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Market Commentary, September 24th


The Markets

Corporations are putting more cash in investors’ pockets.

In the past week, more than half a dozen Blue Chip companies announced increases in their dividend payouts. In fact, Standard and Poor’s Corporation said S&P 500 companies paid a record $34 billion in cash payments to investors in August. That’s a pretty nice stimulus!

And, the largesse may continue. Howard Silverblatt, an analyst from Standard and Poor’s, was quoted in MarketWatch as saying, “2012 should set a record high for cash dividend payments, 16 percent above that of 2011.”

While dividend payouts look good, another part of the stock market is “diverging” and sending mixed signals.

There’s a century old investment management system called “The Dow Theory” which was developed by Charles Dow through a series of editorials in The Wall Street Journal between 1900 and 1902. According to this theory, in a healthy stock market, the Dow Jones Industrial Average and the Dow Jones Transportation Average should rise in sync.

The theory is based on the idea that companies in the industrial average “make the stuff” while companies in the transportation average “ship the stuff.” If there’s a divergence in the movement of the industrial average and the transportation average, then you have to wonder which one is potentially giving a misleading signal about future economic activity.

So, what’s The Dow Theory signaling now? It’s flashing red because, as of last week, the Dow Jones Industrial Average was up about 11 percent for the year while the Dow Jones Transportation Average was down more than 2 percent. And, just last week, the industrial average was flat while the transport index dropped a significant 5.9 percent – a substantial divergence in just one week.

Like all investment systems, though, The Dow Theory is not foolproof and this divergence could just be noise. In any case, it’s worth keeping an eye on it as a possible early warning sign.

Data as of 9/21/12

1-Week

Y-T-D

1-Year

3-Year

5-Year

10-Year

Standard   & Poor’s 500 (Domestic Stocks)

-0.4%

16.1%

25.2%

11.1%

-0.9%

5.8%

DJ   Global ex US (Foreign Stocks)

-0.8

10.1

8.6

1.6

-5.6

7.9

10-year   Treasury Note (Yield Only)

1.8

N/A

1.9

3.5

4.6

3.7

Gold   (per ounce)

0.5

13.3

-0.5

21.4

19.4

18.7

DJ-UBS   Commodity Index

-2.9

5.0

-4.1

5.7

-3.6

3.3

DJ   Equity All REIT TR Index

-3.1

17.5

31.1

19.9

2.8

11.4

Notes: S&P 500, DJ Global ex US, Gold, DJ-UBS Commodity Index returns exclude reinvested dividends (gold does not pay a dividend) and the three-, five-, and 10-year returns are annualized; the DJ Equity All REIT TR Index does include reinvested dividends and the three-, five-, and 10-year returns are annualized; and the 10-year Treasury Note is simply the yield at the close of the day on each of the historical time periods.

Sources: Yahoo! Finance, Barron’s, djindexes.com, London Bullion Market Association.

Past performance is no guarantee of future results.  Indices are unmanaged and cannot be invested into directly.  N/A means not applicable.

CAN YOU IMPROVE YOUR INVESTMENT PERFORMANCE BY TAKING A TRIP to the local drugstore and forking over two dollars to buy a spiral bound notebook? Yes, says Nobel Prize winner Daniel Kahneman, one of the country’s preeminent psychologists.

In a recent conversation with Tom Gardner of The Motley Fool, Legg Mason Capital Management chief investment strategist Michael J. Mauboussin recounted a conversation he had many years ago with Professor Daniel Kahneman. Mauboussin asked Kahneman this question – What single thing can an investor do to improve their investment performance? Kahneman said buy a notebook and when you make an investment, write down why you made the investment, what you expect to happen with the investment, and when you expect it to happen.

Hmm. How does that translate into improved investment performance?

As humans, we often succumb to what’s called “hindsight bias.” Hindsight bias means we tend to think our forecasts were better than they really are. For example, few people predicted the severity of the Great Recession, but, after the fact, many people said they saw the signs of a bubble about to burst. These people “misremembered” what they were thinking prior to the Great Recession.

Kahneman says writing down what you’re thinking and what your expectations are – at the time you make an investment – allow you to go back after the fact and see how accurate you were. This black and white analysis helps keep you honest about your ability to make predictions and make good investment decisions. It helps you avoid becoming overconfident. Overconfidence is bad because it makes you think you’re smarter than you really are which could lead to making riskier investments and losing lots of money.

Sometimes the best ideas are also the simplest.

Weekly Focus – Think About It…

“Well, I think we tried very hard not to be overconfident, because when you get overconfident, that’s when something snaps up and bites you.”

–Neil Armstrong, astronaut, first person to walk on the moon

Best regards,

John Raudat

Canoga Wealth Management LLC

Securities offered through LPL Financial, Member FINRA/SIPC.

* This newsletter was prepared by Peak Advisor Alliance. Peak Advisor Alliance is not affiliated with the named broker/dealer.

* 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.

Sources:

http://www.marketwatch.com/story/more-companies-raising-dividends-2012-09-21?dist=markets

http://www.investopedia.com/university/dowtheory/#axzz27DbZakgF

http://www.etftrends.com/2012/09/dow-theory-transportation-etf-still-lagging/

http://blogs.wsj.com/marketbeat/2012/09/21/warning-sign-transports-crushed-this-week-down-for-year/

http://online.wsj.com/article/SB10000872396390444165804578009791243800064.html?mod=WSJ_hp_LEFTWhatsNewsCollection

http://www.dailyfinance.com/2012/09/19/a-foolish-interview-with-michael-mauboussin/?source=edddlftxt0860001

http://www.advisorone.com/2012/04/23/behavioral-economist-thaler-warns-of-hindsight-bia

http://www.fpanet.org/ToolsResources/ArticlesBooksChecklists/Articles/Investments/HindsightBiasTheReasonHindsightis2020/

http://www.brainyquote.com/quotes/keywords/overconfident.html

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John Raudat is a Registered Representative with, and securities offered through, LPL Financial. Member FINRA/SIPC.

