U.S. Stock Markets Nearing All Time Highs: Why They can Move Higher

U.S. Stock Markets Nearing All Time Highs: Why They can Move Higher

  • Posted on: 9 December 2015
  • By: admin

The following is an excerpt from our recent research piece, U.S. Stock Markets Nearing All Time Highs: Why They can Move Higher, which can be found at http://pathlightinvestors.com/us-stock-markets-nearing-all-time-highs-why-they-can-move-higher

 

For literally years, actually four years now, investors in stocks, market participants, media pundits, and so-called experts have been focused on all that is wrong in the world. Too much debt, check. A potential Eurozone break-up, check. Lackluster job growth, check. The end of the economic world as we know it, check.  However, despite all the doom and gloom and predictions that missed the mark (widely), U.S. stock markets are within a stone’s throw of reaching their all-time highs. 

As you can see in the chart below, the Dow Jones Industrial Average is at a level not seen since late 2007. Surprisingly, the discussion still remains centered around what can go wrong. We often say that when only one side of the story is told, one argument easy to make, it’s time to look at the other side, which is precisely the objective of this commentary. 

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Dow Jones Industrial Average Posts 10th Straight Day of Gains

Dow Jones Industrial Average Posts 10th Straight Day of Gains

  • Posted on: 9 December 2015
  • By: admin

Dow Jones Industrial Average Posts 10th Straight Day of Gains

Yesterday’s positive close for the Dow Jones Industrial Average was its 10th straight positive close in a row, something that hasn’t happened since 1996. You can read a recap at http://www.reuters.com/article/2013/03/14/us-markets-stocks-idUSBRE92A07T20130314

 

Why You Should Care

We don’t want to discuss the 10 straight days of gains for the Dow in the context of record highs and euphoria. Rather we want to call investor attention to the fact that being negative about equity markets continues to be a losing proposition. For the last four years, if you have been waiting for a 2008-like meltdown because “this is all fake and a creation of the Fed printing money” you have missed out on a gain of over 130%, and your retirement plans have suffered greatly for it.

The 10 straight days of gains have also come in a measured fashion. These are not the go go days of the 90’s, where stocks posted remarkable gains on nothing at all. This has been a steady march higher with low volatility. 

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American Households Regain Wealth Lost in Great Recession

American Households Regain Wealth Lost in Great Recession

  • Posted on: 9 December 2015
  • By: admin

American Households Regain Wealth Lost in Great Recession

According to the U.S. Federal Reserve, after 5.5 years, American households have regained 98% of the $16 trillion in wealth lost during the Great Recession. You can read the story at http://www.huffingtonpost.com/2013/03/07/household-wealth-recession_n_2829980.html

 

Why You Should Care

It may not feel like it, but household wealth in the United States has seen strong growth since bottoming at $51.4 trillion in 2009. Thanks to a stock market that is up over 120% since the march 2009 lows, the beginning of a recovery in home prices, and a steadily improving job market, American household wealth now stands at $66.1 trillion, which is just over $1 trillion shy of the peak.

The wealth effect is a powerful thing, and the easy money policies of the U.S. Federal Reserve and other central banks around the world have helped asset prices recover, which in turn leads to heightened economic activity. Throw in a U.S. government that is now looking to tackle spending cuts to reign in runaway deficits and debt, and the picture in the U.S. looks brighter than at any time during the last 5+ years. 

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Where Have All the Apple Fans Gone?

Where Have All the Apple Fans Gone?

  • Posted on: 9 December 2015
  • By: admin

The following is an excerpt from our recent research piece entitled "Where Have All the Apple Fans Gone?"  The full report can be viewed at http://pathlightinvestors.com/where-have-all-apple-fans-gone
 

A surprising thing happened on the way to U.S. equity markets making five-year highs. During this strong market run, the cult-like believers in Apple’s stock seemed to have vanished. While we will highlight Pathlight’s investment views on Apple, we view the recent sentiment change surrounding the world’s most beloved stock as a significant lesson for investors.

