Wealth Pinnacle Inc.
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Independent Advice. Personal Service.
Registered Investment Adviser
Investment Commentary
January 2012
Wealth Pinnacle has moved to Brentwood !
THE ECONOMY
The US economy grew at an annual rate of 2.8% in the fourth quarter of
2011, up from 1.8% in the third quarter. This marks the third straight
quarter of accelerating economic growth. The fourth quarter strength
reflected robust business inventory investment, retail spending, exports,
residential investment, and business spending. Consumer spending
rose 2%, durable goods sales increased 15%, and business equipment
and software sales increased 5%. Exports increased 4.7% in the fourth
quarter, the same increase as in the third quarter. The economy will
likely expand about 2.5% in 2012.
US employment grew solidly last month, and the jobless rate dropped to
a near three-year low of 8.5%. 200,000 additional jobs were added to
the economy in December, offering the strongest evidence yet of an
acceleration in economic activity. Economists forecast that the US will
gain about 160,000 jobs a month in 2012, up from an average of
135,000 job gains per month in 2011. Disposable personal income
increased 1.5% in the fourth quarter, compared with an increase of 0.4%
in the third quarter, showing an acceleration of income growth.
Initial unemployment applications have trended down over the past few
months. The four week average has declined to 377,000. When
applications fall consistently below 375,000, it tends to signal that hiring
is strong enough to lower the unemployment rate. The Federal Reserve
predicts the unemployment rate could fall to 8.2% by the end of 2012.
China is successfully engineering a soft landing with economic growth
slowing to a forecast of 8.5% in 2012, down from 9.2% in 2011. Inflation
in China is also likely to ease to about 3% this coming year, down from
4.5% in 2011. Real estate prices are expected to ease slowly, which will
help cool the economy. China's inflation rate eased to a 15-month low in
December to 4.1%, raising expectations that the Chinese central bank
may ease monetary policy. Beijing has already begun cutting bank
reserve requirements, in order to boost corporate credit lines. China is
implementing programs to boost domestic consumption, in order to
become less reliant on exports and to mitigate the problems in Europe.
Meanwhile, A deal with private investors to swap Greece's debt to a more
manageable burden is close to being concluded according to the
European Union's monetary affairs commissioner. Greece and its
creditors such as banks have been in discussions over how to swap
shorter-dated bonds for new, longer-maturity ones. The European Union
and the International Monetary Fund are pressing Greece for more cuts
in its bloated budget to ensure it gets a new bailout.
STOCKS
Caterpillar reported a 58% rise in quarterly earnings that blew away
expectations, and it projected strong growth for 2012. Caterpillar's
results cap a record 2011 for sales and profits. Sales rose 35% to $17.2
billion. Increased demand for mining equipment, favorable commodity
prices, and growth in construction machinery sales helped the company
during the year. Peoria, Illinois-based Caterpillar said it would continue
to break records in 2012, with profit expected to rise 25%, and revenue
projected to increase 30%. Caterpillar's record results provide even
more evidence that the global economy is growing at a solid pace.
Apple crushed earnings estimates as sales of iPhones and iPads soared.
The company also projected earnings for the current quarter that were
higher than projections. Earnings of $13.87 a share were double the
$6.43 a share recorded in the year-earlier period. Revenue jumped 73%
to $46 billion. The company sold 37 million iPhones, 15 million iPads and
5 million Macs during the quarter — all new records. The company
ended the quarter with $97 billion in cash.
Starbucks quarterly earnings and revenue beat forecasts, and the
company raised its full-year guidance. Net income rose to $382 million,
from $346 million a year earlier. Revenue rose 16% to $3.4 billion from a
year ago. Global sales at stores open at least a year jumped 9%, helped
by an increase in customer visits and higher spending per transaction.
McDonald's quarterly profit beat estimates as sales, which were already
outpacing competitors, picked up strength in December. The company
and its franchisees have been pouring money into their restaurants at a
time when smaller and financially strapped chains are slashing costs.