Please remember to contact Private Advisor Group, LLC, in writing, if there are any changes in your personal/financial situation or investment objectives for the purpose of reviewing/evaluating/revising our previous recommendations and/or services, or if you want to impose, add, to modify any reasonable restrictions to our investment advisory services, or if you wish to direct that Private Advisor Group, LLC effect any specific transactions for your account. Please be advised that there can be no assurance that any email request will be reviewed and/or acted upon on the day it is received-please be guided accordingly. A copy of our current written Disclosure statement discussing our advisory services and fees continues to remain available for your review upon request. Copyright 2011 – LPL Financial. All Rights Reserved.

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Market Commentary – September 17th

The Markets

I am the Federal Reserve, hear me roar.

Printing dollars in numbers too big to ignore.

With an apology to Helen Reddy for paraphrasing her early 1970’s anthem, the Federal Reserve dropped a bombshell on the markets last week, and the reverberation may endure for years to come.

In an eagerly awaited announcement, the Fed launched another round of money printing and said it would start purchasing an additional $40 billion per month in agency mortgage-backed securities. This, on top of an existing debt buying program, will add about $85 billion per month to the Fed’s balance sheet through the end of this year. While that part of the announcement was not too surprising, the twist that turned investors’ heads was the following two excerpts from the Fed’s statement.

1)      If the outlook for the labor market does not improve substantially, the Committee will continue its purchases of agency mortgage-backed securities, undertake additional asset purchases, and employ its other policy tools as appropriate until such improvement is achieved in a context of price stability.

2)      The Committee expects that a highly accommodative stance of monetary policy will remain appropriate for a considerable time after the economic recovery strengthens.

Source: Federal Reserve

The Fed did two new and astonishing things in these excerpts. First, they made this intervention “open-ended” whereas in the past, they put a fixed dollar amount and time frame on it. Second, they said the intervention would continue long past the time when the economic recovery strengthens, which suggests the Fed may keep pumping the economy full of gas even if the tank is already full.

With this aggressive action, two words come to mind—unintended consequences. Already, we’ve seen commodity prices, precious metals, and long-term interest rates rise and the U.S. dollar slump. To take a quote from Aldous Huxley and, before him, William Shakespeare, we’re in a brave new world with these moves, and as your advisor, we’re doing our best to succeed in it.

Data as of 9/14/12

1-Week

Y-T-D

1-Year

3-Year

5-Year

10-Year

Standard & Poor’s 500 (Domestic Stocks)

1.9%

16.6%

23.3%

11.8%

-0.3%

5.1%

DJ Global ex US (Foreign Stocks)

3.8

11.0

9.7

2.3

-4.8

7.4

10-year Treasury Note (Yield Only)

1.9

N/A

2.0

3.4

4.5

3.9

Gold (per ounce)

2.8

12.8

-2.4

21.1

19.9

18.9

DJ-UBS Commodity Index

3.2

8.1

-4.8

7.0

-2.5

3.6

DJ Equity All REIT TR Index

1.6

21.3

28.6

22.6

4.0

11.6

Notes: S&P 500, DJ Global ex US, Gold, DJ-UBS Commodity Index returns exclude reinvested dividends (gold does not pay a dividend) and the three-, five-, and 10-year returns are annualized; the DJ Equity All REIT TR Index does include reinvested dividends and the three-, five-, and 10-year returns are annualized; and the 10-year Treasury Note is simply the yield at the close of the day on each of the historical time periods.

Sources: Yahoo! Finance, Barron’s, djindexes.com, London Bullion Market Association.

Past performance is no guarantee of future results.  Indices are unmanaged and cannot be invested into directly.  N/A means not applicable.

“SITUATIONAL AWARENESS” IS A MILITARY CONCEPT that has some applicability to our role as a financial advisor. In the military sense, it’s defined as:

Knowledge and understanding of the current situation which promotes timely, relevant, and accurate assessment of friendly, enemy, and other operations within the battle space in order to facilitate decision making. An informational perspective and skill that fosters an ability to determine quickly the context and relevance of events that are unfolding.

Metaphorically, you could consider Wall Street the “battle space” replete with friends, enemies and all kinds of noise and news that may or may not affect the battleground. Making sense of all this cuts to the heart of situational analysis.

Not surprisingly, there’s a process to situational analysis. Air Force Colonel John Boyd developed the OODA Loop in the 1950s, which stands for Observe, Orient, Decide, Act. Through this iterative process, military folks observe a situation, process what it means through orientation, decide on a course of action, and then act to solve the problem. Similarly, financial advisors use a process to analyze incoming information and then take action.

In theory, this sounds like a reasonable way to make decisions in a complicated world. And, for many years, it worked for the military and advisors alike. But guess what? Times change. As the military realized, the world is evolving from being merely complicated to the more nebulous complex; one characterized by more ambiguity and hyperspeed in information.

In today’s complex financial world, the OODA Loop process has lost some effectiveness. To evolve with the times, we have to become better critical thinkers. We have to challenge more assumptions and offer alternative scenarios. We have to think about unintended consequences and potential “Black Swan” events. We have to get comfortable in making decisions in a world of uncertainty and ambiguity.

Will we always get it right? No. But we can assure you we are continuous learners and strive hard to make effective decisions on your behalf.

Weekly Focus – Think About It…

“Complexity is the prodigy of the world. Simplicity is the sensation of the universe. Behind complexity, there is always simplicity to be revealed. Inside simplicity, there is always complexity to be discovered.”

–Gang Yu, PhD, Associate Professor, UT Southwestern Medical Center

Best regards,

 

John Raudat

Canoga Wealth Management, LLC

Securities offered through LPL Financial, Member FINRA/SIPC.

