A Week in the Rearview - week ending 8/29/08
In the headlines
A look at some of the market movers over the past week:
- Federal Reserve chief Ben Bernanke recommended that financial supervision be revamped
- Freddie Mac (NYSE: FRE) managed to complete the sale of $2 billion in short term debt
- Rio Tinto’s (NYSE: RTP) first half got a big boost from higher commodity prices
- JPMorgan (NYSE: JPM) is suffering at the hands of Fannie Mae (NYSE: FNM) and Freddie Mac’s depressed stock prices
- General Motors’ (NYSE: GM) Hummer division is starting to attract some interest
- The Federal Deposit Insurance Corp (FDIC) is starting to feel the heat as the credit crunch wears on
- Bond specialist PIMCO is seeing some opportunity in the distressed debt market
- Consumer sentiment is up, but wallets are still being kept shut
- Home sales improved in July, but that prices continue to fall
- Fannie Mae shook up its management in an effort to turn things around
- Sears Holdings (Nasdaq: SHLD) posted a big profit decline for the quarter
- Stronger than expected orders for durable good surprised the market
- Exports helped the US post second quarter GDP growth well ahead of previous estimates
- Dell (Nasdaq: DELL) continues to struggle, as evidenced by its weak second quarter margins
- Oil prices continued to bounce around, though hurricane worries had them up at week’s end
Commentary
The market did start out the week on a pessimistic note, and the S&P 500 lost 2% on Monday. Surprisingly enough, though, positive economic reports came to save the day and stronger than expected durable goods orders and a healthy upward revision to GDP estimates led the market to some solid gains through the middle of the week. The continued signs of weak consumer spending were outweighed by other positive factors, including rising consumer sentiment.
The market couldn’t hold onto the gains, though, as pessimism came back into the picture on Friday led by soft personal income data, rising oil prices, and a lousy earnings report from Dell. Fannie Mae and Freddie Mac continue to show their faces in the headlines almost daily, but this past week actually brought some moderately good news for the two — which is certainly a welcome change.
Looking ahead
As we head into next week, we’ve past the main rush of earnings. There will be some notable companies such as Guess (NYSE: GES), H&R Block (NYSE: HRB), and Toll Brothers (NYSE: TOL) that will still report, but it’s likely there will be anything substantial enough for the market to really sink its teeth into. The third calendar quarter ends on September 30th, so we can expect the true earnings coverage to be pretty quiet until after that. As we get closer to the end of the quarter, though, we will start to get early quarter reports — upward and downward guidance — that could certainly help set the market’s tone in the month to come.
Getting back to the imminent future, we’ve got a full slate of economic releases headed towards us next week, though it’s likely only a select few that will raise any eyebrows. The ISM index, the ADP employment report, factory orders, the Fed’s beige book, and the unemployment rate are all releases to keep an eye out for. And of course we’re likely to see some reaction to both the weekly initial claims report as well as the crude inventories.
When it comes to what you do with your money, there’s a very important distinction between investing and speculation. Imagine there was a goose that was laying golden eggs (creative, I know!). With almost Old Faithful like predictability this goose lays a new golden egg every week. The catch is that the size of the eggs are highly variable — sometimes they’re as large as three normal sized eggs, while at other times they can be as small as a pea. However, even with the varying egg sizes, on an annual basis the goose manages to almost always lay the same total amount of gold.
In our little fantasy scenario here, the investor is the person that likes the idea of a goose that they can count on laying a certain amount of gold for them so he buys the whole goose for a reasonable price. The speculator, on the other hand, wants to try and outsmart the goose and every other speculator out there and so on a week to week basis he tries to guess when the next extra large egg is going to come out and offers ahead of time to buy the egg when he thinks there is going to be a larger-than-normal egg.
Now I’m not here to say that one way is right or wrong — in fact, maybe the speculator did find some reliable way to figure out the next egg size. However, as you might guess, the speculator is constantly at work running numbers, studying geese of all types, and wheeling and dealing with the golden goose owner. In fact, goose egg speculation is his full time job. Our investor, on the other hand, owns the goose and gets every bit of the gold. He may not have the same stories of goose egg conquests to share at cocktail parties, but he never finds himself tossing and turning in bed wondering about egg sizes, nor does he end up paying big bucks for pea sized eggs.
The bottom line? As we continue to stress, the best way to approach saving for retirement is to avoid timing the market completely and simply save and invest consistently. Owning solid equity and bond funds may not be as whimsical as having a golden goose, but historically a good, diversified portfolio has played the same golden part for investors.
