and wine social denver, co / newport beach, ca / naples, fl
TRANSCRIPT
And wine social
Denver, CO / Newport Beach, CA / Naples, FL
Source: Florida State University
By owning a well-diversified portfolio, you can:
Answer: D
Let’s Warm Up Your Brain
a) Reduce both systematic and non-systematic risk.
b) Reduce systematic, but not non-systematic risk.
c) Reduce neither systematic nor non-systematic risk.
d) Reduce non-systematic risk, but not systematic risk.
Source: www.stockmarkettrivia.com
What were the first publicly traded securities in the U.S.?
Answer: $80 million in U.S. Government bonds that were issued in 1790 to refinance Revolutionary
War debt.
Let’s Warm Up Your Brain
Source: www.stockmarkettrivia.com
What has been the longest-listed company on the NYSE?
Answer: Con Edison, which was listed in 1824 as the New York Gas
Light Company
Let’s Warm Up Your Brain
Source: Business Week Past performance is no guarantee of future results. Indexes are unmanaged and cannot be invested into directly.
Dow Jones % ChangeYear-End From
Pundit – Stock Predictions Close 2007
Average 14,060 6.0%
Elaine Garzarelli - Garzarelli Capital 16,000 20.6%
Laszlo Birinyi- Birinyi Associates 15,000 13.1%
Ralph Acampora 13,800 4.0NY Institute of Finance
Ben Inker 13,000 -2.0%GMO
Robert Arnott 12,500 -5.8%Research Affiliates
What Did the Pundits Predict for Stocks in 2008?
Where Are We So Far in
2008?The Dow Jones Industrial Average closed
at 11,350 on June 30
which represents a decline of 14.4%
for the first 6 months of 2008Source: MarketWatch
The EconomyIn 2008?
BusinessWeek Magazine End-2008 Consensus Forecast
BusinessWeek Magazine End-2008 Consensus Forecast
Real GDP Growth 2.1%Operating Profits 3.9%CPI Inflation 2.4%Fed Funds Rate 3.9%10-Yr. Treasury Yield 4.5%Jobless Rates 5.1%Home Price Change (7.1%)
Source: BusinessWeek, Past performance is no guarantee of future results. Indexes are unmanaged and cannot be invested into directly.
What Did the Pundits Predict For…
Where Are We So Far in
2008?The nation’s real GDP
grew 1% in the first quarter, which is below
the forecast of a 2.1% for full-year 2008 from the BusinessWeek survey
Source: MarketWatch
Where Are We So Far in
2008?Earnings growth is
projected to come in
at 4.0% for 2008, inline with the BusinessWeek
projection
Source: Zacks Investment Research
Where Are We So Far in
2008?CPI Inflation rose 4.2%
for the 12 months ending May 2008,
which is above the full-year 2008 2.4%
BusinessWeek forecast
Source: Bureau of Labor Statistics
Where Are We So Far in
2008?The Fed Funds rate
was 2.0% on June 30, which is below the
BusinessWeek forecast of 3.9% for yearend
2008
Source: Federal Reserve
Where Are We So Far in
2008?The 10-year Treasury
yield was 4.0% on June 30, which is below the
BusinessWeek forecast of 4.5% for yearend
2008
Source: Yahoo! Finance
Where Are We So Far in
2008?The jobless rate was 5.5% for the month of June, which is above
the BusinessWeek forecast of 5.1% for
yearend 2008
Source: MarketWatch
Where Are We So Far in
2008?The one-year home
price change as of May 2008 was -15.3%,
which is worse than the BusinessWeek forecast
of -7.1% for yearend 2008
Source: Standard & Poors
Sources: WSJ Markets Data Group, MarketWatch, MSN Money, Federal Reserve Past performance is no guarantee of future results. Indexes are unmanaged and cannot be invested into directly.
YTD June 30,2007 Return 2008 Return
Stocks:Dow Jones Industrial Average 6.4% -14.4%Standard & Poor’s 500 3.5% -12.9%Nasdaq Composite 9.8% -13.6%Japan Nikkei-225 -11.1% -11.9%Britain FTSE 100 3.8% -12.9%
Bonds:Fed Funds Rate decreased by… 19.0% 52.9%10-Year Treasury yield decreased by . . . 14.3% 1.4%
Commodities:Nymex Oil 57.2% 45.9%
Comex Gold 31.3% 10.8%
Currencies: U.S. Dollar Index -8.6% -5.1%
Where Are We So Far in
2008?