* This newsletter was prepared by Peak Advisor Alliance. Peak Advisor Alliance is not affiliated with the named broker/dealer.

* 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.

* To unsubscribe from the Market Commentary please reply to this e-mail with “Unsubscribe” in the subject line.

Sources:

1)      http://www.federalreserve.gov/newsevents/press/monetary/20120913a.htm

2)      http://www.marketwatch.com/story/fed-will-do-whatever-it-takes-to-get-hiring-going-2012-09-13

3)      http://www.bloomberg.com/news/2012-09-14/asian-stocks-rise-on-fed-stimulus-plan-copper-gains-with-won.html

4)      http://www.sparknotes.com/lit/bravenew/themes.html

5)      https://rdl.train.army.mil/catalog/view/100.ATSC/6C01FFE5-0DF6-415F-A13C-92ED36A708CA-1303039189337/1-02/intro.htm

6)      http://www.armedforcesjournal.com/2011/10/6777464/

7)      http://todayinsci.com/QuotationsCategories/C_Cat/Complexity-Quotations.htm

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John Raudat is a Registered Representative with, and securities offered through, LPL Financial. Member FINRA/SIPC.

Please remember to contact Private Advisor Group, LLC, in writing, if there are any changes in your personal/financial situation or investment objectives for the purpose of reviewing/evaluating/revising our previous recommendations and/or services, or if you want to impose, add, to modify any reasonable restrictions to our investment advisory services, or if you wish to direct that Private Advisor Group, LLC effect any specific transactions for your account. Please be advised that there can be no assurance that any email request will be reviewed and/or acted upon on the day it is received-please be guided accordingly. A copy of our current written Disclosure statement discussing our advisory services and fees continues to remain available for your review upon request. Copyright 2011 – LPL Financial. All Rights Reserved.

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Weekly Commentary, September 4th

The Markets

Now that the traditional end to summer has arrived, things might heat up on Wall Street as traders return to their stations and face a host of pressing risks.

The omnipresent Mohamed El-Erian of PIMCO took to the airwaves on Bloomberg last week and laid out his list of the four major risks facing the global economy:

1.      The looming fiscal cliff – in which automatic tax increases and spending cuts are set to take effect at the first of the year in the U.S.

2.      The continuing sovereign debt crisis in Europe.

3.      Geopolitical risk in the Middle East and elsewhere.

4.      The economic slowdown and pending political transition in China.

Source: Bloomberg

One could argue that the first two on the list are within the power of western politicians to solve without causing global harm. Of course, so far, politicians have engaged in a game of “kick the pressing problems down the road.” However, sooner or later – and likely sooner rather than later – that road will end. Only time will tell if our politicians solve the problems before they hit a dead end.

The last two are trickier. Geopolitical risks are always unpredictable, particularly in the highly combustible Middle East. And, China, that’s another wildcard. The country’s economy is clearly slowing down, albeit from a very high rate compared to American standards. The upcoming once-in-a-decade political transition is also a cause for reflection as the Bo Xilai affair disrupted what party officials hoped would be a smooth political transition.

Yet, despite these four risks, the U.S. stock market is still near a post-crisis high. The fact is, there’s always something to worry about and sometimes the stock market defies expectations and keeps climbing the “wall of worry.”

Data as of 8/31/12

1-Week

Y-T-D

1-Year

3-Year

5-Year

10-Year

Standard & Poor’s 500 (Domestic Stocks)

-0.3%

11.9%

15.4%

11.3%

-0.9%

4.8%

DJ Global ex US (Foreign Stocks)

-1.0

4.1

-5.4

1.3

-6.0

6.0

10-year Treasury Note (Yield Only)

1.6

N/A

2.2

3.4

4.5

4.0

Gold (per ounce)

-1.1

4.7

-9.1

20.0

19.7

18.1

DJ-UBS Commodity Index

0.5

3.8

-11.2

5.1

-2.5

3.6

DJ Equity All REIT TR Index

0.8

17.5

20.4

23.4

3.4

11.2

Notes: S&P 500, DJ Global ex US, Gold, DJ-UBS Commodity Index returns exclude reinvested dividends (gold does not pay a dividend) and the three-, five-, and 10-year returns are annualized; the DJ Equity All REIT TR Index does include reinvested dividends and the three-, five-, and 10-year returns are annualized; and the 10-year Treasury Note is simply the yield at the close of the day on each of the historical time periods.

Sources: Yahoo! Finance, Barron’s, djindexes.com, London Bullion Market Association.

Past performance is no guarantee of future results.  Indices are unmanaged and cannot be invested into directly.  N/A means not applicable.

DOES STRONG ECONOMIC GROWTH ALWAYS LEAD TO RISING STOCK PRICES? Typically, strong economic growth translates into rising corporate profits. Rising profits, over time, tend to lead to rising stock prices – or so one would think.

Consider China. For many years we’ve heard how China is supplanting the U.S. as a manufacturing and economic powerhouse. And, in many respects, it’s true. Between 1989 and 2012, China’s gross domestic product rose at an annual rate of 9.3 percent – dramatically above the growth rate in the U.S. – according to Trading Economics. Today, China has the world’s second largest economy and it’s projected to overtake the U.S. in just four years, according to the International Monetary Fund as reported by BusinessWeek.

So, yes, China is an economic powerhouse. But, has their economic growth translated into stock price growth?

Let’s go back about 12 years, November 10, 2000 to be exact, and see how the Chinese stock market has performed as measured by the Shanghai Stock Exchange Composite Index. The Shanghai Composite is a capitalization-weighted index that tracks the daily price performance of all A-shares and B-shares listed on the Shanghai Stock Exchange.

