GBR Market Wrap, March 25, 2011
In this Week’s Issue
• U.S. real GDP grew at 3.1 percent in Q4 of 2010, real GDP grew 2.9 percent in 2010 overall (ESA)
• U.S. consumer sentiment fell to 67.5. The final reading was the lowest since Nov-09 (WSJ)
• S&P lowered its credit rating on Portugal to BBB from A- (Reuters)
• Yield on Portuguese 10-year government bond at 7.661 percent on Thursday (Bloomberg)
• New orders for manufactured durable goods in February 2011 decreased 0.9 percent to $200bn (ESA)
• Spot gold at record $1,447.40/ounce, silver at 31-year peak of $38.13 (Reuters)
• Egypt reopened its stock market after two-month closure; shares tumbled 10 percent on first day (AP)
• U.K. inflation rate rose to 4.4 percent in February, highest level since October 2008 (Economist)
• Portugal’s prime minister resigned after losing a crucial vote on austerity measures (FT)
• U.S. new home sales fell 16.9 percent from the revised January level, 28 percent below Feb-2010 (ESA)
• Sales of previously occupied homes fell 9.6 percent, median home price hit nine-year low (AP)
• AT&T to buy T-Mobile USA from Deutsche Telekom for $39B in cash and stock (WSJ)
Chart Of The Week
In February 2011, Mary Meeker, the illustrious star analyst previously at Morgan Stanley, created a fascinating report about the financial situation and outlook of USA Inc.
Among the many illuminating and often depressing charts, we found this one pointing towards a clear culprit for the alarming U.S. debt. Entitlement Expenses (Social Security, Medicare/Medicaid, Unemployment and other entitlement programs) make up about 58 percent of the 2010 budget. Considering the staggering growth of entitlements one must wonder how elected officials fail to see the proverbial elephant in the room.
Compare this trend with the ongoing U.S. Dollar weakness apparent in a number of symptoms including record prices for precious metals but also the continued rise of foreign currencies against the U.S. Dollar. Last week, we touched on the Swiss Franc, another currency that silently rose to a new all-time record of 0.8860 against the U.S. Dollar. To get a sense of how much the Dollar depreciated against the Swiss Franc, please see the chart below. No direct correlation between these two data sets; they just happen to be inverse trends. Considering that a number of multi-national pharmaceutical companies are from Switzerland, the curious investor might wonder if the margins of Swiss companies have been affected from the decline of the Dollar. In addition, it would be interesting to see what impact a cut in the largely health-related entitlements would have on their profitability with or without a significant change in the USD/CHF exchange rate.
A Pre-nup For Your Stocks
This is a slightly older article but still very relevant today. Please consider: Apprenticed Investor-On Bended Knee.
Professional traders typically have a set of entry and exit points in addition to a number of other trading and risk management rules. Average investors typically buy and hold, or buy and change their mind, but on average, they do not define their entry and exit points. As Barry Ritholtz suggests, one should look at an investment as if it was a relationship and define under what circumstances that relationship no longer holds value.
“That’s right, whenever you buy an equity, you enter into a complex relationship—with the stock, the company, its management, even your fellow shareholders. What you need is a pre-nuptial agreement with the stock.”
What would you include in that pre-nup for your stocks?
Interesting concept: Skyscrapers as bubble indicators. Enjoy!
Good luck and good investing!
Clemens Kownatzki, MBA is an adjunct professor of financial risk management at the Graziadio School of Business and Management, as well as the founder and CEO of FX Investment Strategies, a Registered Investment Advisor. In addition to running his investment advisory firm, he is a contributing author at SeekingAlpha.com and BusinessInsider.com. He also publishes the popular investment blog www.fxinvestmentstrategies.com along with a weekly news-letter.
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