Permanent Value

Weekly Update: June 1- 4, 2010

Michael La Salle
June 4th, 2010

Markets Close Down on Poor Employment Numbers

Stocks close lower this week as the S&P 500 lost 2.10% and the Dow Jones Industrial Average fell 2.57% on the week.  Debt concerns in Europe continue as Hungary joins the ranks of Spain, Portugal, and Greece as countries in Europe with debt issues.  The euro slipped below $1.20 on Friday afternoon for the first time since 2006.

In economic news, pending home sales beat expectations as the index rose 6.0% month over month in April, coming in 0.7% higher than the expected 5.3% rise.  The big economic news this week came on Friday as the Labor Department announced that the United States economy added 431,000 jobs in May, most of which were due to census hiring.  Economists estimated a gain of 540,000 jobs for the month.  Stocks fell over 3% on the news.

In earnings news, Joy Global, Inc. closed out a slow earnings week as the mining equipment manufacturer beat analysts’ expectations of 77 cents per share by posting earnings of $1.15 per share. 

What opportunities are ahead?

Over the past two years we have seen stocks take a massive tumble.  That downturn in the stock market was then followed by a rapid upswing from March 2009 to the end of April this year.  With these large swings in the stock market, investors have been looking for areas to invest that are considered less volatile.

One asset that protects from volatility is gold.  From then end of May 2008 through the end of May 2010, gold was up about 36%.  In that same time period, the Dow Jones Industrial Average was down about 19% and the S&P 500 was down about 23%.  With the increased volatility in the stock markets over the last month, the price of gold has continued to rise.

With few industrial uses for gold, it is often hard to justify the actual price of it.   The value of gold, as with all other investments, comes from the price that investors are willing to pay for it.   With the current environment in the economies in the world, particularly in Europe, gold is an asset class that investors have been flocking to of late. 

Gold tends to be less volatile due to the fact that it carries no credit risk and little liquidity risk.  Gold is no one’s liability, thus there is no risk that a company will go out of business, like equity, or not be able to pay a coupon, like a bond.  With a wide range of buyers around the world, including governments, financial institutions, jewelers, and individual investors, the liquidity risk of gold is extremely low.

As the price of stocks and other investments continue to seesaw, investors worldwide will continue to move to less volatile assets, providing the value of gold the potential of even more growth in 2010 and into the future.

Market Returns

  This Week Year to Date Last Year Last 5 Years
S&P 500 -2.10% -4.50% 12.99% -10.96%
Dow Jones Industrial Average -2.57% -4.76% 13.50% -5.06%


Next Week’s Economic Releases

June 10 – International Trade, Jobless Claims

June 11 – Retail Sales, Consumer Sentiment