Week in Brief: May 1, 2015

May 1, 2015

Investors closed the first week of May on an upbeat note. Bad economic news was salve for stocks. A weak ISM Manufacturing Index report stirred hopes that the Fed would push back rate hikes until later this year. Perhaps into 2016. Equities lept. Reducing losses incurred earlier in the week.
The week included 26 economic reports and earnings reports for 800 companies. Thus far, earnings reveal that revenues are down 4.2 percent versus Q1 last year. Much of which can be attributed to energy stocks. Which saw sales drop 34 percent and revenues fall by 9.5 percent. Earnings? Flat. Best of show thus far? Health care companies, where revenues have risen 8.6 percent with profits higher by 13.5 percent.
Investors have grown increasingly concerned with falling earnings. Bears point to rising valuations. And a continuing lack of economic growth. Still, though valuations have risen, they deserve a premium due to historically low interest rates. Warren Buffett pointed this out over the weekend. Explaining that there exists little to no opportunity in bonds. By comparison, how couldn't stocks be attractive?
"I would've thought by now you would have seen much higher rates than we have... which is essentially nothing," Buffett said. "If these low interest rates prevail for five or 10 years, you'll look back and say stocks were very cheap. If interest rates normalize, you'll look back and say they weren't so cheap."
For now, rates remain very low. So stocks remain cheap. Offer value. Even as they sit just below an all-time high.
This week holds much of interest. A meat sandwich of corporate earnings. Vital economic data. Amid a bounty of global economic threats. Sounds like a volatility cocktail. Yet, U.S. markets will do their utmost to break free of constraints. Any good news could serve as a catalyst to drive markets higher. And for now, the trend points higher.
. . .
Last week, Baltimore incurred the same fate as Ferguson, Berkley, New York and other cities in which residents took to the streets in violent protest against alleged police brutality. Businesses were destroyed. Protesters and police were hurt. Al Sharpton's rebuke of, "no justice, no peace" was on full display. Civil unrest that left stores destroyed while entire city blocks burned. "Heartbreaking," said the grandson of Martin Luther King Jr.
Overseas, the U.S. will sell another $1 billion of Viper attack helicopters and Hellfire missiles to Pakistan. So the Pakistanis can, presumably, use that hardware to fuel additional conflict in the region. Particularly against India. It certainly won't be used to fight jihadists. Nor will Pakistan's leadership eradicate the Islamist ideology from its national school curricula.
The U.S. has given $40 billion in aid to Pakistan since 1950. So that Pakistan could foment strife in an already contentious region. While avoiding responsibilities to 200 million Pakistani citizens. A third of whom live on less than a dollar per day per household. Yet, here we go again. Following misguided policies that have achieved nothing. Expecting a different result.
50 years ago last Sunday, chemist and reluctant entrepreneur Gordon Moore graphed out his forecast for the rate of technological change to come. Forecasting that increasingly small circuitry and microchips would lead to a doubling of computer power every 18 months, his prognostication came to be known as "Moore's Law." Of course, Moore went on to co-found Intel, and helped to usher in the digital age.
The Good
Washington policymakers moved forward with the Trans-Pacific Partnership bill, which included some bipartisanship between the president on the GOP... The Brookings Institute reports that young, minority workers are increasingly joining the workforce... Consumer spending is improving... Existing home sales spiked up by 5% YOY... Investor sentiment remains generally pessimistic -- a bullish contrarian indicator...
The Bad
No progress on a Greek debt deal... Global PMI readings disappointed... While durable goods orders beat expectations, they were weak aside from aircraft sales... New home sales missed expectations... Consumer confidence missed expectations... Earnings reports tilted a bit negative with 71% of companies exceeding earnings expectations (though sales growth and revenues have disappointed)... Student loan defaults worsened... Q1 GDP was a meager 0.2%...
The Ugly
Analysts report that North Korean missile range may now be enough to reach the continental U.S. Packing a payload of twenty warheads. With most of the West Coast now potentially reachable, the problem of a nuclear North Korea becomes a much bigger concern.
