HOW HEALTHY IS THE DOLLAR?

HOW HEALTHY IS THE DOLLAR?

The strong dollar policy is long gone, but the greenback isn’t in peril just yet.

Provided by Kip A. Hoover

A favorite doomsday scenario. Have you heard about the forthcoming collapse of the dollar? Well, if you turn on your computer, your radio and even your TV, you just may. With the Federal Reserve poised to increase the money supply, the commentary on this topic is heating up again.

The scenario has variations, but the basic outline goes like this: An unexpected political or economic event leaves the dollar so weak that all confidence in it is gone. Foreign nations sell Treasuries in a panic and the Fed becomes the buyer of last resort. Traders and individual investors dump dollars for whatever they can get. Interest rates leap. Next stop: hyperinflation. America’s economy suddenly resembles that of Zimbabwe in 2007 or Germany in 1922.

So is there any validity to this scenario? Could the dollar collapse?

Let’s just say that the odds are very long. While the Federal Reserve will likely ramp up quantitative easing in the near future, it is highly unlikely that the dollar will suddenly become too cheap.

Why it is unlikely to happen. Foreign countries don’t want the dollar to collapse. Fundamentally, that is because some of the world’s biggest manufacturing economies rely on a great customer for their exports – the United States of America.

China and Japan currently hold 41% of America’s debt.¹ In the worthless dollar scenario, they are the key dominoes that fall. But what incentive do China and Japan have to sell dollars? Their economies are tied to U.S. consumer spending. Selling dollars would not benefit them – it would drive up the prices of their exports to America, it would wreck the economy of their best customer, and it would harm their own economies in turn.

The dollar is also the world’s reserve currency; it has been so since the U.S. abandoned the gold standard during the Nixon administration. While the central banks of China and Russia have argued that it should be supplanted or replaced, no challenger has knocked it off its pedestal. In spring 2010, the International Monetary Fund concluded that the dollar still accounted for 61.5% of global foreign exchange reserves, with the euro coming in a very distant second at 27.2%.²

In a way, the dollar has “collapsed” – and America is still standing. The dollar is much weaker today than it was in the 1990s, or even in the early 2000s. Its value has gradually declined and may decline further despite recent surges. In mid-October, the U.S. Dollar Index had slipped about 7% since August, and was approaching an all-time low set back in April 2008.³  

America’s debt was less than $3 trillion in 1990; it has doubled since, and the federal Office of Management and Budget thinks it will hit $15 trillion by 2015.¹ The federal government would certainly rather pay those debts back using a declining dollar.

Of course, analysts also talked about the pound collapsing and the euro collapsing earlier this year. All this talk – and expectations about what the Fed will do – sent many investors toward the precious metals market, where gold and silver futures hit new highs.

A little word about diversification. When you hear commentators talking about the oncoming collapse of the dollar, take it with a grain of salt. This much is true so far: a dollar decline has occurred, and the dollar could weaken further. So it might be worthwhile to consider diversifying your portfolio as a cautionary move.

Kip A. Hoover is a Representative with LPL Financial and may be reached at http://www.teichmanfinancial.com/ , 440-729-0036 or kip.hoover@lpl.com .

This material was prepared by Peter Montoya Inc., and does not necessarily represent the views of the presenting Representative or the Representative’s Broker/Dealer. This information should not be construed as investment advice. Neither the named Representative nor Broker/Dealer gives tax or legal advice. All information is believed to be from reliable sources; however, we make no representation as to its completeness or accuracy. The publisher is not engaged in rendering legal, accounting or other professional services. If other expert assistance is needed, the reader is advised to engage the services of a competent professional. Please consult your Financial Advisor for further information.. www.petermontoya.com, www.montoyaregistry.com, www.marketinglibrary.net

Citations

1 – azcentral.com/news/articles/2010/09/19/20100919debt-of-us-grows-with-debate.html [9/19/10]

2 – businessweek.com/news/2010-06-30/dollar-share-of-global-reserves-declines-imf-says.html [6/30/10]

3 – bloomberg.com/news/2010-10-19/geithner-weak-dollar-policy-seen-as-path-to-recovery-in-contest-with-brics.html [10/19/10]

