Permanent Value

Weekly Update: October 17 – 21, 2011

Bruce Doole
October 24th, 2011

THE MARKETS 

“Good news is good and bad news is bad, but a lack of bad news can be good, at least for investors,” so wrote Vito Racanelli in the current issue of Barron’s.

Since the recent October 3 low, the S&P 500 index has risen 12.6 percent on the back of “a lack of bad news,” according to data from Yahoo! Finance.

Here’s what we could classify as a lack of bad news in the past few weeks:

  • Corporate earnings are coming in okay so far this quarter as 75 percent of the 118 companies that reported earnings have beaten estimates, according to financial data provider FactSet.
  • Economic news has generally supported the idea that the economy, while soft, is not collapsing.
  •  European leaders, after months of tough talk, but little action, may finally be on the verge of taking “comprehensive” action to quell (at least temporarily) the sovereign debt crisis, according to Phil Orlando, chief equity market strategist at Federated Investors.

Whether this “lack of bad news” turns into good news or bad news going forward, remains to be seen. Either way, we’ll work hard to profit from it.

 

RETURNS


Data as of 10/21/11

1-Week

Y-T-D

1-Year

5-Year

10-Year

Standard & Poor’s 500

1.1%

-1.5%

4.7%

-2.1%

1.3%

Notes: * This newsletter was prepared by Peak Advisor Alliance. * The Standard & Poor’s 500 (S&P 500) is an unmanaged group of securities considered to be representative of the stock market in general. * The DJ Global ex US is an unmanaged group of non-U.S. securities designed to reflect the performance of the global equity securities that have readily available prices. * The 10-year Treasury Note represents debt owed by the United States Treasury to the public. Since the U.S. Government is seen as a risk-free borrower, investors use the 10-year Treasury Note as a benchmark for the long-term bond market.* Gold represents the London afternoon gold price fix as reported by the London Bullion Market Association.* The DJ Commodity Index is designed to be a highly liquid and diversified benchmark for the commodity futures market. The Index is composed of futures contracts on 19 physical commodities and was launched on July 14, 1998. * The DJ Equity All REIT TR Index measures the total return performance of the equity subcategory of the Real Estate Investment Trust (REIT) industry as calculated by Dow Jones.* Yahoo! Finance is the source for any reference to the performance of an index between two specific periods.* Opinions expressed are subject to change without notice and are not intended as investment advice or to predict future performance.* Past performance does not guarantee future results.* You cannot invest directly in an index.* Consult your financial professional before making any investment decision.

 

THE WORLD’S POPULATION IS EXPECTED TO HIT 7 BILLION…

… on October 31, according to the United Nations’ population division. That’s up from 2.5 billion in 1950. To put 7 billion people in perspective, see if you can correctly answer the following question.

If 7 billion people stood shoulder to shoulder, which of the following geographic areas is the smallest that could accommodate them?

A)  Zanzibar (about 650 square miles)
B)  Maui (about 727 square miles)
C)  Rhode Island (about 1,033 square miles)
D)  Sicily (about 9,925 square miles)
E)  Cuba (about 42,845 square miles)
F)  New Zealand (about 103,733 square miles)

The answer… in a moment.

Here are some interesting facts regarding the rate of growth of the world’s population.

It took…

  • 250,000 years for the world to reach a population of 1 billion (hit in 1804)
  • 123 years for the next billion (2 billion in 1927)
  • 33 years to reach the next billion (3 billion in 1960)
  • 14 years to reach the next billion (4 billion in 1974)
  • 13 years to reach the next billion (5 billion in 1987)
  • 12 years to reach the next billion (6 billion in 1999)
Sources: The Economist; United Nations World Population Prospects: The 2000 Revision, Volume III: Analytical Report

And, the growth continues… we’re projected to hit 9.3 billion by 2050.

For decades, experts have argued over whether or not our planet can handle this growth. What is not up for debate, though, is the fact that a growing population will affect the demand for goods and services. Food, of course, is high on the list.

The World Bank says, “Between 2005 and 2055 agricultural productivity will have to increase by two-thirds to keep pace with rising population and changing diets.” Okay, this is interesting, but why should we pay attention to this type of information?

As financial advisors, we want to monitor trends that could impact the demand for goods and services, which, in turn, may suggest areas ripe (no pun intended!) for investment. By keeping a finger on the pulse of long-term trends — like the rising world population — we might get an early read on investment opportunities.

Getting back to the population/geography question, The Economist says the answer is A) Zanzibar. Does that surprise you?  

 

Weekly Focus – Think About It

“The investor of today does not profit from yesterday’s growth.”

–Warren Buffett