Such investments in renovations, longer operating hours and new menu
items have helped McDonald's win market share from weaker rivals.
Sales at stores open at least a year rose 9.6% in December, with a 9.8%
increase in the US and a 10.8% increase in Europe.
Morgan Stanley lost money in the fourth quarter due to legal expenses
related to a lawsuit settlement. The Wall Street bank lost $275 million.
Like its Wall Street rivals, Morgan Stanley's top-line performance showed
the impact of the European sovereign debt crisis. Overall revenue
dropped 26% to $5.7 billion, the weakest figure since the second quarter
of 2009. Morgan Stanley also did less to tame expenses than other
banks, with compensation costs down just 6% for the quarter. For the full
year of 2011, Morgan Stanley paid $16.4 billion in compensation to its
bankers, brokers and other employees.
BONDS
Corporate bonds offer an attractive alternative to Treasury bonds, with
higher yields and exposure to a recovering economy. Last year, several
strong companies issued corporate bonds, in order to buy back their
common stock. This is a great way for companies to take advantage of
low borrowing costs and reduce the number of stock shares outstanding.
By reducing the shares of stock outstanding, the company increases the
earnings per share and provides liquidity to its shareholders. Hire a
knowledgeable bond professional like Wealth Pinnacle to determine
which corporate bonds are right for you.
Municipal bonds have held up well this year, thanks to low supply,
municipal government belt-tightening and a growing economy. We might
see a handful of mid-sized and smaller communities have true credit
crises. There will be more credit downgrades, particularly in single-A,
general obligation bonds, but a very limited number of defaults. This
shows how important it is to research municipal bonds before investing.
At lower prices and higher yields, municipal bonds may be a value for
investors in high tax brackets with a need for investment income. Many
municipal bonds provide interest that is free of federal and state income
tax, depending on the state in which you live. However, with many states
and cities in budget crisis mode, it is very important to buy bonds with
strong credit quality and the dedicated revenue or tax base to pay
principal and interest. Contact Wealth Pinnacle to find out how.
Wealth Pinnacle has moved to Brentwood !
THE ECONOMY
The US economy grew at an annual rate of 2.8% in the fourth quarter of
2011, up from 1.8% in the third quarter. This marks the third straight
quarter of accelerating economic growth. The fourth quarter strength
reflected robust business inventory investment, retail spending, exports,
residential investment, and business spending. Consumer spending
rose 2%, durable goods sales increased 15%, and business equipment
and software sales increased 5%. Exports increased 4.7% in the fourth
quarter, the same increase as in the third quarter. The economy will
likely expand about 2.5% in 2012.
US employment grew solidly last month, and the jobless rate dropped to
a near three-year low of 8.5%. 200,000 additional jobs were added to
the economy in December, offering the strongest evidence yet of an
acceleration in economic activity. Economists forecast that the US will
gain about 160,000 jobs a month in 2012, up from an average of
135,000 job gains per month in 2011. Disposable personal income
increased 1.5% in the fourth quarter, compared with an increase of 0.4%
in the third quarter, showing an acceleration of income growth.
Initial unemployment applications have trended down over the past few
months. The four week average has declined to 377,000. When
applications fall consistently below 375,000, it tends to signal that hiring
is strong enough to lower the unemployment rate. The Federal Reserve
predicts the unemployment rate could fall to 8.2% by the end of 2012.
China is successfully engineering a soft landing with economic growth
slowing to a forecast of 8.5% in 2012, down from 9.2% in 2011. Inflation
in China is also likely to ease to about 3% this coming year, down from
4.5% in 2011. Real estate prices are expected to ease slowly, which will
help cool the economy. China's inflation rate eased to a 15-month low in
December to 4.1%, raising expectations that the Chinese central bank
may ease monetary policy. Beijing has already begun cutting bank
reserve requirements, in order to boost corporate credit lines. China is
implementing programs to boost domestic consumption, in order to
become less reliant on exports and to mitigate the problems in Europe.
