Highlights of this Week’s Update:

  1. Tax Forms due to be out next week-Mailed and available on Tuesday, February 18th from the Trust Company of America.  K-1 deadline is March 15th and we will provide more details as they become available.
  2. Last week’s market action was somewhat confusing based on economic data and market volatility continues to rise in the New Year.
  3. Our outlook remains the same:  Cautious on stocks, with limited exposure at this time and favorable on fixed-income/bond assets and “alternative” assets.
  4. What’s the “real” unemployment rate?  Not so good if you count the underemployed, part-time, and those discouraged enough to quit looking for a job.

READ ON FOR MORE DETAILS…………………………………………………………………..

Tax Forms:

The deadline this year for tax information forms (1099’s etc.) to be mailed is Tuesday, February 18th.  The Trust Company of America will be posting the 2013 tax information online as well as mailing a “hard” copy to all of you on that date.  REMEMBER:  There is also a “CSV” file available that can be downloaded with all the 2013 transactions to most tax preparer’s software, including TurboTax.  This can save both time and money so we encourage all of you to take advantage of this information.  We would be more than happy to send this over to your tax preparer if you need assistance of any kind.  Just let us know.  K-1 forms do not have to be mailed out until March 15th, so some of you may also receive these based on 2013 investment holdings and income distributions.  We will be providing additional information on the K-1’s as it becomes available.

The Markets – when bad news is good news and good news may not be so good

Bad news, which hurt stocks on Monday, wasn’t really that bad and good news that fueled Friday’s advance should have been more sobering. Confused?  Let’s jump into this week’s commentary.

Last week started out on a sour note, with a 326-point selloff in the Dow Jones Industrial Average (MarketWatch). The culprit – the closely followed ISM Manufacturing Index registered its 3rd largest decline since 1990, falling 5.2 points in January to 51.3 (ISM data). A reading of 50 suggests no growth, a reading above 50 suggests expansion, and a reading below 50 suggests contraction. At 51.3, manufacturing starts the year in low gear.

The ISM Manufacturing Index is a detailed national survey of purchasing managers and supply executives taken by the Institute for Supply Management. What’s happening at the early stages of production should eventually filter through to final production.

Whenever you get these unexpectedly large declines (or for that matter large gains), it’s always important to ask if there might be an underlying reason outside of economic activity that caused the move.  In its release, the ISM noted, “A number of comments from the panel cite adverse weather conditions as a factor negatively impacting their businesses in January (my emphasis), while others reflect optimism and increasing volumes in the early stages of 2014.”

In other words, anything from power failures to delays in shipping brought on by an unusually harsh winter appear to play a big role in the decline. Yet, markets have been jittery, and a weak headline number started a downhill slide. By day’s end, the Dow was off 326 points (MarketWatch).

Our Outlook:

We continue to remain cautious and underweighted in our exposure to equities/stocks for all risk levels.  So far this approach is serving us well in 2014 given the negative returns generated in the major stock indices for the New Year through Friday’s close.  So far this year we have seen positive returns for fixed income/bond assets in general, as well as the “alternative” assets such as commodities including gold and silver.  We did re-balance our client portfolios on February 5th in an attempt to allocate all portfolios on our “target” asset mix based on levels of risk.

Employment:  When bad news turns into good news

On Friday, the Bureau of Labor Statistics (BLS) reported that nonfarm payrolls in January rose by a sluggish 113,000, below the forecast of 181,000 (Bloomberg). To put it into perspective, payrolls have risen at an average rate of 183,000 per month since January 2011 (BLS).  Unlike the ISM Index, it does not appear that weather played a role due a 48,000 increase in construction, the fastest rise since January 2007 per BLS. If any category might be affected by weather, it’s construction.

And stocks rallied on that sluggishness – bad news is good news – amid the possibility the Fed could delay measured cuts in its $65 billion in monthly bond buys.  We may get more clarity this week when the new Fed Chief Janet Yellen testifies before a House Committee on Tuesday and a Senate Committee on Thursday. Still, we’ve got plenty of data to decipher before the next Fed meeting in March (Fed meeting calendar).

Meanwhile, the unemployment rate fell from 6.7% in December to 6.6% in January, continuing its descent (BLS). But as mentioned in the past, the jobless rate doesn’t fully capture what’s happening in the labor force.

Take a look at the graphic below offered up by the Federal Reserve Bank of Atlanta, whose gridiron illustration helps to visually capture what’s going on in the labor market.


Source: Federal Reserve Bank of Atlanta; date January 13, 2014

Using the prerecession peak as the goal line, the offense has moved the ball 65 yards to their opponent’s 35 yard line using the official unemployment rate.  We’re practically in field goal range. But for the other categories, it’s been far less encouraging.

Those who are part-time but want full-time work have advanced the ball just 31 yards, and those marginally attached (they want work, can’t find work, and have given up looking; hence, aren’t counted as officially unemployed) are stuck deep in their own territory at the 12 yard line.  It’s something the Federal Reserve is grappling with as it sets monetary policy and holds interest rates at low levels.  So, things aren’t quite what they seem and the “official” unemployment does not tell the whole story.

We appreciate serving each of you and are here if you ever have any questions, or if we can be of further service in any way.

God Bless,

Your TEAM at F.I.G. Financial Advisory Services, Inc.


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