Transcript Welcome to the Halftime Report

And wine social
Denver, CO / Newport Beach, CA / Naples, FL
Let’s Warm
Up Your
Brainportfolio,
By owning a well-diversified
you can:
a) Reduce both systematic and non-systematic risk.
b) Reduce systematic, but not non-systematic risk.
c) Reduce neither systematic nor non-systematic risk.
d) Reduce non-systematic risk, but not systematic risk.
Answer: D
Source: Florida State University
Let’s Warm
Up Your
Brain
What were the first publicly traded
securities in the U.S.?
Answer: $80 million in U.S.
Government bonds that were issued
in 1790 to refinance Revolutionary
War debt.
Source: www.stockmarkettrivia.com
Let’s Warm
Up Your
Brain
What has been the
longest-listed
company on the NYSE?
Answer: Con Edison, which was
listed in 1824 as the New York Gas
Light Company
Source: www.stockmarkettrivia.com
What Did the Pundits
Predict for Stocks in 2008?
Pundit – Stock Predictions
Dow Jones
Year-End
Close
% Change
From
2007
Elaine Garzarelli - Garzarelli Capital
16,000
20.6%
Laszlo Birinyi- Birinyi Associates
15,000
13.1%
Ralph Acampora
NY Institute of Finance
Ben Inker
GMO
13,800
4.0
13,000
-2.0%
Robert Arnott
Research Affiliates
12,500
-5.8%
Average
14,060
6.0%
Source: Business Week Past performance is no guarantee of future results. Indexes are unmanaged and cannot be invested into directly.
Where Are We
So Far in
2008?
The Dow Jones Industrial Average closed
at 11,350 on June 30
which represents a decline of 14.4%
for the first 6 months of 2008
Source: MarketWatch
What Did the Pundits
Predict For…
BusinessWeek Magazine
End-2008 Consensus Forecast
The Economy
In 2008?
Real GDP Growth
Operating Profits
CPI Inflation
Fed Funds Rate
10-Yr. Treasury Yield
Jobless Rates
Home Price Change
2.1%
3.9%
2.4%
3.9%
4.5%
5.1%
(7.1%)
Source: BusinessWeek, Past performance is no guarantee of future results. Indexes are unmanaged and cannot be
invested into directly.
Where Are We
So Far in
2008?
The nation’s real GDP
grew 1% in the first
quarter, which is below
the forecast of a 2.1% for
full-year 2008 from the
BusinessWeek survey
Source: MarketWatch
Where Are We
So Far in
2008?
Earnings growth is
projected to come in
at 4.0% for 2008, inline
with the BusinessWeek
projection
Source: Zacks Investment Research
Where Are We
So Far in
2008?
CPI Inflation rose 4.2%
for the 12 months
ending May 2008,
which is above the fullyear 2008 2.4%
BusinessWeek forecast
Source: Bureau of Labor Statistics
Where Are We
So Far in
2008?
The Fed Funds rate
was 2.0% on June 30,
which is below the
BusinessWeek forecast
of 3.9% for yearend
2008
Source: Federal Reserve
Where Are We
So Far in
2008?
The 10-year Treasury
yield was 4.0% on June
30, which is below the
BusinessWeek forecast
of 4.5% for yearend
2008
Source: Yahoo! Finance
Where Are We
So Far in
2008?
The jobless rate was
5.5% for the month of
June, which is above
the BusinessWeek
forecast of 5.1% for
yearend 2008
Source: MarketWatch
Where Are We
So Far in
2008?
The one-year home
price change as of May
2008 was -15.3%,
which is worse than the
BusinessWeek forecast
of -7.1% for yearend
2008
Source: Standard & Poors
Where Are We
So Far in
2008?
2007 Return
YTD June 30,
2008 Return
Stocks:
Dow Jones Industrial Average
Standard & Poor’s 500
Nasdaq Composite
Japan Nikkei-225
Britain FTSE 100
6.4%
3.5%
9.8%
-11.1%
3.8%
-14.4%
-12.9%
-13.6%
-11.9%
-12.9%
Bonds:
Fed Funds Rate decreased by…
10-Year Treasury yield decreased by . . .
19.0%
14.3%
52.9%
1.4%
Commodities:
Nymex Oil
Comex Gold
57.2%
31.3%
45.9%
10.8%
-8.6%
-5.1%
Currencies:
U.S. Dollar Index
Sources: WSJ Markets Data Group, MarketWatch, MSN Money, Federal Reserve Past performance is no guarantee of future
Affecting
2008 Financial
Soaring Markets
Oil
Why?
and Gas
Prices
• Oil prices up nearly 46%
in 2008 through June 30
Supply/demand
issues
• Nationwide
average
for
Geopolitical
concerns
gallon
of gas was
$4.086
on JuneWeak
30, updollar
40% from
one yearSpeculation
ago
Source: MarketWatch
Affecting
2008 Financial
Soaring Precio
Markets
Why?