Weekly Economic Update October 25, 2010

WEEKLY ECONOMIC UPDATE
WEEKLY QUOTE “Life is the art of drawing without an eraser.”  – John Gardner WEEKLY TIP Try setting a specific dollar amount as a goal for your emergency savings, rather than just contributing to it here and there as it's convenient. A solid goal may help you stick with steady, ongoing contributions. WEEKLY RIDDLE Before Mt. Everest was measured, in 1819, what was the highest mountain on earth? Last week’s riddle: What is placed on a table and cut, but never eaten? Last week’s answer: A deck of cards.	October 25, 2010 FED & CONFERENCE BOARD SEE MODEST GROWTHThe Federal Reserve’s latest Beige Book came out last week, and 8 of the 12 regional Fed banks reported economic expansion in the anecdotal survey covering September and early October. The survey found that while hiring demand “remained limited”, gains in manufacturing and retail spending were occurring in most regions. The Conference Board’s September Leading Indicators Index offered a slightly less encouraging picture – the gauge advanced for a third consecutive month, rising 0.3%, but just 5 of the 10 components of the index posted gains.1,2 HOUSING STARTS RISE SLIGHTLYA nice surprise: Commerce Department data showed a 0.3% advance in housing starts for September. Analysts were not expecting a third straight monthly increase. Is it a sign of stability in the real estate market? Economists hope so, though the pace of housing starts is still very weak in historical terms.3 INDUSTRIAL OUTPUT DISAPPOINTS It had been a year since the Federal Reserve announced a monthly decline in industrial production. There was an unanticipated 0.2% drop in the category for September. Utilities production rose by 1.9%.4 GOLD PULLS BACK, OIL HOLDS STEADYOctober 18-22 was the worst week in three months for the precious metal, which had been heading north toward the $1,400 mark at mid-month. Gold futures fell 3.41% last week, resulting in a $1,324.40 close Friday on the COMEX. Crude oil futures dipped 0.29% last week to settle at $81.69 per barrel on the NYMEX Friday.5 GAINS ON WALL STREET Marquee U.S. indices pulled off small advances last week. The Dow rose 0.63% to a Friday close of 11,132.56. The NASDAQ and S&P 500 respectively gained 0.43% and 0.59% on the week; at Friday’s closing bell, that left them at 2,479.39 and 1,183.08.6 COMING NEXT WEEK: September existing home sales (Monday), the August Case-Shiller Home Price Index and the Conference Board’s October poll of consumer confidence (Tuesday), September new home sales and durable goods orders (Wednesday), the latest initial and continuing claims (Thursday), and the final October reading on consumer sentiment from the University of Michigan and the first estimate of 3Q GDP (Friday). Plus of course, 3Q earnings reports all week. % CHANGE Y-T-D 1-YR CHG 5-YR AVG 10-YR AVG DJIA +6.76 +10.43 +1.80 +0.84 NASDAQ +9.27 +14.51 +3.81 -2.85 S&P 500 +6.10 +8.25 +0.06 -1.52 REAL YIELD 10/22 RATE 1 YR AGO 5 YRS AGO 10 YRS AGO 10 YR TIPS 0.50% 1.49% 1.89% 4.03% Source: cnbc.com, bigcharts.com, ustreas.gov, bls.gov - 10/22/106,7,8,9 Indices are unmanaged, do not incur fees or expenses, and cannot be invested into directly. These returns do not include dividends.
Please feel free to forward this article to family, friends or colleagues. If you would like us to add them to our distribution list, please reply with their address. We will contact them first and request their permission to add them to our list.
«RepresentativeDisclosure» This material was prepared by Peter Montoya Inc., and does not necessarily represent the views of the presenting Representative or the Representative’s Broker/Dealer. This information should not be construed as investment advice. The Dow Jones Industrial Average is a price-weighted index of 30 actively traded blue-chip stocks. The NASDAQ Composite Index is an unmanaged, market-weighted index of all over-the-counter common stocks traded on the National Association of Securities Dealers Automated Quotation System. The Standard & Poor's 500 (S&P 500) is an unmanaged group of securities considered to be representative of the stock market in general. It is not possible to invest directly in an index. NYSE Group, Inc. (NYSE:NYX) operates two securities exchanges: the New York Stock Exchange (the “NYSE”) and NYSE Arca (formerly known as the Archipelago Exchange, or ArcaEx®, and the Pacific Exchange). NYSE Group is a leading provider of securities listing, trading and market data products and services. The New York Mercantile Exchange, Inc. (NYMEX) is the world's largest physical commodity futures exchange and the preeminent trading forum for energy and precious metals, with trading conducted through two divisions – the NYMEX Division, home to the energy, platinum, and palladium markets, and the COMEX Division, on which all other metals trade. All information is believed to be from reliable sources; however we make no representation as to its completeness or accuracy. All economic and performance data is historical and not indicative of future results. Market indices discussed are unmanaged. Investors cannot invest in unmanaged indices. The publisher is not engaged in rendering legal, accounting or other professional services. If other expert assistance is needed, the reader is advised to engage the services of a competent professional. Please consult your Financial Advisor for further information. Additional risks are associated with international investing, such as currency fluctuations, political and economic instability and differences in accounting standards. www.montoyaregistry.com www.petermontoya.com Citations. 1 – dailyfinance.com/story/the-fed-economy-grew-at-a-modest-pace-in-september/19681630/ [10/20/10] 2 – msnbc.msn.com/id/39777205/ns/business-eye_on_the_economy/ [10/21/10] 3 – marketwatch.com/story/housing-starts-rise-03-to-610000-in-september-2010-10-19 [10/19/10] 4 - thestreet.com/story/10891354/1/industrial-production-drops-in-september.html [10/18/10] 5 - blogs.wsj.com/marketbeat/2010/10/22/data-points-energy-metals-386/ [10/22/10] 6 – cnbc.com/id/39801554 [10/22/10] 7 - bigcharts.marketwatch.com/historical/default.asp?detect=1&symbol=DJIA&close_date=10%2F22%2F09&x=0&y=0 [10/22/10] 7 - bigcharts.marketwatch.com/historical/default.asp?detect=1&symbol=COMP&close_date=10%2F22%2F09&x=0&y=0 [10/22/10] 7 - bigcharts.marketwatch.com/historical/default.asp?detect=1&symbol=SPX&close_date=10%2F22%2F09&x=0&y=0 [10/22/10] 7 - bigcharts.marketwatch.com/historical/default.asp?detect=1&symbol=DJIA&close_date=10%2F21%2F05&x=0&y=0 [10/22/10] 7 - bigcharts.marketwatch.com/historical/default.asp?detect=1&symbol=COMP&close_date=10%2F21%2F05&x=0&y=0 [10/22/10] 7 - bigcharts.marketwatch.com/historical/default.asp?detect=1&symbol=SPX&close_date=10%2F21%2F05&x=0&y=0 [10/22/10] 7 - bigcharts.marketwatch.com/historical/default.asp?detect=1&symbol=DJIA&close_date=10%2F23%2F00&x=0&y=0 [10/22/10] 7 - bigcharts.marketwatch.com/historical/default.asp?detect=1&symbol=COMP&close_date=10%2F23%2F00&x=0&y=0 [10/22/10] 7 - bigcharts.marketwatch.com/historical/default.asp?detect=1&symbol=SPX&close_date=10%2F23%2F00&x=0&y=0 [10/22/10] 8 - ustreas.gov/offices/domestic-finance/debt-management/interest-rate/real_yield.shtml [10/22/10] 8 - ustreas.gov/offices/domestic-finance/debt-management/interest-rate/real_yield_historical.shtml [10/22/10] 9 - treasurydirect.gov/instit/annceresult/press/preanre/2000/ofm11200.pdf [7/12/00]