Back on November 10, 2000, the Shanghai index closed at 2,047, according to data from Yahoo! Finance. Now, almost 12 years later, where do you think the Shanghai index closed last week?

Shockingly, the Shanghai index closed at 2,047 – exactly the same price as it was nearly 12 years ago! This flat stock market performance occurred despite the fact that the Chinese economy grew by more than 500 percent between 2000 and 2011, according to The World Bank.

Now, before we conclude there’s no connection between economic growth and stock prices, we have to go back even further. On December 19, 1990, the Shanghai index was created with a starting value of 100. At last week’s closing price of 2,047, this means the Chinese stock market, as measured by the Shanghai index, has risen more than 1,900 percent between 1990 and 2012. On an annualized basis, that’s more than 14 percent per year – an exceptionally high return.

Okay, after all these numbers, what can we conclude? A couple things:

1.      Fast economic growth in any given year does not necessarily translate into rising stock prices that year.

2.      Fast economic growth eventually shows up in stock prices, although some of the growth may be “pulled forward” and “priced in” to stocks well ahead of when the growth actually occurs—as happened in China.

This lack of a linear relationship between economic growth and stock prices is one more variable we have to consider when developing portfolios.

Weekly Focus – Think About It…

“Without labor nothing prospers.”

Sophocles, ancient Greek playwright

Best regards,
John Raudat

Canoga Wealth Management, LLC

Securities offered through LPL Financial, Member FINRA/SIPC.

* This newsletter was prepared by Peak Advisor Alliance. Peak Advisor Alliance is not affiliated with the named broker/dealer.

* 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.

* To unsubscribe from the Weekly Market Commentary please reply to this e-mail with  “Unsubscribe” in the subject line.

Sources:

http://www.bloomberg.com/video/el-erian-there-are-four-risks-to-the-global-economy-4tL3Gyo0SsSeUVCszh~Rag.html

http://www.latimes.com/news/nationworld/world/la-fg-china-bo-20120830,0,6315621.story

http://www.investopedia.com/terms/w/wallofworry.asp#axzz25A9hdHEv

http://www.tradingeconomics.com/china/gdp-growth-annual

http://www.businessweek.com/articles/2012-07-17/the-last-years-of-americas-historic-gdp-reign

http://finance.yahoo.com/q/hp?s=000001.SS&a=0&b=4&c=2000&d=8&e=2&f=2012&g=d&z=66&y=2970

http://search.worldbank.org/quickview?name=%3Cem%3EGDP%3C%2Fem%3E+%28current+US%24%29&id=NY.GDP.MKTP.CD&type=Indicators&cube_no=2&qterm=china+gdp

http://www.bloomberg.com/quote/SHCOMP:IND

http://thinkexist.com/quotation/without_labor_nothing_prospers/219683.html

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John Raudat is a Registered Representative with, and securities offered through, LPL Financial. Member FINRA/SIPC.

Please remember to contact Private Advisor Group, LLC, in writing, if there are any changes in your personal/financial situation or investment objectives for the purpose of reviewing/evaluating/revising our previous recommendations and/or services, or if you want to impose, add, to modify any reasonable restrictions to our investment advisory services, or if you wish to direct that Private Advisor Group, LLC effect any specific transactions for your account. Please be advised that there can be no assurance that any email request will be reviewed and/or acted upon on the day it is received-please be guided accordingly. A copy of our current written Disclosure statement discussing our advisory services and fees continues to remain available for your review upon request. Copyright 2011 – LPL Financial. All Rights Reserved.

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Weekly Commentary, August 27th

The Markets

Close, but not quite.

Last week, the U.S stock market hit an intra-day four-year high, but it couldn’t hold the gain and closed slightly lower for the week, according to MarketWatch. As usual, news flow from Europe and the Federal Reserve helped move prices.

While we often look at the broad market indexes to gauge progress in the stock market, those indexes sometimes send misleading signals. One cause of the misleading signals is the way the indexes are calculated. For example, some indexes, like the Dow Jones Industrial Average, are calculated using the price of each stock. This means a stock with a high price (e.g., IBM) will have a larger influence on the index than a lower priced stock. By contrast, the S&P 500 index is a capitalization-weighted index. This means stocks with a large market value (like Apple) will have a larger influence on the calculated price of the index.

Let’s take a closer look at Apple and see how its massive size influences a sub-index within the S&P 500. Standard and Poor’s subdivides the capitalization-weighted S&P 500 index into 10 major industry groups. Information Technology is one of the 10 industry groups and its biggest component is Apple – the world’s largest company as measured by market capitalization. MarketWatch pointed out that between the all-time stock market high on October 9, 2007 and August 20, 2012, the Information Technology sub-index of the S&P 500 was up an impressive 16.6 percent. However, if you remove Apple from the equation, the index would be down 4.1 percent. That’s a huge change just due to one stock.

Yes, it is important to monitor the broad stock market indexes to gauge the overall health of the stock market. However, it’s also necessary to look under the hood and understand what’s driving the performance. Sometimes the headline performance numbers are misleadingly driven by a relatively small number of stocks that, by quirk of a high stock price or large market cap, have an outsize influence – good or bad – on the headline number.

Data as of 8/24/12

1-Week

Y-T-D

1-Year

3-Year

5-Year

10-Year

Standard & Poor’s 500 (Domestic Stocks)

-0.5%

12.2%

19.8%

11.2%

-0.9%

4.1%

DJ Global ex US (Foreign Stocks)

-0.2

5.2

-0.5

1.6

-5.4

5.9

10-year Treasury Note (Yield Only)

1.7

N/A

2.3

3.5

4.6

4.2

Gold (per ounce)

3.2

5.9

-5.8

20.6

20.3

18.3

DJ-UBS Commodity Index

1.6

3.3

-8.2

4.1

-2.4

3.5

DJ Equity All REIT TR Index

-0.3

16.6

24.6

23.8

3.4

11.1

Notes: S&P 500, DJ Global ex US, Gold, DJ-UBS Commodity Index returns exclude reinvested dividends (gold does not pay a dividend) and the three-, five-, and 10-year returns are annualized; the DJ Equity All REIT TR Index does include reinvested dividends and the three-, five-, and 10-year returns are annualized; and the 10-year Treasury Note is simply the yield at the close of the day on each of the historical time periods.