Meanwhile, A deal with private investors to swap Greece's debt to a more
manageable burden is close to being concluded according to the
European Union's monetary affairs commissioner. Greece and its
creditors such as banks have been in discussions over how to swap
shorter-dated bonds for new, longer-maturity ones. The European Union
and the International Monetary Fund are pressing Greece for more cuts
in its bloated budget to ensure it gets a new bailout.
STOCKS
Caterpillar reported a 58% rise in quarterly earnings that blew away
expectations, and it projected strong growth for 2012. Caterpillar's
results cap a record 2011 for sales and profits. Sales rose 35% to $17.2
billion. Increased demand for mining equipment, favorable commodity
prices, and growth in construction machinery sales helped the company
during the year. Peoria, Illinois-based Caterpillar said it would continue
to break records in 2012, with profit expected to rise 25%, and revenue
projected to increase 30%. Caterpillar's record results provide even
more evidence that the global economy is growing at a solid pace.
Apple crushed earnings estimates as sales of iPhones and iPads soared.
The company also projected earnings for the current quarter that were
higher than projections. Earnings of $13.87 a share were double the
$6.43 a share recorded in the year-earlier period. Revenue jumped 73%
to $46 billion. The company sold 37 million iPhones, 15 million iPads and
5 million Macs during the quarter — all new records. The company
ended the quarter with $97 billion in cash.
Starbucks quarterly earnings and revenue beat forecasts, and the
company raised its full-year guidance. Net income rose to $382 million,
from $346 million a year earlier. Revenue rose 16% to $3.4 billion from a
year ago. Global sales at stores open at least a year jumped 9%, helped
by an increase in customer visits and higher spending per transaction.
McDonald's quarterly profit beat estimates as sales, which were already
outpacing competitors, picked up strength in December. The company
and its franchisees have been pouring money into their restaurants at a
time when smaller and financially strapped chains are slashing costs.
Such investments in renovations, longer operating hours and new menu
items have helped McDonald's win market share from weaker rivals.
Sales at stores open at least a year rose 9.6% in December, with a 9.8%
increase in the US and a 10.8% increase in Europe.
Morgan Stanley lost money in the fourth quarter due to legal expenses
related to a lawsuit settlement. The Wall Street bank lost $275 million.
Like its Wall Street rivals, Morgan Stanley's top-line performance showed
the impact of the European sovereign debt crisis. Overall revenue
dropped 26% to $5.7 billion, the weakest figure since the second quarter
of 2009. Morgan Stanley also did less to tame expenses than other
banks, with compensation costs down just 6% for the quarter. For the full
year of 2011, Morgan Stanley paid $16.4 billion in compensation to its
bankers, brokers and other employees.
BONDS
Corporate bonds offer an attractive alternative to Treasury bonds, with
higher yields and exposure to a recovering economy. Last year, several
strong companies issued corporate bonds, in order to buy back their
common stock. This is a great way for companies to take advantage of
low borrowing costs and reduce the number of stock shares outstanding.
By reducing the shares of stock outstanding, the company increases the
earnings per share and provides liquidity to its shareholders. Hire a
knowledgeable bond professional like Wealth Pinnacle to determine
which corporate bonds are right for you.
Municipal bonds have held up well this year, thanks to low supply,
municipal government belt-tightening and a growing economy. We might
see a handful of mid-sized and smaller communities have true credit
crises. There will be more credit downgrades, particularly in single-A,
general obligation bonds, but a very limited number of defaults. This
shows how important it is to research municipal bonds before investing.