Even Uglier
Baltimore. Tragic on so many levels.
Defending Your Financial Fortress
Recently, Hyde Park Wealth Management hosted its "Defending Your Financial Fortress" event. Where we discuss strategies and tactics for battening down one's financial hatches. In preparation for troubling economic times. Strategies like developing a low-volatility, 30-30-40 portfolio. One that lost 8.77 percent in 2008 while earning 8.20 percent annualized over the last ten years. And utilizing insurance and risk management strategies to protect family, and other cherished possessions.
As Morningstar's Matthew Coffina has said, "The time to prepare for a hurricane isn't while the rain is pouring down, winds are hammering on your windows, and the power is out. It's not even a couple days ahead of time, when the weather report is blaring warnings and people are trampling one another at Wal-Mart to buy bottled water. The time to prepare for a hurricane is weeks or months in advance, calmly and with purpose."
Wise words. One cannot forecast panic and disaster. They arrive unexpectedly. One minute? Solitude. Then? Chaos.
No one felt any apprehension on December 6, 1941. Or foresaw Nepal's recent 7.8 magnitude earthquake until Kathmandu was shaking. Nor awoke on September 11, 2001, smelling something sinister in the air. Disaster simply appears. From nowhere. So be prepared to withstand its formidable broadside long before its occurrence.
That entails having a downside protection plan for one's capital market investments. Attaining proper risk management coverage for one's assets, valuables and estate possessions. Ensuring that income streams can survive catastrophic injury. And simply ascertaining that a life's work will be fortified against the hyper-litigious profiteers that proliferate within modern society's dark alleys and seedy wharfs.
The keynote speaker? Mr. David Rutherford. Navy SEAL. Behavioral specialist. Author. David's represents a life lived in the highest gear possible. Wide open. And his presentation was everything we hoped for.
He discussed a philosophy for success. "The Team Life." In which one faces all fears head on. With courage and integrity. And racing towards every new challenge in recognition of the growth opportunities therein.
David was excellent. Learn more, here.
Six Individuals From Whom You Should Not Take Investment Advice
Anthony Isola provides a police lineup of six individuals whose investment advice was just plain bad for those who made the mistake of listening. Enjoy this piece.
More Out of Market than In
52 percent of Americans are not invested in stocks. Some remain jaded. Most do not have the discretionary income. Yet, with wages rising, they will. Which is yet another reason this market has room to run. Article.
House Passes Tax Cut for Political Mega Donors
A guy landed a gyrocopter on Capitol Hill to bring attention to the need for campaign finance reform. His courage? Commendable. As elected officials set the stage for big-money donors to expand their political influence, such boldness has never been more necessary. Story.
U.S. Warships Move to Block Iranians from Resupplying Houthis
Even as a six nation team continues dealing to achieve a nuclear pact with Iran, the U.S. has sent a battleship and a multitude of other vessels to the Persian Gulf to ensure that the Iranians cannot provide military provisions to Libya's Shiite-backed Houthi rebels. Story.
Nerd Prom is a Mess
The White House Correspondent's Dinner has devolved from a celebration of the nation's top presidential reporting to a four-day adulation orgy between D.C., the media and Hollywood. Both parties share culpability. With the larger message being the increasing overlap between public institutions whose very independence was once held sacred. Story.
On Iran, Republicans Have No Endgame
The GOP has talked a mean streak about derailing the Iran Nuclear Deal being cobbled together. And they've clucked like angry chickens about the lack of a Congressional review process, as well as the president's ability to complete the deal via his Congressionally granted waiver authority. This problem, however, is of the Republican's own doing. Article.
Weekly Results
Major markets finished lower last week. The DJIA fell 0.31%, the S&P 500 dropped 0.44%, and the Nasdaq lost 1.70%. Small cap stocks fell 3.11%. And the 10-year Treasury bond yield rose 20 basis points to 2.11%. Gold added $1.12 per ounce, or 0.09%.

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