Sources: Yahoo! Finance, Barron’s, djindexes.com, London Bullion Market Association.

Past performance is no guarantee of future results.  Indices are unmanaged and cannot be invested into directly.  N/A means not applicable.

WHAT ADDS MORE VALUE TO YOUR PORTFOLIO, CAPITAL GAINS OR DIVIDEND INCOME? When folks invest in the stock market, they hope to get back more money than they put in. This return on their investment can come from either a capital gain, meaning the stock price rises, or it can come from the company paying a dividend, or both. So, historically, has the return from common stocks come mostly from capital gains or from reinvesting dividend payments?

Researchers Elroy Dimson, Paul Marsh, and Roy Staunton of the London Business School crunched the numbers and came to a startling conclusion. Here’s what they discovered:

·         Counting capital gains only, $1 invested in the U.S stock market in 1900 grew to $217 by the end of 2010. This is an annualized return of 5.0 percent.

·         Counting capital gains andreinvesting your dividends, $1 invested in 1900 grew to $21,766 by the end of 2010. This is an annualized return of 9.4 percent.

·         Similar results were found for other markets around the world.

Source: Financial Times article, March 4, 2011

No doubt, capital gains are sexy. Who doesn’t love to go to a cocktail party and talk about the stock you bought which doubled or tripled in value? Yet, as the research shows, the rather boring dividends account for a substantial part of investors’ stock market returns.

A report from ING Investment Management added, “Research shows that companies paying high dividends are likely to become the most profitable, that dividends bring the largest contribution to equity portfolios over the long-term, and, finally, that companies paying high dividends outperform those paying low or no dividends.”

So, yes, dividends matter.

There are times, though, when investors get carried away and bid up the price of dividend-paying stocks such that they’re no longer attractive. Accordingly, ING said, “While companies paying high dividends outperform the market over the long run, they can underperform it over a shorter period.”

Based on the research, it’s clear that over the long term, dividends are an important consideration in building a portfolio.

Weekly Focus – Our Crazy English Language…

The English language contains autoantonyms, which are words that have two meanings—which are opposite each other! For example, one meaning of the word “rock” is “solid, unchanging, providing firm foundation.” However, it can also mean, “to move from side to side, especially gently and soothingly.” Same word, but two different meanings! Can you think of any other autoantonyms?

Best regards,

John Raudat

Canoga Wealth Management, LLC

Securities offered through LPL Financial, Member FINRA/SIPC.

* This newsletter was prepared by Peak Advisor Alliance. Peak Advisor Alliance is not affiliated with the named broker/dealer.

* 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.

* To unsubscribe from the Weekly Market Commentary please reply to this e-mail with “Unsubscribe” in the subject line.

Sources:

http://www.marketwatch.com/story/us-stocks-rise-sp-500-at-four-year-high-2012-08-21

http://www.reuters.com/article/2012/08/20/us-markets-stocks-idUSBRE87J07520120820

http://www.ft.com/intl/cms/s/0/4c177402-469e-11e0-967a-00144feab49a.html#axzz24UCNOPFW http://www.ingim.com/be/FundinFocus/HighDividend/index.htm  (See “Special – The appeal of dividends” report, 5/16/2011)

http://dictionary.reference.com/browse/rock?s=t

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John Raudat is a Registered Representative with, and securities offered through, LPL Financial. Member FINRA/SIPC.

Please remember to contact Private Advisor Group, LLC, in writing, if there are any changes in your personal/financial situation or investment objectives for the purpose of reviewing/evaluating/revising our previous recommendations and/or services, or if you want to impose, add, to modify any reasonable restrictions to our investment advisory services, or if you wish to direct that Private Advisor Group, LLC effect any specific transactions for your account. Please be advised that there can be no assurance that any email request will be reviewed and/or acted upon on the day it is received-please be guided accordingly. A copy of our current written Disclosure statement discussing our advisory services and fees continues to remain available for your review upon request. Copyright 2011 – LPL Financial. All Rights Reserved.

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Weekly Commentary, August 22nd

The Markets

Like the tortoise beating the hare, the U.S. stock market has been slowly and steadily inching its way up over the past few weeks.

Since touching an intraday low on June 4, the Dow Jones Industrial Average, the NASDAQ, and the S&P 500 index have all rallied more than 10 percent, according to CNBC. In fact, the Dow and S&P 500 have now risen for six consecutive weeks. It feels a bit like a “stealth” rally as volume has been very low and volatility, as measured by the CBOE volatility index, is at its lowest level in five years.

Even Europe is enjoying a strong run. As CNBC reported, “European shares hit 13-month highs, extending their longest weekly winning streak in seven years, amid hopes that euro zone policymakers will work closely to tackle the debt crisis.”

Not everything is going up, though. While improving economic data on the job market, the housing industry, the index of leading indicators, retail sales, consumer purchasing, and consumer sentiment has helped the stock market, it’s done just the opposite to the Treasury market, according to Bloomberg. Prices for the 10-year Treasury just posted their worst four-week drop since December 2010, says Bloomberg. The fall in bond prices – and the corresponding increase in bond yields – suggests traders think the improving economic data may forestall the Federal Reserve from stepping in with another round of monetary stimulus.

Once summer is over and the big Wall Street traders get back from the Hamptons, we’ll get a better read on whether this tortoise-like market will keep inching its way up or decide to take a breather.

