The NarsBusiness Newsletter: December
The unemployment rate has increased from 9.6% to 9.8. There are currently 15 million people out of work. Although there are many people out of work corporations have managed to make record profits. According to the U.S. Bureau of Economic Analysis, profits from current production (corporate profits with inventory valuation and capital consumption adjustments) increased $44.4 billion in the third quarter, compared with an increase of $47.5 billion in the second quarter. Domestic profits of financial corporations increased $33.3 billion in the third quarter, in contrast to a decrease of $3.4 billion in the second.
Therefore corporations are finding a way to produce more profit with less people. Unless this framework changes the unemployment number will continue to be high. What this means to you is that the government will continue to try to stimulate the economy. The Federal Reserve has said it will continue buying Treasury’s in order to keep interest rates down. The government will continue to Bush tax cuts for another two years. Both policies will have an impact on inflation. Therefore in time we will continue to see the increase in the price of goods and services. The economy is still hurting and needs a new money making industry that can employ people. In order to prepare for the increase in inflation it may be a good idea to continue to purchase precious metals.
Many economists are predicting 2011 to be a better year for employment and the economy. However I believe we still need to exercise caution. Many states and governments have too much debt. Some states may have issues supporting their debt. Countries such as Ireland announced that they needed some financial assistance. The European Union and the International Monetary Fund (IMF) had to bail out Ireland for $85 billion Euro or $113 billion dollars. The country was caught with the debt bug not being able to pay on its sovereign debt. Ireland’s issue was a very difficult recession and high debt. Borrowing money but not being able to pay it back. Before Ireland’s debt issue another country had the same fate. Greece was forced to take a bailout also from the European Union and the IMF. Now there is talk that Spain and Portugal might be next. Many states still have a debt issue. Some analysts are predicting a major default in municipal bonds. If you have bonds in your portfolio you may look at the credit quality. Bond prices have also been creeping up. If you own bonds you may want to see what yield you are currently getting. The value of a bond will decrease if interest rates increase.
The market had a great year. Many of the people that predicted doom and gloom were wrong. However the average investor stayed out of the market and lost many of the gains. Now the average investor is trying to get back in. Many of them are too late. If you have some gains it may be time to realize them and switch to safer investments (if you are in risky ones). Overall the economy is still not where it needs to be. There are still some opportunities however one still needs to be careful.
The Market Picture
DJ Industrial Average TR 14.00%
NASDAQ Composite PR 17.47%
S&P 500 14.96%
Style Laggards (year to date)
Large Core 12.70%
Large Growth 12.97%
Large Cap 12.37%
Style Top Performers (year to date)
Small Growth 32.33%
Small Cap 28.31%
Small Cap Core 28.93%
IPOs (by Hoovers)
Supernus Pharmaceuticals, Inc. (SUPN) Pharmaceuticals Manufacturers
Responsys, Inc. (RESP) Advertising & Marketing
HCA Holdings, Inc. (HCA) Hospitals
Dividend Paying Stocks (S&P 500)
WIN Windstream Corp S&P 7.04%
CTL CenturyLink Inc S&P 6.27%
MO Altria Group Inc 6.12%
RAI Reynolds American Incorporated 5.99%
RRD R R Donnelley & Sons Co 5.98%
New 52 Week Highs
ALX Alexander’s Inc
CF CF Industries Holdings Inc
VOSSF Vossloh AG
WLT Walter Energy Inc
FLS Flowserve Corp
Top Performing Mutual Funds 1 Year
Direxion Daily Latin America Bull 3X Shs LBJ 73.96%
Direxion Daily Emrg Mkts Bull 3X Shares EDC 64.94%
PowerShares DB Agriculture Dble Long DAG 56.66%
Direxion Daily China Bull 3X Shares CZM 55.76
Large Cap Value Mutual Funds (5 year)
Morgan Stanley Inst Value Invmt MPVIX 13.31%
Yacktman Focused YAFFX 9.55%
Yacktman YACKX 8.31%
BB&T Equity Income Instl BEGIX 6.44%
SunAmerica Focused Dividend Stra A FDSAX 6.33%
Mid Cap Growth Mutual Funds (5 year)
Westcore Select WTSLX 9.23%
Needham Aggressive Growth NEAGX 8.82%
American Century Heritage Inst ATHIX 8.52%
Precious Metals Funds (5 Years)
Van Eck Intl Investors Gold I INIIX 31.48%
USAA Precious Metals and Minerals Instl 27.48%
Van Eck Intl Investors Gold Y INIYX 27.36%
Van Eck Intl Investors Gold A INIVX 27.35%
Long Term Bond Funds (5 Years)
Delaware Extended Duration Bond Inst DEEIX 9.55%
Calvert Long Term Income A CLDAX 9.52%
Delaware Extended Duration Bond A DEEAX 9.26%
Municipal Bonds (5 Years)
Eaton Vance Tax Advtgd Bd Strats S/T I EIBSX 5.02%
Eaton Vance Tax Advtgd Bd Strats S/T A EABSX 4.94%
Thornburg Limited-Term Muni Inst LTMIX 4.69%
High Yield Bonds (5 Years)
Aegis High Yield AHYFX 9.23%
Principal High Yield Inst PHYTX 9.23%
Managed Account High Income MHINX 9.19%
Bonds were hot but investors are now decreasing their exposer and going into stocks.
Fixed Income Performance
Laggards
Short-Term US Govt Bond 2.70%
Short-Term Core Bond 3.65%
Short-Term Corp Bond 3.20%
Top Performers
Long-Term Corp Bond 9.74%
Long-Term Core Bond 8.79%
Long-Term US Govt Bond 8.00%
Precious metals should still be part of your asset allocation. If you can purchase gold or silver every month it will not hurt. One should be preparing for inflation right now.
Gold and Silver (Prices)
Gold: $1385.40 Last Month: $1363
Silver: $29.22 Last Month: $26.94
Closing Remarks
The economy is still not where it needs to be. One should be careful with the new found optimism. One should continue to save and reduce debt levels. A double dip recession is a possibility. In a case of a double, one should still have another source of income and continue to monitor spending. Don’t be scared to take some profits. I will never forget what Warren Buffet said “be fearful when others are greedy and greedy when others are fearful.”
The Narsbusiness Newsletter is a monthly publication designed to provide the reader with an overview of the economy and provide one various investment ideas. You can subscribe to the Narsbusiness Newsletter absolutely free. Subscribe here.
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