MID-TERM ELECTIONS & STOCKS

MID-TERM ELECTIONS & STOCKS

Historically, these events tend to help equities.

provided by Kip A. Hoover

You may have heard that stocks tend to rally in fall and winter. That has often been the case. In fact, the S&P 500 and the Dow have gained repeatedly after the elections occurring in the third year of a first-term presidency.

These elections seem to elate Wall Street. While past performance is no indication of future success, consider this: Wall Street has witnessed rallies after every mid-term election since 1942.¹

The Leuthold Group, a Minneapolis-based investment research firm, has determined that the S&P 500 has gained an average of 18.3% in the 200 days following such elections. Widening the window of time, Goldman Sachs finds that the S&P has averaged an 18.1% advance during the 12 months following each of the 15 mid-term elections since 1950. (The gain averages 11.0% when control of Congress changes hands.)^1,2

Consider another intriguing statistic regarding mid-term election years: in the five instances since 1942 when an incumbent first-term president was a Democrat, the S&P 500 has gained an average of 21.3% for the year.³

The Dow may get a tailwind from the “third-year effect”. Since 1945, the third year of a presidential election cycle has tended to be very positive for the Dow. As MarketWatch columnist Mark Hulbert noted recently, the DJIA has averaged +24.7% in such 12-month periods (usually measured in fiscal years, i.e., 4Q-1Q-2Q-3Q) since the end of World War II. In fact, the Dow’s average returns in other fiscal years of a presidential term have been puny in comparison: +4.0% in year one, +1.9% in year two and +3.3% in year four.⁴

Last month, Standard & Poor’s chief investment strategist Sam Stovall told the Wall Street Journal that the DJIA has risen an average of 17.1% in calendar years following mid-term elections since 1945, with less than 10% of these years seeing selloffs.⁵

Will 2010 follow the historical pattern? Excellent question – after all, no one is clairvoyant. This year, stocks have not followed the longstanding trends. Stocks typically do badly in September, yet September 2010 actually turned the market around. When it comes to November, let’s hope history repeats.