At lower prices and higher yields, municipal bonds may be a value for
investors in high tax brackets with a need for investment income. Many
municipal bonds provide interest that is free of federal and state income
tax, depending on the state in which you live. However, with many states
and cities in budget crisis mode, it is very important to buy bonds with
strong credit quality and the dedicated revenue or tax base to pay
principal and interest. Contact Wealth Pinnacle to find out how.
| Gary Downie, CFA is CEO & Chief Investment Officer of Wealth Pinnacle Inc., a premier investment management and financial planning firm. Mr. Downie is also a member of the CFA Institute & CFA Society of Los Angeles. He has been the keynote speaker at several investment industry events held |
This material is not intended to be relied upon as a forecast,
research or investment advice, and is not a recommendation, offer
or solicitation to buy or sell any securities or to adopt any investment
strategy. The opinions expressed may change as subsequent
conditions vary. The information and opinions contained in this
material are derived from proprietary and nonproprietary sources
deemed by Wealth Pinnacle to be reliable, are not necessarily
all-inclusive and are not guaranteed as to accuracy. Wealth
Pinnacle and its clients may own positions in securities referred to
here. Past performance is no guarantee of future results. There is no
guarantee that any forecasts made will come to pass. Reliance upon
information in this material is at the sole discretion of the reader.
Investing involves the risk of loss, including loss of principal.
International investing involves additional risks, including risks
related to foreign currency, limited liquidity, less government
regulation and the possibility of substantial volatility due to adverse
political, economic or other developments. The two main risks
related to fixed income investing are interest rate risk and credit risk.
Typically, when interest rates rise, there is a corresponding decline
in the market value of bonds. Credit risk refers to the possibility that
the issuer of the bond will not be able to make principal and interest
payments. Index performance is shown for illustrative purposes only.
You cannot invest directly in an index. Please consult your
Investment Adviser before investing. Neither Wealth Pinnacle, Inc.
nor its representatives provide tax or legal advice. Consult your
attorney or tax adviser for specific issues. The information
throughout this site is for educational purposes only.
research or investment advice, and is not a recommendation, offer
or solicitation to buy or sell any securities or to adopt any investment
strategy. The opinions expressed may change as subsequent
conditions vary. The information and opinions contained in this
material are derived from proprietary and nonproprietary sources
deemed by Wealth Pinnacle to be reliable, are not necessarily
all-inclusive and are not guaranteed as to accuracy. Wealth
Pinnacle and its clients may own positions in securities referred to
here. Past performance is no guarantee of future results. There is no
guarantee that any forecasts made will come to pass. Reliance upon
information in this material is at the sole discretion of the reader.
Investing involves the risk of loss, including loss of principal.
International investing involves additional risks, including risks
related to foreign currency, limited liquidity, less government
regulation and the possibility of substantial volatility due to adverse
political, economic or other developments. The two main risks
related to fixed income investing are interest rate risk and credit risk.
Typically, when interest rates rise, there is a corresponding decline
in the market value of bonds. Credit risk refers to the possibility that
the issuer of the bond will not be able to make principal and interest
payments. Index performance is shown for illustrative purposes only.
You cannot invest directly in an index. Please consult your
Investment Adviser before investing. Neither Wealth Pinnacle, Inc.
nor its representatives provide tax or legal advice. Consult your
attorney or tax adviser for specific issues. The information
throughout this site is for educational purposes only.
by major financial services firms for their best clients. Prior
to founding Wealth Pinnacle, Mr. Downie managed $2
billion at Nuveen Investments and pension and endowment
fund transitions at Barclays Global Investors. He holds an
MBA and a Bachelor's Degree in Finance.
Contact Wealth Pinnacle to receive personalized
investment advice for your specific circumstances. We
welcome the opportunity to help you achieve your goals.
to founding Wealth Pinnacle, Mr. Downie managed $2
billion at Nuveen Investments and pension and endowment
fund transitions at Barclays Global Investors. He holds an
MBA and a Bachelor's Degree in Finance.
Contact Wealth Pinnacle to receive personalized
investment advice for your specific circumstances. We
welcome the opportunity to help you achieve your goals.
by Gary Downie, CFA
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