|
|
|
|
To fully view this newsletter, please right click the Xto allow your browser to show our images.
|
|
W E E K L Y C O M M E N T A R YNovember 14, 2008
|
|
For the next severalmonths, Denny's commentary will be replaced with a weekly commentary by Joe in an effort to directly address the current market trends and volatility we are experiencing.
|
M A R K E T C O M M E N T S
Joseph S.Sturniolo
CEO, CFP
|
|
FUNDAMENTAL ANALYSIS - TECHNICAL ANALYSIS
There are two methods of analyzing stocks and the markets. The first is called Fundamental Analysis and the second Technical Analysis.
Fundamental Analysis is about the company. Product, sales and management are the primary issues studied to determine the health of a company through Fundamental Analysis.
Technical Analysis is a study of the charts of a stock or market. It essentially is about the movement of a stock or one of the indices. Technical Analysis is helpful in determining an oversold or overbought position. Oversold means the stock or market has gone down to levels many believe is exaggerated. When we say a stock is oversold we mean it is cheap. The reverse is true for a stock that is overbought. It is expensive from the perspective of the charts. Obviously there is more to the charts than what I am telling you, but you get the point.
One method of determining the bottom of a market is to watch the markets test a bottom and build what technical analysts call a "support level". That would be a level that indicates that the market or individual stock is oversold. The chart above is interesting, because it appears to be testing the bottom of the Dow Jones Industrials at about 8200. What happens is the markets go up off this possible bottom and then drop down to the bottom and then bounce back up again. I like what I see but we will need a couple more weeks to prove this formation.
Two possibilities for the weeks ahead: 1) either the markets will build a pretty secure bottom or, 2) something will happen to move the markets below that level.
If we truly are at a bottom, we are not necessarily going to see the markets move up in a straight line. The question remains, "how long this recession will last?" We will probably see the markets muddle along forward looking for direction over the next several months. If, on the other hand, something happens to move the markets below the "support level" then the next bottom would be where we were at the bottom of 2002's market - approximately 7500. The move below 8200 would have to be with some significant volume to pierce the old support level.
My hope is that this bottom building is confirmed and that we have seen the worst of this market downturn.
|
M A R K E T S T A T I S T I C S
Steven D. Arrigan
VP of Operations
MARKET STATISTICS
Steven D. Arrigan, VP of Operations
|
|
The market again showed its erratic side in the final hour of trade, briefly turning higher as utilities and consumer staples gained, but ultimately being weighed down by technology
Finishing near session lows, the Dow Jones Industrial Average declined 337.94 points, or 3.8%, to end at 8,497.31, leaving the blue-chip index down 5% for the week.
The S&P 500 fell 38 points, or 4.2%, to 873.29, leaving it down 6.2% from last Friday's close.
The Nasdaq Composite lost 79.85 points, or 5%, to 1,516.85 down 7.9% for the week.
Volume neared 1.5 billion on the New York Stock Exchange, and decliners outpaced advancers 4 to 1. Nearly 978 million shares traded on the Nasdaq, with declining issues topping those advancing, also by a roughly 4-to-1 ratio.
SOURCE: cbsmarketwatch.com
Disclaimer:
The S & P 500 Index is an unmanaged index that is generally considered representative of the US Stock Market. The Dow Jones Industrial Average is an unmanaged price-weighted average of 30 blue-chip stocks that are generally the leaders in their industry and are listed on the NYSE. The Russell 2000 index is an unmanaged market capitalization-weighted index of 2000 small company stocks. The NASDAQ 100 index is an unmanaged index that is considered representative of the overall NASDAQ market. Individuals cannot invest directly in any index. Past performance is never a guarantee of future results. Actual results will vary. |
| MARKET & ECONOMIC ANALYSIS
Holly Glass Sturniolo
Director of Financial Planning
|
COMMODITIES:
Oil - $57.60
Gold - $742.50
Euro - $1.26
Driving through any city it is always amazing to see the amount of construction that is going on despite the economic downturn and the housing mess. Projects seem to continue at full steam as though Developers have their heads in the proverbial sand.
If the housing and construction industries are in such a mess - why do we continue to see buildings in progress?
