This blog is written weekly by Dock David Treece, a registered investment advisor with Treece Investment Advisory Corp. It is meant to share insight of investment professionals, including Dock David and his father, Dock, and brother, Ben, with the public at large. The hope is that the knowledge shared will help individuals to better navigate the investment world.

Monday, December 21, 2009

Unclear Economic Data Makes Research a Must

As expected, the market has been relatively slow over the past week. Oil, which we had said was overextended, has since corrected; while the dollar, which we claimed to be oversold, has rallied over the same period. Earlier this week the stock market attempted to break out of its recent consolidation pattern, only to pull back into that trading range once again.

Meanwhile, ten- and thirty-year Treasury rates have been creeping up ahead of this week’s Federal Open Market Committee announcement. This would seem to suggest that, regardless of what the FOMC says, the market believes that the Fed should be raising rates in order to price risk appropriately. This recent action could also be hinting at a growing belief in the market that inflation could be on the way.

For the month of November, retail sales have been up slightly year-over-year, so while this holiday season hasn’t been great, it’s provided the economy with at least respectable numbers. However, the Empire State Manufacturers’ Index has been surprisingly weak, especially given retail sales.

This anomaly most likely indicates that holiday sales have thus far been working through pre-existing inventory. This, in turn, tell us that presently the economy is, for lack of a better word, “spotty,” meaning that while things aren’t getting worse, they really improving either.

With respect to housing, data remains mixed, partially because the market isn’t being given a full picture of current circumstances. As we mentioned last week, housing inventory numbers released by the government don’t include homes that have been foreclosed but are not being put on the market by lenders.

Over the last two weeks, gold has fallen more than $100 from its high near $1210. Weekly readers will remember that we have recently been bearish on gold, as it has undergone a substantial rally that we believe unjustified by current fundamentals. Utilities, where we’ve been positioned for some time, have been gathering momentum over the same period. Utilities as a sector have been gaining popularity among investors seeking higher yield than can be found in most fixed-income investments.

We have stressed repeatedly, and feel the need to remind readers that this market is not conducive to a hands-off approach. Unlike the last few years, today’s economic environment requires constant study, and investors trying to manage their own portfolios need to understand the amount of time required to sift through information, determine what’s relevant, and have the background to interpret information and apply it to the markets.

Those investors who lack the time or ability to commit to their investments need to at least put in the time to find an advisor who is willing and able do the job for them. Even more importantly, advisors need to be sufficiently knowledgeable to use pertinent information to make sound investment decisions on behalf of clients.

All too often the investment world is plagued by fads, either in the form of burgeoning sectors or money managers with so-called “hot hands.” It is absolutely necessary for investors to ensure that they are picking an advisor with the knowledge to add value to client portfolios over the long term. In the short term, get-rich-quick schemes come and go, and flavors of the week all eventually turn sour.

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