Data as of 8/17/12

1-Week

Y-T-D

1-Year

3-Year

5-Year

10-Year

Standard & Poor’s 500 (Domestic Stocks)

0.9%

12.8%

18.8%

13.1%

-0.4%

4.1%

DJ Global ex US (Foreign Stocks)

0.6

5.4

-4.3

3.4

-4.4

6.0

10-year Treasury Note (Yield Only)

1.8

N/A

2.2

3.5

4.7

4.3

Gold (per ounce)

-0.2

2.6

-9.8

20.1

19.7

17.9

DJ-UBS Commodity Index

-0.1

1.7

-10.4

4.6

-2.7

3.5

DJ Equity All REIT TR Index

1.2

16.9

21.9

26.6

3.9

11.4

Notes: S&P 500, DJ Global ex US, Gold, DJ-UBS Commodity Index returns exclude reinvested dividends (gold does not pay a dividend) and the three-, five-, and 10-year returns are annualized; the DJ Equity All REIT TR Index does include reinvested dividends and the three-, five-, and 10-year returns are annualized; and the 10-year Treasury Note is simply the yield at the close of the day on each of the historical time periods.

Sources: Yahoo! Finance, Barron’s, djindexes.com, London Bullion Market Association.

Past performance is no guarantee of future results.  Indices are unmanaged and cannot be invested into directly.  N/A means not applicable.

 

SOMETHING BEGAN IN THE STOCK MARKET 30 YEARS AGO that still has people shaking their heads today. Back on August 12, 1982, the Dow Jones Industrial Average closed at its 1980-82 recession low of 776.92, according to The Wall Street Journal. Around the country, it was just an ordinary day in an otherwise economically challenged economy. But, on Wall Street, it was the beginning of something extraordinary.

Depending on your age, you may remember that back in 1982, the prime lending rate peaked at 17 percent, the unemployment rate was near 11 percent, and inflation was on the way down from the double-digit rates of 1979-1980, according to The Wall Street Journal and the Bureau of Labor Statistics. Demographically, the oldest Baby Boomers were a youthful 36 and just getting ready to unleash their penchant for big spending. Ronald Reagan was President, Paul Volcker was head of the Federal Reserve, and, while an unlikely pair, they were about to make history together.

Reflecting back on the summer of 1982 in a 2009 Wall Street Journal piece, Jason Desena Trennert wrote, “Starting as a trickle, the decline in inflation and long-term interest rates picked up speed that summer, and investors in common stocks began to have confidence that they were being liberated from the shackles of double-digit inflation and interest rates, an innovation-sapping regulatory regime, and a tax code that was antithetical to capital formation.”

Awakening from its slumber the day after August 12, 1982, the stock market took off on an unprecedented 18-year bull market run that saw the Dow Jones Industrial Average rise a spectacular 1,500 percent, according to Bloomberg.

So, here we are, 30 years removed from the start of that great bull market and what do we have to show for it? Well, since that great bull market ended in early 2000, we’ve experienced two harrowing bear markets that saw the broad market decline around 50 percent. And, today, we’re still below the all-time high of late 2007.

Yet, here’s what is extraordinary. Despite the weak markets we’ve experienced since 2000, if you go back to August 1982 and look at the returns for the past 30 years, the market has done extremely well. According to The Wall Street Journal, the total return of the S&P 500 index was a compound 11.3 percent between August 1982 and now. That’s even better than the average return for the entire 20th century, which was 10.1 percent, according to the Journal.

It’s easy to get too caught up in what’s happening today in the markets and lose sight of the big picture. Instead, it’s better to take the long view. While past performance is no guarantee of future results, the past 30 years have shown that patience may be rewarded.

Weekly Focus – Think About It…

“Patience is a bitter plant, but it has sweet fruit.”

Old Proverb

Best regards,

John Raudat

Canoga Wealth Management, LLC

Securities offered through LPL Financial, Member FINRA/SIPC.

* This newsletter was prepared by Peak Advisor Alliance. Peak Advisor Alliance is not affiliated with the named broker/dealer.

* 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

Sources:

http://www.cnbc.com/id/48701551

http://www.bloomberg.com/news/2012-08-18/treasuries-drop-fastest-since-2010-as-economy-blocks-fed.html

http://online.wsj.com/article/SB10001424052970204251404574344230339019304.html

ftp://ftp.bls.gov/pub/special.requests/cpi/cpiai.txt

http://www.bloomberg.com/news/2012-02-06/stocks-least-loved-since-1980s-as-americans-scale-steepest-wall-of-worries.html

http://online.wsj.com/article/SB10000872396390444900304577581660593152608.html?mod=ITP_moneyandinvesting_5

http://www.bartleby.com/346/12.html

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John Raudat is a Registered Representative with, and securities offered through, LPL Financial. Member FINRA/SIPC.

Please remember to contact Private Advisor Group, LLC, in writing, if there are any changes in your personal/financial situation or investment objectives for the purpose of reviewing/evaluating/revising our previous recommendations and/or services, or if you want to impose, add, to modify any reasonable restrictions to our investment advisory services, or if you wish to direct that Private Advisor Group, LLC effect any specific transactions for your account. Please be advised that there can be no assurance that any email request will be reviewed and/or acted upon on the day it is received-please be guided accordingly. A copy of our current written Disclosure statement discussing our advisory services and fees continues to remain available for your review upon request. Copyright 2011 – LPL Financial. All Rights Reserved.

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Weekly Commentary, August 14th

The Markets

Is the “cult of equity” dying?

Since 1912, stocks have returned on average 6.6 percent per year after inflation, according to Bill Gross, the legendary bond manager from PIMCO. Recently, Gross ruffled some feathers when he wrote that the historic 6.6 percent return “is an historical freak, a mutation likely never to be seen again as far as we mortals are concerned.” Histrionics aside, Gross makes a point that deserves elaboration.

