing its conclusion, markets may also react to political uncertainty surrounding the fiscal cliff and other economic issues.[vi]

 

As an investor, it is wise to assess your own risk tolerance from time to time and make sure you are allocated suitably for your personal investment objectives. If you have questions about how your own portfolio should be positioned for the rest of 2012, please don’t hesitate to contact us, we’d be very happy to review it with you and answer any questions you might have.

Is there a better option than home ownership? Granted owning your home is aligned with the American dream. However, through the recent economy and turmoil in the real estate markets the question has become more common to ask should I Rent or Buy my home? Our guest post takes a look at that very question in Randy Brunson’s post Buying vs. Renting Revisited.

About Our Guest

This week we have a Guest Post from Atlanta based Financial Planner,Randy Brunson. Randy studied at The University of Tennessee – Chattanooga and has spent the majority of his thirty year career advising his clients on building their personal wealth. In addition to Founding Centurion Advisory Group Randy is a husband to Teresa and they have two grown children and two grandchildren.

In case you haven’t purchased a home recently, here’s some (very funny) advice on how to work with real estate agents :http://www.youtube.com/watch?v=DwZPhmFwcaI&feature=related.

 

 

For people of a certain age, who remember taking out a home mortgage at 15%, 16% or even near the top at 18%, the astonishingly low rates that banks are charging today are a little hard to believe. This chart, taken
from statistics collected by the Federal Home Loan Mortgage Corporation for 15-year and 30-year fixed-rate mortgages, tells the story: rates have been historically low for years, and they have been trending lower ever since the bottom fell out of the real estate market.

This has created a strange but not unusual market situation: people who remember the housing market collapse are nervous about buying right at the time when they can buy more house for less money than ever before in their lifetime, and finance at rates we may never see again. Our instincts tell us to buy when the markets are booming and prices are high, and to stay on the sidelines when the markets are offering us bargains.

The economic case for purchasing a home vs. renting has always been a bit sketchy. The real estate site Trulia has calculated that the breakeven between the two comes when you can buy for 15 times your yearly
rental costs. By that formula, if you’re paying $20,000 a year in rent, you might think twice about purchasing a comparable home that costs more than $300,000. But that formula has some embedded assumptions about mortgage rates. If you were to buy that $300,000 house and finance it at 18.45%–the average
national mortgage rate back in October, 1981–then your $4,631 monthly payments would amount to $55,572 a year–more than two and a half times the rental rate you’re paying now. This might not be the ideal tradeoff. But at 3.55%–the average national rate in July–the payments are $1,355 a month, or $16,260. At
those rates, even if you factor in maintenance and property taxes, buying might actually cost less per month than renting.

Trulia identifies some markets where prices are historically high and historically low. The average two-bedroom condominium or townhouse in the New York City area currently costs about 32 times as much to buy as to rent. In Seattle, you can expect to buy at about 24 times the rental cost; San Francisco and Portland, OR now cost 22 times as much. Meanwhile, Miami homes are going for about eight times annual rents, while Phoenix (10 times) and Las Vegas (11) seem to be relative bargains.

In general, you should avoid committing too much of your cash flow to the place you live; annual housing costs should be less than a third of your gross annual income. And you probably shouldn’t count on your
home appreciating in value immediately. A recent report by Fitch Investors Services says that in many markets, housing prices won’t have completely bottomed out until late next year. This is not a market for flipping homes. But with the combination of low rates and distressed prices, it may be the best time to buy that many of us have seen in a long, long time.

http://online.wsj.com/article/SB10001424052748703561604575282910161870380.html

Content courtesy of Bob Veres and Randy Brunson

 

Weekly Update – September 24, 2012

During the past three months, the stock market has turned in one of its strongest performances in U.S. history. Since early June, the Dow Jones Industrial Average has gained 12%. If this rate of increase continued, it would offer close to a 50% annualized gain.[i] But of course, such expectations are entirely unrealistic. While we are grateful for market gains when we can notch them, we must acknowledge that healthy markets move up and down.