Factors Affecting 2008 Financial
MarketsSoaring Oil
and Gas Prices
• Oil prices up nearly 46% in 2008 through June 30
• Nationwide average for gallon of gas was $4.086 on June 30, up 40% from one year ago
Why?Supply/demand issuesGeopolitical concerns
Weak dollarSpeculation
Source: MarketWatch
Factors Affecting 2008 Financial
MarketsSoaring Precious Metal Prices
• Gold, silver, copper and platinum are up about 11%, 17%, 27% and 35% respectively in 2008 through June 30
Why?Supply/demand issuesHedge against inflationGeopolitical concerns
Weak dollarSpeculation
Source: MarketWatch
Food costs and transportation costs in particular are on the rise
Food riots in some parts of the world
Corn prices up 60% in 2008 through June 30
Overall food prices have risen 75% since 2000, according to World Bank and DECPG
Workers protest high fuel prices all across Europe
Factors Affecting 2008 Financial
MarketsRising Inflation
• Some companies dramatically raising prices, e.g., Dow Chemical announced two price increases totaling more than 40% this year
• Partially driven by rising oil prices
Sources: Bureau of Labor Statistics, World Bank, International Herald Tribune, MarketWatch
Subprime problems caused lenders to curtail some of their lending
In the second quarter, total bank loans, leases and securities holdings have fallen at an annual rate of 9.1 percent, its fastest decline since 1973
Lending standards have also tightened
Factors Affecting 2008 Financial
MarketsTight Credit Conditions
Source: MarketWatch, New York Times
Banks, brokers and other financial institutions took write downs of about $400 billion dollars due to credit-related issues
Raised billions in new capital to shore up their balance sheets but raising new capital is getting more expensive
Factors Affecting 2008 Financial
MarketsFinancial
Companies Are Hurting
Source: MarketWatch, New York Times
Job losses in first 6 months of 2008 totaled 438,000
Unemployment rate at 5.5% in June, a 4-year high
Factors Affecting 2008 Financial
MarketsRising
Unemployment
Source: MarketWatch
Bear Stearns sale to JP Morgan averts potential market disruption
Financial stocks recover on the news only to fall again later in the quarter
Fed allows broker dealers to borrow from them to help shore up the markets—unprecedented action
Factors Affecting 2008 Financial
MarketsBear Sterns
Collapses & Fed Opens Lending to
Broker Dealers
Source: MarketWatch
• 20-City Composite index published by S&P/Case-Shiller shows 15.3% year-over-year decline as of April 2008
• Inventory of unsold homes on the market translates to a very high 10.8 month supply based on May 2008 sales rate
• Weak housing ripples through several other industries, thus causing a domino effect
Factors Affecting 2008 Financial
MarketsHousing Prices Continue Declining
Source: Standard & Poors, MarketWatch
Thomson Reuters expects Q2 earnings to fall by 13 percent -- compared with expectations of a 2 percent fall at the beginning of April.
Looking at big drops in financials and consumer discretionaries
However, 7 out of 10 S&P 500 sectors are still expected to show earnings gains – led by energy and technology
Global economy slowing down too which may affect U.S. companies earnings
Factors Affecting 2008 Financial
MarketsUncertain Corporate Profits
Sources: Reuters, Bespoke Investment Group, Bloomberg, Wall Street Journal
Bruising primary campaign between Obama and Clinton
Talk about raising taxes may have spooked the markets
Factors Affecting 2008 Financial
MarketsPolitical Drama
Source: CNN
U.S. Dollar index dropped 5.1% for the first 6 months of 2008
Good for exports
Bad for imports
Good for multi-national companies
Bad for oil prices
May contribute to inflation
Factors Affecting 2008 Financial
MarketsContinued Dollar
Weakness
Source: MSN MoneyCentral
Putting the Market’s Ups and
Downs in PerspectiveSince 1926…
The S&P 500 had 59 up years and 23 down yearsThe 59 up years averaged +21.95%
The 23 down years averaged -12.60%
Overall, the S&P 500 has averaged 10.36% per year
including reinvested dividends
Source: Invesco AIM
Putting the Market’s Ups and
Downs in PerspectiveOf the 23 down
years since 1926
5 had a loss of up to 5%
8 had a loss between 5 – 10%
7 had a loss between 10 – 25%
3 had a loss more than 25%
Source: Invesco AIM
Of the 59 up years since
192613 had a gain up to 10%
16 had a gain between 10 – 21%
17 had a gain between 21 – 32%
13 had a gain greater than to 32%
Putting the Market’s Ups and
Downs in Perspective
Source: Invesco AIM
Source: Vanguard Investments
Bear Market Refresher
Looking at the Last 10 Bear MarketsShortest duration – 2.9 months from July 1990 to October 1990
Longest duration – 30.5 months from March 2000 to October 2002
Average duration – 14.1 months
Smallest decline – 19.9 percent from July 1990 to October 1990 (while this is less than 20 percent, Vanguard included it in the list)
Largest decline – 49.1 percent from March 2000 to October 2002
Average decline – 30.4 percent
Since this bear market started on October 10, 2007, the S&P 500 is down __% as of
___________
Bear Market Refresher
Source: MarketWatch
Here’s What We’re Doing in Light of the
Current Market Situation
1.Reaffirmed our commitment to Modern Portfolio Theory and actively managed asset allocated accounts.
2.Moved 30 to 40 % of stock and bond portfolios to low leverage, short-term commercial real estate.
3. Reduced exposure to the energy sector.4. Moved 10 to 20% of stock and bond portfolios
to oil and gas drilling.
4. Increased emerging market stock and bond allocation.
5. Thinking about over-weighting portfolios in value stock.
6.Took small positions in natural resources.
7. Tax harvesting In December 2008.
Thinking that the price of gas will stay high, the credit crunch will continue until mid 2009, the Fed will start to raise interest rates in early 2009.
Joseph SchumpeterCapitalism, Socialism and Democracy, 1942
“Economic progress, in capitalist society, means turmoil.”
John Kenneth GalbraithThe Affluent Society, 1958
“Nothing so weakens government as
persistent inflation.”
Benjamin Graham
“Most of the time common stocks are subject to irrational and excessive price fluctuations in both directions as the consequence of the ingrained tendency of most people to speculate or gamble... to give way to hope, fear and greed.”
“You get recessions, you have stock market declines. If you don't understand
that's going to happen, then you're not ready, you won't do well in the markets.”
Peter Lynch
“If you took our top fifteen decisions out, we’d have a pretty average
record. It wasn’t hyperactivity, but a hell of a lot of patience. You stuck to
your principles and when opportunities came along, you pounced on them with vigor.”Charlie Munger
“This too shall pass.”
Parting Thought…
Denver, CO / Newport Beach, CA / Naples, FL