Permanent Value

Weekly Update: June 28- July 2, 2010

Michael La Salle
July 2nd, 2010

Stocks Lower; Economic News Disappoints

Stocks continued to slide this week as disappointing economic news continues.  The S&P 500 lost 5.30% as the Dow Jones Industrial Average fell 4.51% on the week, ending the worst week since early May.

In economic news, the S&P Case-Shiller Home Price Index reported a burst of strength for home prices in April as the unadjusted index broke a long series of declines with a 0.7% gain.  The news coming from the Conference Board’s consumer confidence report was not as upbeat.  The June level came in at 52.9, much lower than the expected level of 63.3.  The biggest news of the week came on Friday as the June employment numbers disappointed.  Although private payrolls increased, the 83,000 jobs added in June came in well below the expected gain of 105,000 jobs.

In earnings news, the slow week was highlighted by disappointing earnings coming from Barnes & Noble, Inc. as the U.S. bookseller reported earnings of -89 cents per share, 9.88% lower than expected earnings of -81 cents per share.  Monsanto, on the other hand, beat analysts’ expectations as the agricultural chemical company posted earnings of 81 cents per share, beating estimates of 80 cents per share.

What opportunities are ahead?

Over the past quarter there has been a lot of uncertainty in the economies around the world.  From the European debt problems that seemingly will never go away, to the recent disappointing employment situation domestically, we have seen the stock markets teeter-totter recently.  Even with the increased volatility in the markets, some investors have found a safe haven in gold.

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 -5.03% -8.30% 14.07% -14.39%
Dow Jones Industrial Average -4.51% -7.11% 16.98% -5.99%


Next Week’s Economic Releases

July 8 – Jobless Claims