|American Reliance Group
December 2010 Market Recap
The U.S. stock market ended the year on a high note, as positive economic news pushed the major indexes to levels not seen in more than two years. The Dow rose 5.2% during the month and was up 11.0% overall in 2010. The S&P 500 gained 6.5% on a monthly basis and 12.8% during the year, while the Nasdaq climbed 6.2% and 16.9%, respectively. A steady stream of encouraging reports about the domestic economy gave investors hope that the recovery is gaining momentum and lifted equities, but helped contribute to a difficult month for the bond market. The prospect of a larger federal budget deficit stemming from the tax cut compromise also pressured fixed-income investments. Yields climbed throughout December, and investors pulled billions of dollars out of bonds. This happened despite the Federal Reserve's efforts to keep rates low by purchasing long-term Treasuries.
Source: Standard & Poor's. The S&P 500, Dow Jones Industrials, and Nasdaq Composite are unmanaged indexes. It is not possible to invest directly in an index. Past performance is no guarantee of future results. *Price only. Does not include dividends.
|Dow Jones Industrials
Bond woes. The larger deficit created by the tax cut extension added to upward pressure on bond yields in December. The extension of the tax cuts and relief on the alternative minimum tax (AMT) accounts for $544 billion of the tax deal's cost, while the Social Security tax rate cut amounts to $112 billion, and the extended jobless benefits cost $57 billion. The bill also retains the 2009 tax treatment for estates (a 35% rate and a $5 million exemption), which adds $68 billion to the total cost, according to Standard & Poor's analysts. The rise in yields was also caused by stronger economic data, although dividing the causality between the two is very difficult, given the extremely low level of yields. For the week ending December 15, bond funds had estimated outflows of $8.62 billion, after an estimated outflow of $1.66 billion the previous week. Taxable bond fund outflows were estimated at $3.77 billion, while municipal bond funds had estimated outflows of $4.85 billion, according to the Investment Company Institute.
Fed intentions. The rise in bond yields has come in spite of the Fed's reiteration of its intent to continue to buy long-term Treasuries. The Federal Open Market Committee (FOMC) said that it "intends to purchase $600 billion of longer-term Treasury securities by the end of the second quarter of 2011," continuing the policy set at the November meeting. The December press release seemed a bit more upbeat than the November statement, however, dropping the "pace of recovery...continues to be slow" language.
© 2010 Standard & Poor's Financial Communications. All rights reserved.
From the Kitchen of Frank and Susan
8 Anaheim chiles 3 garlic cloves 1/2 C.cheese
1 1/4 c. veg stock 2 tomatoes 1/2 C. white rice
1 red onion 3 Tbs Cilantro
Broil chiles 10 min. Peel, clean out seeds and slit chiles leaving stems. Lightly brown onion and garlic. Deglaze with veg. stock. Add rice, tomatoes, cilantro, onion and garlic. Cook for 15 min. Add cheese. Stuff chiles and place on slightly oiled sheet pan. Cover and bake in a 375 degree oven for 20 minutes.
Treasury notes. Falling Treasury prices continued to drive up yields in December, despite the Fed's ongoing Treasury purchases.The 10-year Treasury yield was 3.32% at the end of the month, versus 2.80% after November. Yields on 30-year issues rose to 4.33%, from 4.11%.
4 Investing flubs to avoid in 2011
Ready to jump back into the stock market? Be careful. Legendary Vanguard Group founder Jack Bogle says over confident investors are making four mistakes in this market.
1. Chasing past performance
It seems obvious, but markets can change direction in a hurry. And too many investors ignore what Bogle calls the "reversion to the mean-the pervasive law of gravity that prevails in the financial markets." Eventually, a bull market turns bearish, or the reverse. Or stocks of small companies perform better than large-company stocks for a couple years, only to switch positions the next two years. Yet, it's easier to put more money into a fund when stocks are rising in value and sell when they're falling. "Investments are better than investors," he says.
Are your returns really going to differ much if you pick a fund charging 0.9 percent instead of 0.2 percent? They will if you're in it for the long haul, he says, because they drag on returns year in and year out. He points to a wealth of independent studies underscoring the importance of expenses to returns. Sooner or later, every fund manager has a bad streak, or is replaced, and any performance edge the fund had is eroded by the higher fees it's likely to charge compared with an index fund.
3. Getting careless about risk
Recent gains led to overconfidence that the market will keep rising, he says. He's not predicting a crash-he expects stocks will return around 7 to 8 percent next year. But he isn't expecting the double-digit gains some are forecasting. He figures the stock market must eventually reflect the economic risks from running a record federal deficit. He also worries that China's real estate boom will go bust, which could ripple throughout the global economy. "Don't get carried away, and don't have too much in stocks," he says.
4. Focusing on the Now
You need a long-term strategy that reflects your tolerance for risk. If you can't stand to see your portfolio fall each time the market hiccups, add investments with steadier returns. And don't panic during volatility. Those who do have a plan are often inclined to shelve it when stocks hit a volatile patch, and investors move en Masse in or out of stocks. Remember, stocks revert to their mean. "The old rule used to be Don't just stand there, do something." But for an investor, he says, "often the best rule is Don't do something, just stand there."
From the desk of Kelly Ruggles
Keep It Simple Stupid
It seems to me, my brother Brian is a genius; at least when it comes to all things mechanical and electrical. Brian put a Ford engine in a Studebaker car when he was 14 years old. He received a field commission for cutting a man out of an armored personnel carrier under sniper fire in the middle of the night in Vietnam. Later he worked for Hughes Aircraft on satellites, sophisticated radar systems and cruise missiles.
I remember some 25 years ago when Brian got into making dune buggies. As he started building his first one, I asked him if he was going to use an old Volkswagen bug for his frame. He said no, he was going to build his own frame. Then I asked him if he was going to buy a pipe bender, bend the pipe for the frame and weld it all together. He said no, he was going to make the machines to bend the pipe himself. You get the idea. When it comes to electrical, Brian does stuff like build his own solar heater for his hot tub. Let's just say Brian knows how to get things done.
That is what makes this story so funny
Brian recently told me about a problem he had 30 years ago with one of those old fluorescent lights. It was not working and he decided to fix it.
First he went to the hardware store and bought two new tubes - you know long, shinny type - and installed them. The light still did not work. He figured he must have bad ballast, (they regulate he electricity). He went back to the hardware store for a second time and got new ballast and installed it. The light still did not work. At that point he decided to check the on/off switch. As it turned out the switch was shot. Back to hardware store again, this time for $.79 switch. All that work, all that money and all that time for a $.79 switch.
At the end he told me what he had learned from the experience. Now, whenever he is working on any project, he always starts with the most simple thing first. Then, he goes to the next simplest and so on until he figures out what's wrong.
I know life is complicated and each of us face complex issues every day. We may have health problems, family problems, relationship problems and so on. That's why I think there is some wisdom in my brother's words; maybe we should fix the simplest things first.
The Girl Who Played with Fire
By Stieg Larsson
© Kelly C Ruggles, Spokane, WA., President Of American Reliance Group, Inc., is a registered investment advisor.
Kelly C. Ruggles, Spokane, WA., does not intend to provide personalized investment advice through this publication and does not represent the strategies or services discussed are suitable for any investor. Investors should consult with their financial advisors prior to making any investment decisions.
Kelly C. Ruggles
American Reliance Group
1814 N Normandie Street
Spokane, WA 99205