Gross believes that, in the future, less of the country’s wealth will be captured by capital (the financial markets) and more will flow to labor (as higher wages) and government (in the form of higher taxes). For the past 30 years, he said, capital markets were the big winner, as real labor wages and corporate taxes declined as a percentage of GDP. By his analysis, that will start to reverse with the capital markets being on the losing end.

Is Gross right?

Well, his chief critic, Wharton professor Jeremy Siegel, emphatically says no. In an August 2 Bloomberg interview, Siegel made the following three rebuttals to Gross:

1.      The 6.6 percent real return was similar in the 19th century in the U.S., too, so it’s not just a 20th century anomaly or “historical freak.”

2.      Other researchers have discovered non-U.S. equity markets with similar 6 to 7 percent real return averages over the past century, further supporting the idea that the U.S. is not an anomaly.

3.      Often, when the media declares “equities are dead,” that’s a sign a bull market is just around the corner – remember the infamous August 1979 BusinessWeek “The Death of Equities” cover story? Three years later, stocks took off on one of the century’s greatest secular bull markets.

So, who’s right, Gross or Siegel?

It turns out they both could be right. The key is your timeframe. Since markets fluctuate, we’ll likely see periods when the market delivers more than a 6.6 percent real return and other times when it’s less. However, simply buying and holding on for dear life hoping Gross is wrong probably isn’t the best strategy. Rather, rigorous analysis of all the investment opportunities and careful portfolio tweaking could be the solution.

Data as of 8/10/12

1-Week

Y-T-D

1-Year

3-Year

5-Year

10-Year

Standard & Poor’s 500 (Domestic Stocks)

1.1%

11.8%

25.4%

11.8%

-0.7%

4.5%

DJ Global ex US (Foreign Stocks)

2.2

4.7

0.1

2.4

-5.4

6.2

10-year Treasury Note (Yield Only)

1.7

N/A

2.1

3.8

4.8

4.2

Gold (per ounce)

1.0

2.8

-8.7

19.7

19.3

17.7

DJ-UBS Commodity Index

0.2

1.8

-7.5

3.3

-3.1

3.7

DJ Equity All REIT TR Index

-2.3

15.5

30.9

22.6

3.8

11.3

Notes: S&P 500, DJ Global ex US, Gold, DJ-UBS Commodity Index returns exclude reinvested dividends (gold does not pay a dividend) and the three-, five-, and 10-year returns are annualized; the DJ Equity All REIT TR Index does include reinvested dividends and the three-, five-, and 10-year returns are annualized; and the 10-year Treasury Note is simply the yield at the close of the day on each of the historical time periods.

Sources: Yahoo! Finance, Barron’s, djindexes.com, London Bullion Market Association.

Past performance is no guarantee of future results.  Indices are unmanaged and cannot be invested into directly.  N/A means not applicable.

 

COULD THE THREE WORDS “PRIME CHILDBEARING AGE” FORESHADOW the next big up move in the stock market? We’re all familiar with the “Baby Boom” generation and the massive impact they’ve had on society. But, less noticed is their offspring, dubbed the “Echo Boom.” Nearly 80 million strong, “they will be become the next dominant generation of Americans,” according to CBS News.

Today, the number of women in “prime childbearing age” is surging and is at an all-time high. While the recent recession and lingering weak economic environment caused many Echo Boomers to postpone childbirth, this could change quickly if the economy picks up speed.

If this potential pent-up demand for babies actually materializes, we could see a spike in births that helps drive consumer spending, corporate profits, and the stock market higher. This potential demographic trend is one reason to be optimistic about America’s economic future.

Weekly Focus – Think About It…

Making the decision to have a child – it is momentous. It is to decide forever to have your heart go walking around outside your body.

–Elizabeth Stone

Best regards,

John Raudat

Canoga Wealth Management, LLC

Securities offered through LPL Financial, Member FINRA/SIPC.

* This newsletter was prepared by Peak Advisor Alliance. Peak Advisor Alliance is not affiliated with the named broker/dealer.

* 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.

Sources:

http://www.pimco.com/EN/Insights/Pages/Cult-Figures.aspx

http://www.bloomberg.com/video/siegel-on-ecb-decision-stocks-bonds-YhgQ9_jURkOmGiNUaqFgkw.html

http://theguruinvestor.com/2012/08/06/siegel-fires-back-countering-gross/

http://www.businessweek.com/stories/1979-08-13/the-death-of-equitiesbusinessweek-business-news-stock-market-and-financial-advice

http://money.cnn.com/2012/08/09/news/economy/baby-boom-recovery/index.htm?iid=HP_River

http://www.cbsnews.com/2100-18560_162-646890.html

http://www.goodreads.com/quotes/search?utf8=%E2%9C%93&q=making+the+decision+to+have+a+child&commit=Search

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John Raudat is a Registered Representative with, and securities offered through, LPL Financial. Member FINRA/SIPC.

Please remember to contact Private Advisor Group, LLC, in writing, if there are any changes in your personal/financial situation or investment objectives for the purpose of reviewing/evaluating/revising our previous recommendations and/or services, or if you want to impose, add, to modify any reasonable restrictions to our investment advisory services, or if you wish to direct that Private Advisor Group, LLC effect any specific transactions for your account. Please be advised that there can be no assurance that any email request will be reviewed and/or acted upon on the day it is received-please be guided accordingly. A copy of our current written Disclosure statement discussing our advisory services and fees continues to remain available for your review upon request. Copyright 2011 – LPL Financial. All Rights Reserved.

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Weekly Commentary, August 7th

The Markets

Despite disappointment that central banks in the U.S. and Europe offered no new stimulus programs last week, the U.S. stock market rose for the fourth straight week – thanks to one piece of government news, according to Bloomberg.