The Pathlight Team would be hard pressed to find an investment that garnered as much attention as Apple over the last seven years. With the exception of the media fascination over the Facebook IPO, investors have been laser-focused on Apple, and for good reason. Apple has been the greatest corporate turnaround in modern history, and its stock price reflects this improvement, making people both fervent fans of its products and creating fortunes for its shareholders. But recently, something changed. 

What Happened to Apple?

Apple could do no wrong. Products were flying off the shelf, earnings were beating expectations every quarter, and in the early part of 2012, research analysts were in a rush to raise their price targets. In fact, Baird’s research analyst raised his own Apple price target five times in 2012 alone.

Then on September 19, 2012, Apple’s stock closed at an all-time high of $702.10. At that time, prevailing wisdom was that the stock was on a path to $1,000 per share, and might become the world’s first trillion-dollar market cap company.   It is during these times when prudent and thoughtful investors need to step back and re-evaluate the situation because when optimism is frothy, as it was in September 2012, and expectations high, there is no margin for error. Translation: Any misstep, no matter how small, and the stock drops. 

Unfortunately for Apple investors, in the fall of 2012, a few cracks appeared in its previously impenetrable armor, thus dashing the sky-high expectations of perfection. These cracks included an earnings miss, mapping software problems, management changes, and manufacturing issues. This combination removed the shine from the stock, and investors ran for the hills. The dramatic stock price decline shaved off billions in value in only a matter of months. 

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Expert's Corner: View of the Arizona Housing Market

Expert's Corner: View of the Arizona Housing Market

  • Posted on: 9 December 2015
  • By: admin

Expert's Corner: View of the Arizona Housing Market

The residential real estate market in Greater Phoenix has become quite exiting. Many signs are pointing for our local market to be in full recovery mode. Delinquencies on mortgages are down 49% from the peak of the recession and foreclosures are down 76% form the peak. Good signs we are getting back to a more “normal” market. In addition there are good signs of appreciation. The average sales price was up 22.9% in 2012 and new home sales were up 41%. The inventory of homes for sale has continued to shrink over the past few months.

 

With this type of news, many say we will be off to the races with big home appreciation and a frenzied market. I call for a more cautious outlook. The Phoenix average and median home prices are somewhat distorted. For the last 2 years investors have been buying up the very low end homes under $100,000. These owners were the hardest hit with the sub prime loans. Now most of the supply of these homes have been exhausted to a more normal level. This effect makes the most recent average and median sales prices jump. Not all homes have increased over 20% in Phoenix.

 

For the past 4 years many people have wanted or needed to move but have been unable because their homes were underwater. As their home has gained enough value to “just get out of it,” many homeowners have opted to sell and take advantage of all time low mortgage rates and reasonable home values. This translates into a gradual process of homes gaining value as people making a move when the numbers add up.

 

The market for homes under $250,000 is moving very quickly as rents for those homes continue to rise. These homes are valued on potential rents due to the large pool of investors and the homeowners looking in this range weighing the own versus rent dilemma.

 

If you have question on specific areas of the valley please give me a call. I am always happy to discuss the ever-changing real estate market. 

John Schloz is a real estate agent with Home Smart Real Estate.  To contact John, please call him at 602-570-5905.
 
The views and opinions expressed are not those of Pathlight Investors and are intended to be for educational purposes only. Pathlight Investors cannot vouch for the accuracy of the information presented. Please contact the author of the article to determine how this information pertains to your specific situation.

 

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Why Can’t We Treat the Sequester Like a Family Budget?

Why Can’t We Treat the Sequester Like a Family Budget?

  • Posted on: 9 December 2015
  • By: admin

Why Can’t We Treat the Sequester Like a Family Budget?

The scare tactics being promoted in Washington by all sides appear to significantly overstate the real impact of the mandated cuts to federal budgets.

According to the Congressional Budget Office, the actual cuts for 2013 are lower than the $85 billion proposed, but they do rise to that level in following years.   Proposed spending currently stands at about $3.55 Trillion—a number difficult to even comprehend.