• Gold, silver, copper and
platinum are up about 11%,
Supply/demand issues
17%,
27%against
and 35%
Hedge
inflation
respectively
in 2008
Geopolitical
concerns
through June
Weak 30
dollar
Speculation
Source: MarketWatch
Affecting
2008 Financial
RisingMarkets
Inflation
• Partially driven by rising oil prices
• Some companies dramatically raising prices, e.g., Dow Chemical
announced two price increases totaling more than 40% this year
Food costs and transportation costs in particular
are on the rise
Food riots in some parts of the world
Corn prices up 60% in 2008 through June 30
Overall food prices have risen 75% since
2000, according to World Bank and DECPG
Workers protest high fuel prices all across
Europe
Sources: Bureau of Labor Statistics, World Bank, International Herald Tribune, MarketWatch
Affecting
2008 Financial
Markets
Tight
Credit
Conditions
Subprime problems caused
lenders to curtail some of their
lending
In the second quarter, total
bank loans, leases and
securities holdings have
fallen at an annual rate of
9.1 percent, its fastest
decline since 1973
Lending standards have
also tightened
Source: MarketWatch, New York Times
Affecting
2008 Financial
Financial
Markets
Companies Are
Hurting
Banks, brokers and other
financial institutions took write
downs of about $400 billion
dollars due to credit-related
issues
Raised billions in new capital to
shore up their balance sheets
but raising new capital is
getting more expensive
Source: MarketWatch, New York Times
Affecting
2008 Financial
Markets
Rising
Job losses in first 6 months
Unemployment
of 2008 totaled 438,000
Unemployment rate at 5.5%
in June, a 4-year high
Source: MarketWatch
Affecting
2008 Financial
Markets
Bear Sterns
Collapses & Fed
Bear
Opens
Stearns saleLending
to JP Morgan averts
to
potential market disruption
Broker
Dealers
Financial
stocks recover
on the news only
to fall again later in the quarter
Fed allows broker dealers to borrow from
them to help shore up the markets—
unprecedented action
Source: MarketWatch
Affecting
2008 Financial
Housing
Prices
Markets
Continue Declining
• 20-City Composite index published by
S&P/Case-Shiller shows 15.3% yearover-year decline as of April 2008
• Inventory of unsold homes on the
market translates to a very high 10.8
month supply based on May 2008 sales
rate
• Weak housing ripples through several
other industries, thus causing a domino
effect
Source: Standard & Poors, MarketWatch
Affecting
2008 Financial
Uncertain
Corporate
Markets
Profits
Thomson Reuters expects Q2 earnings to fall
by 13 percent -- compared with
expectations of a 2 percent fall at the
beginning of April.
Looking at big drops in financials and
consumer discretionaries
However, 7 out of 10 S&P 500 sectors
are still expected to show earnings
gains – led by energy and
technology
Global economy slowing down too which
may affect U.S. companies earnings
Sources: Reuters, Bespoke Investment Group, Bloomberg, Wall Street Journal
Affecting
2008 Financial
Political
Drama
Markets
Bruising primary
campaign between
Obama and Clinton
Talk about raising
taxes may have
spooked the
markets
Source: CNN
Affecting
2008 Financial
Markets
Continued
Dollar
Weakness
U.S. Dollar index dropped 5.1% for
the first 6 months of 2008
Good for exports
Bad for imports
Good for multi-national companies
Bad for oil prices
May contribute to inflation
Source: MSN MoneyCentral
Market’s Ups
and Downs
Since
1926…
in
Perspective
The S&P 500 had 59 up years and 23 down years
The 59 up years averaged +21.95%
The 23 down years averaged -12.60%
Overall, the S&P 500 has
averaged 10.36% per year
including reinvested
dividends
Source: Invesco AIM
Market’s Ups
and Downs
in 23
Perspective
Of the
down
5 had a loss of
up to 5%
years
since
8 had a loss
between 5 – 10%
1926
7 had a loss between 10 – 25%
3 had a loss more than 25%
Source: Invesco AIM
Market’s Ups
and Downs
in OfPerspective
the 59 up
13 had a gainsince
up to 10%
years
16 had a gain
between 10 – 21%
1926
17 had a gain between 21 – 32%
13 had a gain greater than to 32%
Source: Invesco AIM
Market
Looking
at the Last
Refresher
10
Bear
Markets
Longest duration – 30.5 months from March 2000
Shortest duration – 2.9 months from July 1990 to October 1990
to October 2002
Average duration – 14.1 months
Smallest decline – 19.9 percent from July 1990 to October 1990
(while this is less than 20 percent, Vanguard included it in the list)
Largest decline – 49.1 percent from March 2000 to October 2002
Average decline – 30.4 percent
Source: Vanguard Investments
Market
Refresher
Since this bear
market started on
October 10, 2007,
the S&P 500 is
down __% as of
___________
Source: MarketWatch
Here’s What We’re
Doing in Light of the
Current Market
Situation
1. Reaffirmed our commitment to Modern
Portfolio Theory and actively managed asset
allocated accounts.
2. Moved 30 to 40 % of stock and bond
portfolios to low leverage, short-term
commercial real estate.
3. Reduced exposure to the energy sector.
4. Moved 10 to 20% of stock and bond portfolios
to oil and gas drilling.
4. Increased emerging market stock and bond
allocation.
5. Thinking about over-weighting portfolios in value
stock.
6.Took small positions in natural resources.
7. Tax harvesting In December 2008.
Thinking that the price of gas will stay high, the
credit crunch will continue until mid 2009, the
Fed will start to raise interest rates in early 2009.
“Economic progress, in
capitalist society, means
turmoil.”
Joseph Schumpeter
Capitalism, Socialism and Democracy, 1942
“Nothing so weakens
government as persistent
inflation.”
John Kenneth Galbraith
The Affluent Society, 1958
“You get recessions, you have stock
market declines. If you don't understand
that's going to happen, then you're not
ready, you won't do well in the markets.”
Peter Lynch
“Most of the time common stocks are subject to
irrational and excessive price fluctuations in both
directions as the consequence of the ingrained
tendency of most people to speculate or
gamble... to give way to hope, fear and greed.”
Benjamin Graham
“If you took our top fifteen decisions out,
we’d have a pretty average record. It wasn’t
hyperactivity, but a hell of a lot of patience.
You stuck to your principles and when
opportunities came along, you pounced on
them with vigor.”
Charlie Munger
Parting
Thought…
“This too shall pass.”
Denver, CO / Newport Beach, CA / Naples, FL