It is pretty much impossible to avoid talking about Europe this week. As you know, many European countries have been living beyond their means. Just like individuals, the only solution is to cut spending or earn more money. The countries and institutions that were financing these deficits were pushing debtor countries (Greece, Spain, Italy, France) to significantly cut spending. These governments were beginning to make responsible decisions (e.g. raising the retirement age for social security). Unfortunately, the citizens of those countries decided that they did not like the medicine and voted the incumbent politicians out of office. In the case of France, they voted in someone who told them what they wanted to hear.
When we decided what was newsworthy this week, it came down to the Facebook IPO or Europe. Europeans decided that they prefer retiring at age 50 with full salary for the rest of their lives better than austerity and fiscal discipline. Am I the only one who didn’t see that one coming? So yes, we decided Facebook was the better story. The IPO pricing range looks like it will be $28 – $35 per share, which will value the company at $80 to $95 billion dollars (about $65 billion less than Google’s current valuation). Facebook’s initial valuation is actually less than most of us were expecting. This is encouraging for IPO investors as it could result in a big pop opening day. Facebook may be the most highly anticipated IPO of all time. If you can secure shares at the IPO price it probably makes sense to allocate some of your aggressive capital towards the company. However, getting your hands on IPO shares will be tough (if not impossible). Underwriters will be receiving the majority of shares and will be allocating them only to their highest net worth clients.
| Posted in Weekly Insight | Posted on 14-05-2012
We like to comment on the residential real estate market every once in a while as it touches every client in one way or another. Prices nationwide are at their lowest levels in the past 10 years but the numbers indicate that we are close to hitting bottom. Prices only fell 2 percent in February from the same period a year ago. That was the smallest year over year decline since the expiration of the homebuyer tax credit in May 2010. Some markets such as Phoenix have already turned the corner (5 consecutive months of price increases).
| Posted in Weekly Insight | Posted on 30-04-2012
We frequent write about stocks, bonds, real estate, valuations and all sorts of investment insights and advice. However, the biggest thing that determines whether someone ends up wealthy or poor is how much they spend in relation to how much they earn. Society is always amazed that high income people frequently end up broke. Sometimes it is due to bad investments, but more often it is due to over spending and a lack of budgeting. This is even more important for people whose earnings vary (salespeople or the self-employed) and those who may have a short career (celebrities and pro athletes). If this is your situation, you should work with your financial advisor to figure out an appropriate emergency fund and a sustainable level of spending.
On a related note, we are proud that one of our clients, NFL star Levi Brown, is becoming recognized for his financial responsibility and prudent decision making. Levi, along with our own Robert Luna, was featured in a story about the financial challenges of professional athletes in the AZ Republic this past Saturday. The story was then picked up by the USA Today as well as several other papers. Click here to read the article.
| Posted in Weekly Insight | Posted on 23-04-2012
Yes, this year the tax deadline is Tuesday, April 17th since the 15th was on Sunday and Monday was Emancipation Day in the District of Columbia. Thanks to this unusual holiday, which celebrates the end of slavery, taxpayers across America have been liberated from the tax man for an extra day.
| Posted in Weekly Insight | Posted on 17-04-2012
The markets went from having a great first quarter to 4 consecutive down days. Not to worry, minor corrections like this are normal and market fundamentals still look pretty good. Companies are much stronger and more profitable than they were at the previous market peak (2007). For example, the companies in the S&P 500 (on average) are valued at less than they were in 2007, even though net income of those companies are up over 22 percent, cash reserves are up over 49 percent, and revenue per employee is up 11.4 percent.
| Posted in Weekly Insight | Posted on 17-04-2012
We just completed the best first quarter in the stock market since 1998. I think the most remarkable story over the past 3 months is the amazing performance of Apple stock. Apple began the quarter as the most valuable company in the world and then shot up another 50 percent! What many people don’t realize is the impact that Apple has on the rest of the market. For example, in the fourth quarter of 2011 the S&P 500 rose 6.6 percent. However, if you subtract out Apple, the 500 company index would have only increased 2.8 percent.
| Posted in Weekly Insight | Posted on 03-04-2012
Over the past week, two different people told me that interest rates were increasing due to tensions in the Middle East. We like to dispel myths in this newsletter, so we want you to know that the increase in interest rates had nothing to do with the Middle East. Interest rates are starting to rise because the economy is stronger and people have less fear. Therefore, investors are starting to move out of “safe” assets like bonds. As bond prices fall, interest rates go up.
| Posted in Weekly Insight | Posted on 26-03-2012
Is the 30 year bull market in bonds finally coming to an end? Last week we saw a significant rise in bond yields (which means that prices fell). One week certainly does not make a trend. However, the two primary reasons that bond prices reached 40-year highs have lost steam lately. The first reason bond prices were so high is that many investors were too scared after the Great Recession to own stocks and moved into bonds instead. That is starting to change as the economy is showing strength and stocks are holding and adding to their gains. The second reason that bond prices got so inflated is that the Fed bought massive amounts of bonds in order to keep interest rates artificially low. A recent statement from the Fed is being interpreted by investors as a warning not to expect a new round of bond buying. As a result the yield on 10 year govt bonds shot up from 2.03 to 2.3 percent last week.
| Posted in Weekly Insight | Posted on 20-03-2012
This is a good time to be an optimist. For the past few years it has been challenging to find positive economic stories and trends but that has now changed. The good news seems to be stacking up. Last week’s big story was that we added 227,000 jobs in February. That was the third month in a row of 200,000 or more new jobs. This morning we found out that retail sales just had their biggest increase in 5 months. In addition, productivity growth is through the roof, earnings of U.S. corporations have been growing steadily and companies are flush with cash.