If we could treat government spending like a family budget, a family who spends $50,000 a year would have to cut between $1,000 (lower in 2013 than subsequent years) and $2,500 based on the most negative assumption.    Wouldn’t our hypothetical family likely make those cuts to areas where they had been a bit frivolous in their spending?   Perhaps Dad doesn’t need two $5 lattes every day, and Mom could shop at Walmart instead of Macy’s, but the likelihood is that cuts would not result in being severely detrimental to the family’s lifestyle.   The outcome would resemble “belt tightening” more than a major change.

I doubt that anyone would argue that there is no waste in government spending.   The best solution, it seems, would be to allow agencies to make their mandated dollar cuts where they see fit in order to reach the new budget levels AND not harm the most essential parts of their services.  

It is clear that the largest portion of the mandated cuts are to the defense budget—over 50% of the total cuts.   Still, because the defense budget is 24% of total federal outlays, it is likely that there are areas of excess and overspending which can be reduced.   Whether or not the cuts will result in harming our national defense is really unknown. 

The question is, does the government have the will to begin to fix what will be an ever-increasing deficit leading to an uncertain future?   Where is the leadership?   Where is the effort to unite the country behind common-sense solutions?    Stayed tuned!

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Rising Gas Prices Threaten Economic Growth

Rising Gas Prices Threaten Economic Growth

  • Posted on: 9 December 2015
  • By: admin


Rising Gas Prices Threaten Economic Growth
Oh how quickly things can change. In our 2013 Outlook presentation, which can be viewed at http://pathlightinvestors.com/category/news-category/pathlight-investors%E2%80%99-2013-outlook-presentation, we noted that the decline in gasoline prices in the fourth quarter of 2012 would provide a certain level of insulation against rising prices.  The negative impacts of the expiration of the payroll tax holiday as well as the automatic spending cuts known as sequestration caused us to come to this conclusion. This insulation was supposed to help the U.S. consumer continue to spend at levels that could offset cuts at the federal level.
But 2013 is off to a rough start for motorists as the average price for a gallon of gasoline has risen from roughly $3.28 per gallon on January 1, 2013, to approximately $3.74 per gallon as of February, 25, 2013, a 14% rise. The chart below depicts the average price of a gallon of gas in blue and crude oil in red.
 
 It seems somewhat counterintuitive, to say the least, that the prices of both oil and gasoline have been on the rise even though economic data in the U.S. has begun to weaken. We are coming off a fourth quarter which showed a surprising -0.1% GDP figure, and some individual data points to start the year have been less than stellar. 
But the biggest factor in the rise of gasoline prices has been the fact that refining capacity has been taken offline for annual maintenance. This capacity is expected to come back online over the next few weeks.  So the hope is that gas prices will begin to decline, although prices always seem to rise faster than they drop.
We cannot be certain of the impact of these higher gas prices on consumer spending, but given the low rate of growth of the U.S. economy, any reduction in consumer spending will be felt. One potential offset to these higher gas prices this time around could be the rise in home prices.  This rise could help bolster overall confidence which would lead to a lower savings rate, thus offsetting the increased spending on gasoline. We will have to wait and see how this dynamic plays out.
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New Jersey Legalizes Internet Gambling

New Jersey Legalizes Internet Gambling

  • Posted on: 9 December 2015
  • By: admin

New Jersey Legalizes Internet Gambling

New Jersey Governor, Chris Christie, signed the state’s new internet gambling law into effect Tuesday, paving the way for regulation and taxation of online gambling. You can read about it at http://www.npr.org/2013/02/27/173025336/christie-signs-n-j-internet-gambling-bill-into-law

 

Why You Should Care

We all know illegal gambling happens, so the question is, why don’t we legalize it and tax it? New Jersey joins Nevada and Delaware as the states that have finally stepped into the 21st century. Instead of happening in offshore accounts, where US regulators and the IRS can’t reach, we now have another option. 

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