Kip A. Hoover is a Representative with LPL Financial and may be reached at www.teichmanfinancial.com, 440-729-0036 or kip.hoover@lpl.com.

These are the views of Peter Montoya Inc., not the named Representative nor Broker/Dealer, and should not be construed as investment advice. Neither the named Representative nor Broker/Dealer gives tax or legal advice. All information is believed to be from reliable sources; however, we make no representation as to its completeness or accuracy. The publisher is not engaged in rendering legal, accounting or other professional services. If other expert assistance is needed, the reader is advised to engage the services of a competent professional. Please consult your Financial Advisor for further information. www.montoyaregistry.com www.petermontoya.com

Citations.

1 - kiplinger.com/columns/value/archive/how-elections-affect-the-stock-market.html [10/12/10]

2 - foxbusiness.com/markets/2010/10/05/gridlock-looming-wall-street-stands-gain/ [10/5/10]

3 - cnbc.com/id/38538007/Midterm_Elections_Produce_Pain_Then_Gain_For_Stocks [9/27/10]

4 - marketwatch.com/story/mid-term-elections-impact-on-stocks-2010-10-04 [10/4/10]

5 - online.wsj.com/article/SB10001424052748704062804575510482714106168.html [9/25/10]

Kip A. Hoover Presents: Weekly Economic Update, October 18,2010

WEEKLY ECONOMIC UPDATE
WEEKLY QUOTE “The hardest tumble a man can make is to fall over his own bluff.”  – Ambrose Bierce WEEKLY TIP Ward off impulse buying with a 30-day list. If you feel like you have to have something, put it on your 30-day list. See if you still have the urge to buy it after 30 days; chances are, you won’t. WEEKLY RIDDLE What is placed on a table and cut, but never eaten? Last week’s riddle: I am a word that signifies a wide natural area – but remove my first letter, and you are left with a word signifying a narrow urban corridor. What word am I? Last week’s answer: Valley – remove the V and you get “alley”.	October 18, 2010 CPI UP JUST 0.1%, PPI ADVANCES 0.4%In September, consumer prices barely increased – in fact, the core Consumer Price Index was flat for the second month in a row. According to the Labor Department, core CPI has risen only 0.8% in the last 12 months - core inflation hasn’t been so tame since 1961. With the economy so sluggish, retailers clearly need to keep their prices low to see if they can promote any demand. Producer prices increased for the third straight month, with the core PPI rising 0.1% for September. The core PPI is up 1.6% over the past 12 months, and the overall PPI has advanced 4.0% in that period.1,2 CONSUMER SENTIMENT SLIPS A BITOctober’s preliminary University of Michigan/Reuters consumer sentiment index is in, and it shows a mild decline. Analysts weren’t expecting the index to move south, but it went to 67.9 from the final 68.2 September reading.3 RETAIL SALES UP BY 0.6% FOR SEPTEMBEROn Friday, the Commerce Department reported the second straight monthly advance in the category, after a revised 0.7% gain for August. Sales improved across almost all retail categories – they only weakened at clothing stores.3 BUSINESS INVENTORIES GROW IN AUGUST Business stockpiles increased by 0.6% in that month, according to the Commerce Department. This follows a 1.1% increase for July. Both of those gains will likely constitute major contributions to 3Q GDP. On the downside, business sales only improved by 0.1%, leaving the inventory-to-sales ratio at 1.27 months.4 WALL STREET RIDES A 2-WEEK WIN STREAKThe Dow, S&P 500 and NASDAQ all advanced last week. The DJIA gained 0.51% for the week to close at 11,062.78 on Friday. The NASDAQ ended last week at 2,468.77 after a 2.78% weekly gain; the S&P 500 wound up at 1,176.19 after a 0.95% weekly advance.5 COMING NEXT WEEK: On Monday, we have a report on September industrial output; on Tuesday, we get data on September housing starts and building permits; on Wednesday, the Federal Reserve’s newest Beige Book comes out; and on Thursday, we receive fresh initial claims numbers and the Conference Board’s leading indicators index for September. % CHANGE Y-T-D 1-YR CHG 5-YR AVG 10-YR AVG DJIA +6.09 +9.94 +1.51 +0.80 NASDAQ +8.80 +13.60 +3.91 -2.50 S&P 500 +5.48 +7.26 -0.17 -1.44 REAL YIELD 10/15 RATE 1 YR AGO 5 YRS AGO 10 YRS AGO 10 YR TIPS 0.50% 1.50% 1.98% 4.03% Source: cnbc.com, bigcharts.com, ustreas.gov, bls.gov - 10/15/105,6,7,8 Indices are unmanaged, do not incur fees or expenses, and cannot be invested into directly. These returns do not include dividends.