NO PAIN - NO GAIN -
A builder invests a good deal in property before ground is even broken for new construction. Costs include; permits that can take a year to finalize, public road improvements (many times bartered by the city as a condition to construction of retail or housing), a pre-construction loan with time constraints, a guaranteed construction loan with a term to use constraints, architectural fees, soils reports, engineering reports, water, sewer and power line hook-ups. All these costs can add up to millions of dollars before ground is even graded for construction. Having already invested these costs, a choice is made to weigh; 1. the cost to finance these expenditures indefinitely, 2. the potential loss of backing from a current banker, 3. the economic shift that will inevitably occur, and 4. when the shift might happen.
Big business requires a steel stomach and iron nerves with the knowledge that sometimes you win - and sometimes you lose. If a Developer is building a mall, a strip mall, or a commercial center, factors include retail draw. Retailers will typically reserve space in advance of construction giving the builder additional leverage for loans. This also gives the builder stats of space thus reducing after-market costs for tenant improvements. If a Developer is building a housing development, the pipeline costs are enormous, city and county 'deals' are time consuming, and loans are based on current viability. Today, many builders have resorted to renting options for unsold homes to keep cash flow positive.
The financing of interest on construction loans is paid through additional borrowing, so that ultimately a Developer is paying interest on interest. It is in his best interest to have a finished product so that an 'end loan' can be obtained at a smaller interest rate. An end loan may be 2 to 5 points less than a construction loan - a significant savings! The quicker an end loan can be put in place, the greater the mitigation of total costs. The game is how best to shift and manipulate all these costs so as to project a better bottom line. And certainly, this isn't the first time the construction industry has felt the pain!
Interesting Stats:
Number of malls per capita: as of 2003 the number of malls was nearly 46,500 across the US serving 217.8 million people of 18 years old or - one mall for every 4,683 people.
There are 112 million households in the U.S. and thee are 128 million homes.
Connecticut has the highest number of malls per capita; South Dakota has the lowest. Colorado ranks 12th.
Construction related jobs account for 66% of all jobs in the US. 65% of construction companies employ fewer than 5 people.
Sources:MSN Money
Disclaimer:
The comments contained herein do not represent a recommendation to either buy or sell any particular security. In the long run, the condition of the economy has a direct influence on the general state of the equity and debt markets. In the short run, investor perceptions and individual sector valuations may have a stronger influence.
|
|
RE A L E S T A T E & M O R T G A G E M A R K E T
C O M M E N T A R Y
Teig T. Stanley
Co-Owner, Mortgage Direct, LLC
VP of Strategic Consulting
Residential Mortgages · Commercial Loans
Real Estate Consulting · 1031 Exchange · 2nd Mortgages
|
WHAT'S NEW IN REAL ESTATE?
|
|
Mortgage rates fell for the second week in a row, finance firm Freddie Mac said Thursday, as the weakening economy resulted in the slowest pace of home purchase applications in nearly eight years. Freddie Mac said 30-year fixed-rate mortgages averaged 6.14% this week. That's down from 6.20% last week and below the 6.24% rate at this time last year.
Rates for 30-year fixed-rate mortgages have been at 6% or higher for five consecutive weeks.
"Long-term mortgage rates fell slightly this week as signs the overall economy is weakening brought interest rates down market-wide," according to a statement by Frank Nothaft, Freddie Mac vice president and chief economist.
Mortgage applications for home purchase loans fell during the last week in October to the slowest pace since the week of Dec. 29, 2000, according to data from the Mortgage Bankers Association.
On Thursday, the head of the Senate Banking Committee said banks receiving money as part of the $700 billion federal bailout must increase their lending to businesses and consumers.
"Banks are failing to use public funds to make credit more available and to help troubled homeowners," said Sen. Christopher Dodd, D-Conn.
A recent survey of senior loan officers from the Federal Reserve found that about 70% of banks raised their lending standards for prime mortgages, and about 90% of banks that offer nontraditional mortgages did so as well.
In September, Fannie Mae (FNM, Fortune 500) and Freddie Mac (FRE, Fortune 500) were on the brink of failure, having racked up nearly $12 billion in losses from declining home prices, mortgage delinquencies and foreclosures.
Federal officials assumed control of the firms and the $5 trillion in home loans they back. The Treasury put up as much as $200 billion to bail them out and placed them in a temporary "conservatorship" overseen by the Federal Housing Finance Agency.
