January 2012 Newsletter

The Market:

The market began December at 1244, retreated to 1205 on the 19th, and then inched up to close the month at 1257 for a 1.0% gain. What can you say about that? Not much, but one percent to the positive beats one percent in the other direction.

Mutual Fund Money Flow

Mutual fund money flow data for November--the latest available currently--shows the following:

	October	November	Comment
Stock Funds Overall	Outflow = 20.43 B	Outflow = 18.95 B	Slowing outflow
Invested overseas	Outflow = 2.42 B	Outflow = 4.63 B	Accelerating outflow
Invested in the US	Outflow = 18.01 B	Outflow = 14.37 B	Slowing outflow
Bond Funds	Inflow = 11.41 B	Inflow = 18.60 B	Accelerating inflow
Money Market Funds	Outflow = 22.5 B	Inflow = 43.19 B	Reversal

In November, money continued to flow out of stock funds and into bonds while the flow into money market funds reversed from out to in and became significant.

Mutual fund investors remain cautious and aren't looking to stocks very favorably at this point. Relative safety appears to be the mood of the time.

PWA

In the second consecutive "blah" month, where the market didn't do much at all, the S&P 500 PWA chart signaled no buys and just one sell which occurred on the 29th of December with the price at 1263. At that point the MACD flattened, just in time for the New Year. I guess taking a profit on the last market day of the year is a good thing, assuming a person got a good buy level and was happy with the profit.

Even though the S&P didn't do much, some of the individual stocks and funds on our list did well, and others didn't. (See the Stars and Dogs section.)

New Symbols:

During the month we acquired five new symbols that were ordered by customers. They are:

• (FTR) Frontier Communications.com, a company that provides rural telecommunications in the Northeast.
• (NMM) Navios Maritime Partners, a Greece based company with vessels suited for dry cargo shipping.
• (DBC) PowerSh Commodity Index, an ETF that seeks to match the Deutsche Bank Liquid Commodity Index.
• (PCY) PowerSh Emerging Markets, an ETF bond fund.
• (BWX) SPDR Lehman International Treasuries, an ETF world bond fund.

Also, should you be interested in companies that pay good dividends, check out FTR and NMM. Both pay well.

Stars and Dogs:

With the overall market just sort of treading water there were still some stars to be found, though dogs outnumbered them by far.

Stars:

• The nova for the month was (FRO) Frontline Ltd; a Bermuda based company that owns oil tankers. It returned an amazing 43.4%. Now that's a super number, but then last month FRO was the second most miserable dog returning a miserable negative 35%. Just goes to show that even nasty old dogs can awaken given the right conditions. Maybe you can teach old dogs new tricks after all.
• Our second headliner was that staid old company from whom you might not expect much, General Electric. GE returned a very nice 12.5% to the positive. See what paying no US income tax can do for a company?
• Finally, (AKAM) Akamai Technologies, Inc, internet accelerators for business, came in with a positive 10.6%. We've seen this company in our Stars and Dogs section quite often, sometimes on one side and then on the other, so it looks like "feast or famine" for them which can be good for trading.

Dogs:

• Top dog for the month was (IAG) IamGold Corporation, metals mining, returning a negative 22.3%.
• Second place among the canines belongs to (RIMM) Research in Motion, makers of the Blackberry, trailing IAG by just a bit. RIMM came in with a minus 21.9%.
• (UNG) United States Natural Gas Fund, an ETF, ended the month down 19.4%. This fund has been in a slow down trend for a while now.

Stocks and funds that did well or didn't for December were a mixed bag for the most part.....other than for gold, metals, and mining. All of them got hammered. While IAG showed the largest paper loss for the month, it was definitely not alone. The average for companies and funds on our current list related to metals and mining was a negative 16.2%.

Not a good month for metals, but then that might portend some good buying opportunities in the near future.

Recession Watch:

On the recession front not much has changed, but there are some hints that matters could improve before long.

• Per the American Trucking Association, freight tonnage for December 2011 is up 10.6 from December 2010 with more finished goods being shipped to restore inventories for sellers.
• Housing foreclosures were at 4.11% for December at about the same level as for the last twelve months.
• Unemployment numbers remain high but as the table below shows, they are down slightly. Maybe this is the beginning of a trend, but the numbers being down for only two months does not yet establish a trend.
• In the table, "U-3" is the most commonly reported official figure which includes people who are out of work, actively looking for work, and have made application for unemployment benefits in the previous four weeks.
• The "U-6" number includes people who aren't looking anymore or are working very part time, as in just a few hours per week, and that is a far more serious number and a truer picture of unemployment than the one reported to us regularly.

The National Federation of Independent Business (NFIB) is a resource for small business information and education. Their latest Small Business Index is a glimmer of hope on a dark night. After flagging optimism and earnings through much of 2011, both measures are up. As all of you know, the small business sector of our economy is where by far the most new jobs are created. May the trend continue!

So, there are some positives to the recession picture, but as I said last month there are a number of experts and economists who believe the recession will be with us for a while and will deepen in 2012. Let's hope they're wrong.

Question: Does using the words "experts" and "economists" together in the sentence above constitute an oxymoron?

Inflation Watch

The Consumer Price Index shows inflation receding, and the "Core" doing so as well. The Core index excludes things like food and fuel-stuff we use every day-which makes me wonder how core the "Core" really is. Personally I don't care much if the price of an iPhone or computer goes up or down because I don't buy those kinds of things very often. I care a lot more about whether food and fuel prices are rising or falling.

Commodity Price Change

Reviewing our list of selected commodities for clues about future prices of the things we buy and use nearly every day shows a much more pleasing picture than in the recent past. We see that in the last month prices for everything other than beef and iron ore continue to retreat, and in the year over year column we also see price pull back for most items.

So it looks like inflationary pressures are easing overall.

Commodity	Previous 1 month % change	Most recent 1 month %	Previous 12 month % change	Most recent 12 month % change
Fuel (energy) Index	-0.56	-0.46	25.10	17.39
Food Price Index	-5.60	-1.73	1.41	-8.46
Metals Price Index	-10.35	-0.61	-7.11	-17.75
Corn	-7.24	-5.78	15.61	3.12
Wheat	-8.52	-4.26	16.61	-12.23
Beef	-0.94	1.83	12.62	9.86
Copper	-10.91	-0.29	-10.80	-17.42
Iron Ore	-15.12	0.68	1.31	-19.03
Overall, this group	-7.40	-2.07	6.84	-5.56

 

Opinion

The cartoon below is a pretty good metaphor and a concise statement about what people demand of government and what government attempts to provide, but that "mission statement" can't continue endlessly. Collectively as a nation, we're swimming in debt, and significant debt is always a killer of any enterprise.

This is an election year and who we elect to the White House and Congress becomes extremely important. If indeed a better unemployment number trend is established, and the recession eases, and inflation recedes, we will be left with the major issue (in my view) of our time and that is government overspending revenue every single year regardless of which party is in power.

Right now our national debt equals our Gross Domestic Product and we aren't doing anything to reduce it. The situation is similar to a household in which the family pays interest only on their credit card debt, but then continues to use the cards. Such a family could not survive for long without changing course to become more fiscally responsible.

If we ever permit the interest on our national debt to equal our GDP, our economy will collapse entirely.  If nothing changes, that's where we're headed in another twenty years.

We owe it to ourselves and our grandchildren to elect people to high office who understand something about economics and how to be fiscally responsible. Let's hope that collectively we can do that.

Wishing you well,

Arley Loeffler, CEO
Investment Timing Software, LLC
arley@itspage.com