Blog

After a month and a half since our office flood we are now back to normal.  The wood floor is installed, carpets cleaned and laid, walls and baseboards replaced and painted, art hung on the walls, and furniture returned from various idle locations in our 30-story office building.  ‘Normal,’ whether real or imagined is nice, even if for a short while.  It’s what gives us a chance to catch our breath before the next round of challenge and growth. 

The year is progressing pretty much as investors anticipated.  Analysts continue to lower their earnings expectations as many corporate managers downplay their guidance for the coming quarters.  Mr. Bernanke of the Fed says he will continue to fight inflation as hard as his predecessor Alan Greenspan, yet he has some changes in mind.  The steady supply of oil continues to be clouded by instability inNigeria,Venezuela,Iraq, and most recently,Saudi Arabia.  But with current supplies high and prospects for slower global economic growth, the price of oil is down 4% for the year so far.  The same is not true, however, for gold, up 7.5% for the year, likely on inflation and global security fears.  But the best leading indicator of all, the stock market, is up.  The Dow Jones, S&P 500 and NASDAQ indices are each up about 3.5% so far this year while our model portfolios are doing better than that.  But, with all the uncertainty, the ride has been bumpy and should continue that way.

The stock market with all of its intraday gyrations finishes the week up nicely.  Following a decline on Monday, the last three days have culminated in a 1.8% rise in the S&P 500.  In contrast to last week, when good news was bad, investors decided the liked the sound of a roaring economy, especially if Fed Chairman Ben Bernanke doesn’t drown it out with the inflation drum.  On Tuesday, the government reported the strongest monthly gain in retail sales in nearly two years confirming that the economy is as strong as ever.  The Dow industrials rose 136 points, or 1.25% to 11028. 

More than half of companies have reported their calendar fourth quarter earnings to date and they are up an average of 14%, according to the Wall Street Journal’s Total Market Index.  These strong earnings suggest a continued strong economy.  So far, neither the Fed’s rate hikes nor the slowing housing market have managed to sap much of the economy’s vitality.  Employment indicators have been strong and consumer spending was robust during the last two months of 2005.  Gross Domestic Product in the first quarter of this year could easily exceed 4%, according to experts.

The latest economic news further clouds the picture and investors have acted on that uncertainly by selling stocks.  We expected a sell-off early in the year, but wonder if it has gone a bit too far. 

The fans and dehumidifiers are gone and the office is dry, quiet, and empty.  We hope to have the walls and trim and paint restored this weekend, with our furniture soon to follow.  We are very thankful for the quick response of the building management and their contractors.  We are also delighted that our network has continued to run throughout the event without skipping a beat.  In the midst of the ruckus we installed our new website.  Please take a look – www.beaconinvest.com.

As I write this Brief there are about five men in my office cutting sheetrock and removing insulation.  It has been a dusty and noisy week spent in the drone of high speed drying fans and dehumidifiers.  Last weekend our offices were flooded.  Patty’s and my Monday holiday plans were subordinated when we received word from our building’s manager that our office was filled with about an inch and a half of water.  It seems a refrigerator icemaker line in the office above us burst (the night of Friday the 13th maybe?) and ran undiscovered through the weekend.

The economy continues to grow, creating new jobs even as companies produce more with fewer workers.  Non-farm payrolls increased by 108,000 in December and the unemployment rate dropped form 5.0% to 4.9%.  While the December growth in jobs was about 100,000 less than expected by economists, the number of jobs created in November was increased by the same amount, as reported by the government.  Manufacturing payrolls increased by 18,000 for the month.  Following sufficient economic growth, the continued high productivity rate no longer stifles hiring.  In other words, despite increased output from workers, companies are still forced to hire new ones to keep pace with demand.

In a huge turnout, 11 million Iraqis cast their ballots yesterday in their parliamentary elections, which, if the estimate holds, would put the overall turnout at more than 70%.  The main story was the lack of violence.  The Wall Street Journal notes that the election marks a significant milestone in Iraqi politics since the fall of Saddam Hussein's regime.  It is the first political event deemed legitimate by a large swath of Iraqis, including Sunni Arabs who had shunned the political process, the Journal notes.