THE MARKETS
Could November go down in history as a major turning point in
the U.S. economy?
The shocking (in a positive way) unemployment report released
last Friday by the Labor Department showed the economy lost only
11,000 jobs in November. The markets were bracing for a number well
in excess of 100,000, according to CNBC. On top of that, revisions
to the previous two months showed 159,000 fewer jobs were
lost than initially reported. And, to complete the trifecta, the
unemployment rate dropped to 10.0% in November, down from 10.2% in
October. On the surface, this is extremely good news for the
economy as it suggests the economy is healing nicely.
Initially, the stock market roared higher on the news. However,
as the day wore on, prices started to fade as investors realized
that if the economy is too strong, it will cause interest rates to
rise sooner than expected. As interest rates rise, it may cause the
economy to slow down. So, in the (almost) comical way that Wall
Street works, investors like good news - but not too good of
news!
Gold prices plunged on the unemployment report and interest
rates and the U.S. dollar soared. True to form, whenever there is
major market moving news, we tend to see some asset classes that
benefit and some that lose out. This complex and ever-shifting
interrelationship among various asset classes was on full display
after the unemployment news broke. Of course, we do our best to
stay on top of these relationships and seek to profit from them on
your behalf.
|
Data as of 12/4/09
|
1-Week
|
Y-T-D
|
1-Year
|
3-Year
|
5-Year
|
10-Year
|
|
Standard & Poor's 500 (Domestic Stocks)
|
1.3%
|
22.4%
|
26.2%
|
-7.8%
|
-1.5%
|
-2.5%
|
|
DJ Global ex US (Foreign Stocks)
|
3.2
|
40.4
|
55.6
|
-5.0
|
4.1
|
1.2
|
|
10-year Treasury Note (Yield Only)
|
3.5
|
N/A
|
2.6
|
4.4
|
4.2
|
6.1
|
|
Gold (per ounce)
|
2.0
|
36.9
|
53.9
|
22.6
|
21.3
|
15.7
|
|
DJ-UBS Commodity Index
|
-0.4
|
15.0
|
21.9
|
-7.7
|
-1.5
|
3.9
|
|
DJ Equity All REIT TR Index
|
9.0
|
25.6
|
56.8
|
-13.6
|
0.4
|
11.1
|
Notes: S&P 500, DJ
Global ex US, Gold, DJ-UBS Commodity Index returns exclude
reinvested dividends (gold does not pay a dividend) and the three-,
five-, and 10-year returns are annualized; the DJ Equity All REIT
TR Index does include reinvested dividends and the three-, five-,
and 10-year returns are annualized; and the 10-year Treasury Note
is simply the yield at the close of the day on each of the
historical time periods. Sources: Yahoo! Finance, Barron's,
djindexes.com, London Bullion Market Association. Past performance
is no guarantee of future results. Indices are unmanaged and
cannot be invested into directly. N/A means not applicable or
not available.
THERE IS A DIFFERENCE BETWEEN LUCK AND SKILL
and knowing when you are just lucky and when you are successful due
to skill is of paramount importance as an investor. Let's say you
correctly called the flip of a coin five times in a row. What are
the odds that you will correctly call the next flip? Correctly
calling five flips in a row might be considered a "hot streak" and
lead you to believe that chances are high you can correctly call
the next flip. Well, assuming it is a fair flip, there is, of
course, only a 50/50 chance that you will be correct because
flipping a coin is a game of known probability. The fact is the
coin flip has no memory of your hot streak.
An investor who is on a "hot streak" may or may not be lucky.
Let's take John Paulson as an example. He was a faceless hedge fund
manager toiling in obscurity until he came upon an idea. He became
convinced several years ago that the housing market was a bubble
ready to burst. He put his money where his thesis was and he made
billions of dollars for himself and his clients, according to a new
book, The Greatest Trade Ever, by Gregory Zuckerman.
Today, Paulson is the toast of the hedge fund world and his
latest "big bet" is that gold prices will continue to rise. This is
not a recommendation from us to either buy or sell gold; rather, we
want to make a point.
With millions of investors, odds are that some of them will make
winning investments numerous times in a row. If these winning
investors were, in reality, just lucky, but they think they
were actually skillful, then that is when the situation turns
problematic. The lucky investor may start to think they are
infallible and get stubborn when the market turns against them.
Eventually, when the lucky streak ends, it will likely mean serious
losses for the investor. Only time will tell whether John Paulson
got lucky or whether he has substantial investment skill.
The best antidote we know of to the danger of confusing luck and
skill is to remain humble. When our investment strategy performs
well, we are very thankful. When it doesn't perform well, we try to
learn from it. The investment business has an uncanny way of
turning hubris into painful losses. We think humility is a safer
route.
Weekly Focus - Think About It
"If we become increasingly humble about how little we know, we
may be more eager to search."
-- John Templeton
For your convenience the sources have been listed below:
news.yahoo.com/s/ap/20091205/ap_on_bi_st_ma_re/us...
www.cnbc.com/id/34272339
www.bloomberg.com/apps/news?pid=20601087...
seekingalpha.com/article/174014-gregory-zuckerman-...
www.templeton.org/newsroom/press_releases/sir_joh...
