Download January 25, 2013 Greetings All: I once again find it hard to believe

January 25, 2013
Greetings All:
I once again find it hard to believe that another year has passed. In my usual
routine of preparing this “beginning of the year” report, I review the previous
year’s letter. In doing so, I took pause! Here is what I wrote last January:
“The New Year has begun and on a good note as we had a nice upward
market move on January 3rd and several reported and notable economic
indicators are also showing improvement; the Institute for Supply
Management (ISM) reported its manufacturing index rose to 53.9 in
December (the best result in seven months); Goldman Sachs on January
4, 2012 reported that factory orders were up for the month of November,
2011 and that their most recent estimate for quarter four, 2011, Gross
Domestic Product (GDP - the market value of all final goods and services
produced within our country) was also positive. Recently we have seen
improvement in new orders, production, and on January 6th, employment
numbers showed progress. The consumer seems to be more optimistic
and looking at the most recent numbers from the housing industry there
are signs of improvement there as well (more later on housing). And, all
of this, there is a continuation of the generally solid US economic data
seen in recent months.”
What caused me to take note was that I could have used last year’s paragraph
above to begin this year’s letter! On January 2, 2013, we had a large move-up in
the market (read: our politicians have come to a solution on the fiscal cliff),
economic indicators still improving, consumers maintain optimism, etc. etc. etc.
Interesting don’t you think?
Looking at the 2012 performance for the U.S. economy we see that it grew and it
was better than 2011. Inflation was stable, borrowing rates remained low and
jobs increased by about 1.9 million; a fairly positive outcome for 2012.
Personally, (and I have felt like this for some time) there continue to be good
things happening in our Nation, however, most investors remain suspicious;
intense focus the media is placing upon the negatives and the continuing failures
of our politicians. As investors, it’s time we look at what the economy (and
markets) can do in spite of the pending negatives and governmental weakness;
in fact, we might consider assessing what the economy (and markets) did do
over the past several years in spite of all this pessimism; grow. I suspect what
we should expect next is for the media to start building the next “crisis” headline,
creating investment fear, paralyzing action and hindering the growth of the
entrepreneurial spirit of our Nation; which has demonstrated to be quite a
resolute economy.
Expecting that, let us continue our work together,
communicate often, mesh the investment opportunities that are consistent with
your needs and block out these often incorrect assessments of the future.
As we enter the New Year, we enter a new earnings quarter. Alcoa was the first
company to release earnings. On Jan 8th it did so and exceeded expectations,
but in their press release, their words were more interesting than their financial
results. They are projecting improving global growth going forward into 2013.
They expect the aerospace industry to grow 9-10 percent, automotive to grow 14 percent even after double digit growth in 2012 along with commercial
transportation, packaging, building and construction, to all grow during the year
and to be key drivers to Alcoa’s sales throughout 2013.
2012 was remarkable in the resilience corporate America displayed. In the face
of huge uncertainty they were able to create value and grow. Europe mitigated
the risk of large-scale insolvency and we now see the economic risks in Europe
declining. Further we continued to see the middle-class economies in developing
nations and emerging markets grow; with that emerging market expansion
expected to continue through 2020. All these conditions are expected to
continue into 2013 especially for corporate America. They continue to remain in
great financial health, they have solid balance sheets and lean cost structures.
They have been cautious, avoiding major expenditures and postponing hiring
amidst a weak and recovering economy. However, as clarity improves within our
present fiscal and tax issues, we could see a substantial pickup in corporate
spending and hiring; “pickups” that have higher probabilities of occurring today
than 3-5 years ago. Here’s the thing…the forecasters are saying (average
numbers are being used here) for 2013 we look to see overall economic growth
of 2% increasing to 3% in 2014.
Presently interest rates remain low, inflation is null, housing continues to
improve, corporate America looks solid, the Fed is accommodative (good or bad,
this is undecided…I think good), consumer confidence fluctuates but trends
positive, oil prices seem to have stabilized and more people are working. Five
years ago we were told this was not going to be the case. It is, we are a robust
Nation, recovery remains underway and we are growing.
“So…what do we do going forward?” Maintain your personal investment plan;
look for good quality investments consistent with your asset allocation, risk
tolerance and financial goals.
Look for good quality companies, both
domestically and internationally and try not to focus on specific individual
markets. Maybe emphasize income oriented investments; investments with
yields greater than the expected growth rates. It may be time to redefine your
investment path. There are simply a vast number of ways we can approach this
investment world but the one that is right is the one we have created (or possibly
re- create) through discussion of these conditions and how they specifically affect
you.
It continues to be complicated out there. Working together will help us all be
successful and allow me to continue my work on your behalf. Your support and
input on this journey is critical so please keep in touch with me as often as
possible as I will with you. My best to you and your family as we enter 2013,
enjoy life, family and friends and I will continue this ever developing story in April.
Regards,
Martin
The opinions voiced in this material are for general information only and are not intended to
provide specific advice or recommendations for any individual. To determine which
investment(s) may be appropriate for you, consult your financial advisor prior to investing.
All performance referenced is historical and is no guarantee of future results. All indices are
unmanaged and cannot be invested into directly. The views expressed do not necessarily
reflect the views held by LPL Financial. Reference: LPL Financial Weekly Economic and
Weekly Market Commentary dated January 7, 2013.