This particular piece of news is released on the first Friday of each month and investors eagerly await its arrival as it has the potential to move markets. In fact, this news is so sensitive that news reporters are locked up in the Frances Perkins building in Washington, D.C. for 30 minutes prior to its release with absolutely no contact with the outside world. The reporters have 30 minutes to review the report, ask questions, write their story, and then precisely at 8:30 a.m., the government opens the communication gate and the news hits the world.

And, so, last Friday morning, the government released its Employment Situation Report. Within seconds, it was clear that the increase in the number of new nonfarm payroll jobs created in July was much higher than expected and the stock market unleashed a powerful rally, according to MarketWatch. Since employment leads to economic activity, investors pour over this report for clues to the direction of the economy.

Now, here’s where it gets interesting. The data was stronger than expected, but it wasn’t strong enough to prevent the Federal Reserve from adding more monetary stimulus later this year, according to some economists as reported by MarketWatch. In other words, some folks interpreted this as meaning we could have modest economic growth and more monetary stimulus. That’s like a double shot of espresso for the markets.

This is great, right? Unfortunately, it’s not that simple. One month of good employment data does not make a trend and additional stimulus from the Fed is not guaranteed. Even if additional stimulus comes, it could backfire if the market perceives it as too little, too much, or not the right kind. In the end, we’re still left with the hard work of analyzing the economy, the investment opportunities, and doing the best job we can to help you navigate this uncertain environment.

Data as of 8/3/12

1-Week

Y-T-D

1-Year

3-Year

5-Year

10-Year

Standard & Poor’s 500 (Domestic Stocks)

0.4%

10.6%

10.4%

11.5%

-0.6%

5.2%

DJ Global ex US (Foreign Stocks)

1.1

2.5

-11.8

1.3

-6.3

6.4

10-year Treasury Note (Yield Only)

1.6

N/A

2.6

3.6

4.7

4.2

Gold (per ounce)

-1.0

1.7

-4.0

18.6

19.0

17.9

DJ-UBS Commodity Index

-0.4

1.6

-11.7

2.9

-3.4

4.0

DJ Equity All REIT TR Index

0.9

18.2

20.8

28.2

5.0

11.8

Notes: S&P 500, DJ Global ex US, Gold, DJ-UBS Commodity Index returns exclude reinvested dividends (gold does not pay a dividend) and the three-, five-, and 10-year returns are annualized; the DJ Equity All REIT TR Index does include reinvested dividends and the three-, five-, and 10-year returns are annualized; and the 10-year Treasury Note is simply the yield at the close of the day on each of the historical time periods.

Sources: Yahoo! Finance, Barron’s, djindexes.com, London Bullion Market Association.

Past performance is no guarantee of future results.  Indices are unmanaged and cannot be invested into directly.  N/A means not applicable.

 

IS THERE A PARTICULAR 24-HOUR PERIOD IN THE STOCK MARKET that is more important to future stock market returns than any other 24-hour period? Since we asked the question, you might have guessed that the answer is yes.

For many years, the Federal Reserve’s (Fed) monetary policy-making body, called the Federal Open Market Committee (FOMC), has convened at pre-scheduled meetings eight times per year. During these meetings, “The Committee reviews economic and financial conditions, determines the appropriate stance of monetary policy, and assesses the risks to its long-run goals of price stability and sustainable economic growth,” according to the Fed’s website. And, since 1994, the policy decisions from these meetings have been announced to the public at known times.

Two months ago, the Federal Reserve Bank of New York released a study which contained a startling conclusion. The researchers discovered that, “a staggering 80 percent of the annual U.S. equity premium since 1994 was earned in the 24 hours before FOMC announcements.” Further, if you extend the period to three days, i.e., from the day before the announcement to the day after the announcement, the study shows that effectively 100 percent of the return in the S&P 500 index since 1994 has come from this 3-day window encapsulating the FOMC announcement. And, to put it in even more perspective, Yahoo! Finance said, “This pre-FOMC drift has pumped the S&P 500 more than 50 percent higher than it would be without the gains made in the 24-hour period before Fed statements.”

Hmm.

So, how does the Fed explain this anomaly? They end their research paper by saying, “As of this paper’s writing, the pre-FOMC announcement drift is a puzzle.”

Now that this anomaly is known, is there a way to profit from it? Probably not. For one thing, the frequent trading required to capture these gains and then move to cash until the next meeting would be expensive and tax inefficient. And, second, now that the strategy is known, it will likely disappear as investors try to “game” it.

Well, at least we know our tax dollars are hard at work paying researchers to come up with interesting market studies!

Weekly Focus – Think About It…

Adversity, if you allow it to, will fortify you and make you the best you can be.

–Kerri Walsh, Olympic Gold Medal Champion

Best regards,

John Raudat

Canoga Wealth Management LLC

Securities offered through LPL Financial Member FINRA/SIPC.

* This newsletter was prepared by Peak Advisor Alliance. Peak Advisor Alliance is not affiliated with the named broker/dealer.

* 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.

Sources:

http://www.bloomberg.com/news/2012-08-03/dow-posts-longest-weekly-rally-since-october-after-jobs-report.html

http://www.dol.gov/_sec/media/congress/20120606_Fillichio.htm

http://www.marketwatch.com/story/july-jobs-data-show-some-improvement-in-hiring-2012-08-03

http://www.marketwatch.com/story/hopeful-and-a-hammer-blow-jobs-reaction-2012-08-03?link=MW_story_insert

http://www.federalreserve.gov/monetarypolicy/fomc.htm

http://www.newyorkfed.org/research/staff_reports/sr512.pdf

http://finance.yahoo.com/blogs/breakout/time-fight-fed-111628759.html

http://www.sfgate.com/sports/article/Kerri-Walsh-on-Olympic-volleyball-comeback-3658307.php

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