Permanent Value Inc. - Registered Investment Advisor

Weekly Update: April 9 – 13, 2012

The Markets

It’s back. Volatility, that is.

Like a yo-yo, the market bounced around and the S&P 500 index ultimately ended down 2.0 percent for the week and 3.4 percent from this year’s closing high, according to Reuters. Despite the drop, the market is still showing a solid 9.0 percent gain for the year.

Once again, debt issues in Europe made headlines as Spain became the latest problem country. That, along with some disappointing economic growth data from China, helped spark the volatile week. Because of its massive size, any slowdown in China is closely watched by market participants.

As a sign of the big swings this week, the Dow Jones Industrial closed the day up or down by at least 100 points on four out of the five days last week, according to Barron’s.

Highlights from the week included:

•  China’s economy expanded at the weakest pace in over three years last quarter, missing consensus economic forecasts.
• Yields on debt in Spain jumped due to a weak debt auction, renewing fears that the European debt crisis could start affecting the global markets again.
• Several U.S. banks reported earnings that underwhelmed investors, resulting in weakness in financial stocks.
• U.S. inflation remained under control which may leave open the possibility for further Federal Reserve intervention should economic data deteriorate.

 Sources: The Wall Street Journal, Yahoo! Finance

The quarterly corporate earnings season is now underway so we wouldn’t be surprised to see more market volatility as investors digest the latest read on the health of corporate America.

RETURNS

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 “SHOVE IT” INDICATOR…

…as highlighted by CNBC made a noteworthy gain in February suggesting consumer confidence may be increasing. You’re probably wondering, “What in the world is the ‘shove it’ indicator?” Well, every month the government conducts a Job Openings and Labor Turnover Survey, or “JOLTS” for short. One of the data points in the JOLTS report is the number of workers who quit their job as opposed to being laid off. And, in February, for the first time since September 2008, the quitters were in the majority.

What does this mean? Generally speaking, people who quit their job are typically more confident that there is another job waiting for them when they voluntarily leave a position. Nicholas Colas, chief market strategist at ConvergEx Group says, “Quits go hand-in-hand with consumer confidence.”

This positive JOLTS data point follows a disappointing government jobs report for the month of March where only 120,000 new jobs were created. Also, the preliminary March reading of the University of Michigan’s consumer confidence survey showed a decline from the previous month. Analysts had expected confidence to stay flat, according to International Business Times.

This conflicting economic data gave the bulls and the bears ample ammunition to bolster their respective case. And, conflicting data like this may lead to a continuation of the yo-yo as investors try to predict which direction the economy is headed.

Weekly Focus – Think About It

“Expectation is the root of all heartache.”

–William Shakespeare

Weekly Update: April 2 – 6, 2012

The Markets

When in doubt, blame it on the weather.

It’s human nature to want to ascribe a reason to everything that happens in the world. Rather than feeling like it’s all random, we always want to know why the market went up or why bats hang upside down or why white is the most popular car color. 

And, last week’s employment report is no different. The government said the economy added 120,000 new jobs in March, however, that was well below the 210,000 increase expected by economists surveyed by MarketWatch. So, to what did some economists attribute the smaller than expected increase? You guessed it, the weather!

Unseasonably warm winter weather in many parts of the country may have disrupted the normal winter hiring pattern. According to MarketWatch, “Companies kept workers on or hired people in January and February who otherwise would have been added in March or April.”

In addition to hiring, weather was also a key driver behind recent strong retail sales. Bloomberg reported that, “Retailers are benefiting from warm weather that boosted demand for spring products…”

Over time, the effects from weather will likely even out so there’s no need for us to add a meteorologist to the team. But, just so you know, it’s not always dollars and cents behind changes in the markets. Sometimes you just have to stand outside and check out the weather.

RETURNS

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.

DON’T WORRY, BE HAPPY…

… is apparently more than just a cliché. Research over the past 10 years shows there is a direct link between happiness and business outcomes. Author and researcher Shawn Achor says “happiness” raises sales by 37 percent, productivity by 31 percent, and accuracy on tasks by 19 percent. He goes on to say, “The single greatest advantage in the modern economy is a happy and engaged workforce.”

So, how do you become happy at work?

Achor says you have to train yourself and start developing new, positive habits. For example, he challenges his clients to implement one of the following positive exercises everyday for 21 days.

• Write down three new things you are grateful for each day.
• Write for two minutes a day describing one positive experience you had over the past 24 hours.
• Exercise for 10 minutes a day.
• Meditate for two minutes, focusing on your breath going in and out.
• Write one quick e-mail first thing in the morning thanking or praising someone in your social support network (family member, friend, old teacher).

By following one of these exercises, Achor says your happiness will rise and so will your business success.