In keeping with this behavior, markets closed slightly down last week as investors weighed promises by the Fed and other central banks against signs of economic hurdles and political challenges ahead. The S&P closed 0.38% lower, the Dow lost 0.1%, and the Nasdaq trimmed 0.13%.[ii]

 

Federal Reserve officials made the rounds last week, giving speeches and expressing support for the Chairman’s efforts to stimulate the economy. Some comments lead analysts to believe that the Fed will act on its strong mandate and take further action if necessary; however, most believe it will leave policies unchanged until the end of the year. While investors cheered the recent aggressive Fed actions, some believe the move indicates the U.S. recovery is still uncertain at best.[iii]

 

As we near the end of the third quarter, we will begin to see the first corporate earnings reports. Profit warnings from companies in the S&P 500 are outpacing positive pre-announcements by the largest margin in 11 years, indicating that businesses are still feeling the economic crunch.[iv] Because companies have been cutting earnings estimates for months already, there is a possibility that weak earnings  could trigger a decline in stock prices. Even so, equities could heat up in the first week of October due to market-moving events like the release of unemployment data, the presidential debate, and the Eurozone finance meeting.

As the elections near, politicians are ramping up the rhetoric, but still failing to deal with the fiscal cliff, a huge issue in the minds of analysts and investors. Although we wish that legislators would get their priorities straight and do their jobs, it is unlikely that any major resolution will be reached until after the elections. Should you have any questions about how the fiscal cliff or any other issue could affect your personal financial picture, please contact us. We are always happy to provide guidance.

 

 

ECONOMIC CALENDAR:

Monday: Dallas Fed Mfg. Survey

Tuesday: S&P Case-Shiller HPI, Consumer Confidence

Wednesday: New Home Sales, EIA Petroleum Status Report

Thursday: Durable Goods Orders, GDP, Jobless Claims, Pending Home Sales Index

Friday: Personal Income and Outlays, Chicago PMI, Consumer Sentiment

Data as of 9/21/2012

1-Week

Since 1/1/2012

1-Year

5-Year

10-Year

Standard & Poor’s 500

-0.38%

16.11%

25.15%

-0.86%

7.27%

DOW

-0.1%

11.15%

17.99%

-1.74%

7.0%

NASDAQ

-0.13%

22.06%

25.28%

3.81%

16.04%

MSCI EAFE

-1.11%

12.69%

17.14%

-4.28%

5.43%

10-year Treasury Note (Yield Only)

1.87%

N/A

1.88%

4.63%

3.78%

Notes: All index returns exclude reinvested dividends, and the 5-year and 10-year returns are annualized.
Sources: Yahoo! Finance, MSCI Barra. Past performance is no guarantee of future results.
Indices are unmanaged and cannot be invested into directly. N/A means not available.

HEADLINES:

Homebuilders see strong third quarter. In a further sign that the housing sector may have turned the corner, U.S. homebuilder KB Homes, reported strong third quarter earnings. The company reports that it is experiencing rising orders for new homes as inventory drops and housing prices rise.[v]

Jobless claims rise in 26 states. Unemployment rates rose in 26 states in August, according to a Labor Department report, although most states still showed lower rates than a year ago. 42 states and the District of Columbia had lower rates last month than in August 2011.[vi]

Oil prices near $93 per barrel. Oil prices rose higher Friday as traders weighed slowing economic growth and reduced demand for oil against potential supply disruptions in the Middle East. Higher energy prices as we head into the winter months could hit consumer spending hard.[vii]

Concern grows about China’s hard landing. A raft of negative economic reports is raising concerns that China’s economy will not recover. A one-two punch of softening domestic and foreign demand is threatening the giant’s economic stability. A recent report shows that manufacturing grew only slightly in September and that foreign direct investment fell in August for the third month in a row.[viii]

QUOTE OF THE WEEK:

“Leadership is a potent combination of strategy and character. But if you must be without one, be without the strategy.” – Norman Schwarzkopf

http://www.reuters.com/article/2012/09/14/us-usa-economy-prices-idUSBRE88B1JM20120914