Please feel free to forward this article to family, friends or colleagues. If you would like us to add them to our distribution list, please reply with their address. We will contact them first and request their permission to add them to our list.
«RepresentativeDisclosure» This material was prepared by Peter Montoya Inc., and does not necessarily represent the views of the presenting Representative or the Representative’s Broker/Dealer. This information should not be construed as investment advice. The Dow Jones Industrial Average is a price-weighted index of 30 actively traded blue-chip stocks. The NASDAQ Composite Index is an unmanaged, market-weighted index of all over-the-counter common stocks traded on the National Association of Securities Dealers Automated Quotation System. The Standard & Poor's 500 (S&P 500) is an unmanaged group of securities considered to be representative of the stock market in general. It is not possible to invest directly in an index. NYSE Group, Inc. (NYSE:NYX) operates two securities exchanges: the New York Stock Exchange (the “NYSE”) and NYSE Arca (formerly known as the Archipelago Exchange, or ArcaEx®, and the Pacific Exchange). NYSE Group is a leading provider of securities listing, trading and market data products and services. The New York Mercantile Exchange, Inc. (NYMEX) is the world's largest physical commodity futures exchange and the preeminent trading forum for energy and precious metals, with trading conducted through two divisions – the NYMEX Division, home to the energy, platinum, and palladium markets, and the COMEX Division, on which all other metals trade. All information is believed to be from reliable sources; however we make no representation as to its completeness or accuracy. All economic and performance data is historical and not indicative of future results. Market indices discussed are unmanaged. Investors cannot invest in unmanaged indices. The publisher is not engaged in rendering legal, accounting or other professional services. If other expert assistance is needed, the reader is advised to engage the services of a competent professional. Please consult your Financial Advisor for further information. Additional risks are associated with international investing, such as currency fluctuations, political and economic instability and differences in accounting standards. www.montoyaregistry.com www.petermontoya.com Citations. 1 – bloomberg.com/news/print/2010-10-15/consumer-prices-in-u-s-rise-0-1-in-september-core-unchanged.html [10/15/10] 2 – foxbusiness.com/markets/2010/10/14/september-producer-prices-rise/ [10/14/10] 3 – bloomberg.com/news/2010-10-15/u-s-consumer-confidence-unexpectedly-decreases-to-67-9-in-michigan-index.html [10/15/10] 4 - reuters.com/article/idUSTRE69E2RQ20101015 [10/15/10] 5 - cnbc.com/id/39690885 [10/15/10] 6 - bigcharts.marketwatch.com/historical/default.asp?detect=1&symbol=DJIA&close_date=10%2F15%2F09&x=0&y=0 [10/15/10] 6 - bigcharts.marketwatch.com/historical/default.asp?detect=1&symbol=COMP&close_date=10%2F15%2F09&x=0&y=0 [10/15/10] 6 - bigcharts.marketwatch.com/historical/default.asp?detect=1&symbol=SPX&close_date=10%2F15%2F09&x=0&y=0 [10/15/10] 6 - bigcharts.marketwatch.com/historical/default.asp?detect=1&symbol=DJIA&close_date=10%2F14%2F05&x=0&y=0 [10/15/10] 6 - bigcharts.marketwatch.com/historical/default.asp?detect=1&symbol=COMP&close_date=10%2F14%2F05&x=0&y=0 [10/15/10] 6 - bigcharts.marketwatch.com/historical/default.asp?detect=1&symbol=SPX&close_date=10%2F14%2F05&x=0&y=0 [10/15/10] 6 - bigcharts.marketwatch.com/historical/default.asp?detect=1&symbol=DJIA&close_date=10%2F16%2F00&x=0&y=0 [10/15/10] 6 - bigcharts.marketwatch.com/historical/default.asp?detect=1&symbol=COMP&close_date=10%2F16%2F00&x=0&y=0 [10/15/10] 6 - bigcharts.marketwatch.com/historical/default.asp?detect=1&symbol=SPX&close_date=10%2F16%2F00&x=0&y=0 [10/15/10] 7 - ustreas.gov/offices/domestic-finance/debt-management/interest-rate/real_yield.shtml [10/15/10] 7 - ustreas.gov/offices/domestic-finance/debt-management/interest-rate/real_yield_historical.shtml [10/15/10] 8 - treasurydirect.gov/instit/annceresult/press/preanre/2000/ofm11200.pdf [7/12/00]