The tiny Himalayan country of Bhutan has taken this idea of happiness even further. Four years ago, the country launched a “gross national happiness” measure to guide public policy. According to The Guardian, Bhutan’s “constitution mandates that at least 60% of the country remains under forest cover in perpetuity and its stated policy is to be 100% organic in its agricultural production.”

Now, Bhutan’s definition of happiness is a little different than our typical Western definition. The Bhutan government says, “it refers to the deep, abiding happiness that comes from living life in full harmony with the natural world, with our communities and fellow beings, and with our culture and spiritual heritage, in short, from feeling totally connected with our world.”

Well, no matter how you define it, it looks like it “pays” to be “happy.”

Weekly Focus – Think About It

“Rules for Happiness:
something to do,
someone to love,
something to hope for.”

–Immanuel Kant, German philosopher

Weekly Update: March 26 – 30, 2012

The Markets

Last week marked the end of a very strong first quarter for the stock market.

For the quarter, the S&P 500 index rose 12.0 percent, its strongest start to a year since 1998. In fact, the index ended the quarter 3.4 percent above the average year-end projection of strategists surveyed by Bloomberg. In other words, the market gained more in the first quarter than analysts thought it would gain for the whole year.

Looking back on the strong start, analysts pointed to an easing of Europe’s debt woes, a strengthening global economy (at least in some areas), rising consumer sentiment in the U.S., and supportive Federal Reserve policy, according to Bloomberg and CNNMoney.

Speaking to The Wall Street Journal, Bob Doll, chief equity strategist at BlackRock, summarized the quarterly nicely when he said, “This year has been all about people coming away from the abyss that the world might end, and putting risk back on.”

Some analysts suspect this year’s strong start may be déjà vu all over again (hat tip to Yogi Berra). Stocks roared out of the gate in 2010 and 2011 only to drop later in the year, “as the U.S. economy faltered and Europe’s crisis worsened,” according to The Wall Street Journal.

Potential spoilers for the market over the next few months include:

• Renewed European debt woes, particularly in Portugal and Spain.
• Renewed weakness in the U.S. economy, possibly due to unseasonably warm weather in some parts of the country that may have “pulled forward” some shopping and construction activity.
• High gasoline prices, which could take a big bite out of consumers’ pocketbooks.
• Slower corporate earnings growth and profit margins that may down from near record levels.
• An economic slowdown in China that exceeds expectations.
  Sources: The Wall Street Journal, Financial Times

So far this year, investors have shrugged off the worries and plowed higher. With supportive Federal Reserve policy underpinning the market, that old adage seems to apply – “Don’t fight the Fed.”

 RETURNS

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.

WHILE GASOLINE PRICES ARE HITTING RECORD HIGHS…

…for this time of year and oil has shot past $100 per barrel, natural gas prices are plumbing 10-year lows, according to The Wall Street Journal. What are the implications of this large price disparity for America’s long-term energy security?

As indicated below, gasoline, oil, and natural gas are critical to the U.S. energy picture as they account for a large percentage of our energy use. 

Energy Demand by Fuel Source in the U.S. in 2010

• 37 percent petroleum products (includes oil and gasoline)
• 25 percent natural gas21 percent coal
• 9 percent nuclear
• 8 percent renewable
  Source: U.S. Energy Information Administration

Oil, in particular, is deeply entwined in our economy as 10 of the past 11 recessions were preceded by an oil price shock, according to Moody’s Analytics. Even the 2008 economic crisis, which on the surface was triggered by the subprime mortgage crisis, was accompanied by a massive spike in U.S. oil prices to a record high of about $145 per barrel in July 2008, according to Reuters. As oil prices rise, gasoline prices are likely to rise, too, because gasoline is a by-product of oil refining. In fact, a 42-gallon barrel of oil yields about 19 gallons of gasoline, according to the U.S. Department of Energy.

So, where does natural gas fit in the U.S. energy story?

Interestingly, new technology including horizontal drilling and hydraulic fracturing (“fracking”) has led to a substantial increase in the supply of natural gas. The Department of Energy has even said we have more than a 90-year supply of natural gas at current consumption rates. This massive supply is one reason why natural gas prices are so low right now.

One plus for natural gas versus oil is that almost all of the natural gas we consume is produced domestically while 45 percent of the oil we consume is imported, according to Financial Times. With natural gas prices low and supply abundant, we’re starting to see more emphasis on using natural gas instead of oil.

As the U.S. continues to regain its economic footing, it’s critical that we have the right mix of energy sources available at a reasonable price. Historically, that’s not always happened and, consequently, it’s an important factor that we monitor on a regular basis. 

WEEKLY FOCUS – Think About It

“Worry does not empty tomorrow of its sorrow, it empties today of its strength.”
–Corrie ten Boom, author, Holocaust survivor