Source: www.cnn.com/money
|
C L I E N T R E L A T I O N S
Erin Gibbs
Director of Client Relations
|
|
The following article gives some very good examples of how investments can be controlled by emotions. We feel it is very important for you to understand what you are invested in and why. In addition, we feel that educating you will give you the ability and strength to withstand turbulent markets and continue to pursue your dreams.
If you have any questions about your investments, please make a reviewappointment. We know it is tough - and we want you to know we are here for you!
"How are investments affected by emotional vs. rational behavior?
This is a real concern for many investors as they analyze the stock market. You must deal with your own emotions as a stock market investor, hanging on as the waves get choppy.
But even as you struggle to maintain control, investor sentiment of others can threaten to capsize your investment boat. You must have solid strategies to avoid being caught up and wiped out by emotional waves.
It's no wonder that investments are controlled to some degree by human emotions. Most often investments are bought and sold under the spell of salesmanship.
As a stockbroker I was taught to promote the sizzle, not the steak. So we stockbrokers came up with sexy stories about stocks to get investors' greed juices flowing. Unfortunately, as a result, most investors had little understanding of the underlying investment, the "steak" they were buying.
Investors didn't know what they were buying, why it went up, and most importantly, why it went down.
Herd mentality also controls investments to some degree. In the 1600s in Denmark, tulip bulbs shot from 30 florins to 2,000 florins in only 20 years, with no genuine underlying reasons.
In the roaring 1920s, everyone, from butcher to baker to candlestick maker, was speculating in the stock market, buying on margin and taking unreasonable risks that fueled a fire that was bound to bum itself out.
In 1979, we saw the same effect with gold and silver prices, which shot up and just as rapidly fizzled. Why did gold go from $200 to $800 an ounce in just a few months? Herd mentality.
What starts out as a reasonable investment opportunity, given the economic environment at the time, can soon become a free-for-all similar to a soccer game turned into bedlam by crazed fans. When millions buy into an investment just because it is going up, and with no rational understanding of the investment, the inevitable happens.
In the1600s, tulip bulb prices dropped to 300 florins, in 1929 the Dow Jones Industrials fell 50%, and in the 1980s gold settled in at $300 an ounce.
Those who bought early did well, if they sold before reality set in. But the late-corners got caught by what Benjamin Graham, the guru of investing, called the Law of Compensation.
The Law of Compensation says that when an investment is mispriced, usually from fleeting and fickle human emotions, eventually the price will correct, putting a more appropriate price tag on the investment, based on the intrinsic value. Today we have a different term for this: "reality check."
How can you avoid sinking in the rising tide of investor greed? It's really pretty simple:
Only invest in investments that you understand, and that are worth the money.
Think rationally and logically, not greedily.
Understand the forces affecting the economy and investment markets and understand the role investor emotions are playing in valuing various investments. Then diversify to protect against being swamped by the unexpected, so that you minimize the damage of short-term unforeseeable market declines.
Surprisingly, this logical view of investing is called the contrarian approach. It is a rational, don't-pay-more-than-a-reasonable-price approach made famous by super-investors such as Benjamin Graham, Warren Buffet and Peter Lynch. Why is it called "contrarian?" Because it is contrary to buying on emotion, buying what is hot, buying what has a sexy story.
This strategy is also known as value investing. Seek out investments whose prices are close to their true intrinsic values, and not grossly distorted and driven by investor emotion and greed.
This strategy requires patience and conviction. As we have seen, investment prices can be catapulted by emotions. The rational thinker will probably be out of the game by the later stages of an upswing.
But as the Wall Street saying goes, nobody ever got hurt taking a profit. Rational thinkers may miss the upsurge of mass hysteria, but they will be happy that their portfolios are intact when the bubble bursts."
Source: wife.org/heard/lifeboat.htm
|
|
|
Joseph S. Sturniolo and Associates, Inc.
7535 E. Hampden Street, Suite 501
Denver, Colorado 80231
Securities offered through Geneos Wealth Management Inc.
Member FINRA/SIPC
Advisory Services Provided by Joseph S. Sturniolo & Associates Inc.
|
|
|
|
Joseph S Sturniolo | 7535 E. Hampden Avenue | Suite 501 | Denver | CO | 80231
|
|
|
|
