European and global growth concerns sent markets lower Friday, pushing the Dow down 89 points, or .7%.  For the week, the Dow was down 61 points, or .5%.

Greece remains the European hot spot, where government leaders are working to pass austerity measures necessary for a much-needed second bailout package.  On Thursday, an agreement was reached between the leaders of Greece’s coalition government on a package, but Eurozone finance ministers did not approve, stating additional cuts to the budget must be made.  A parliamentary vote will most likely take place on Sunday or Monday amidst new worker strikes and public displeasure, as Greece has until mid-week next week to make further budget cuts.  Markets will respond to results of the vote accordingly.

Compounding the European distress was a report issued by the International Energy Agency lowering its full-year global oil demand projection on concerns of slower global growth, and a report from China showing that Chinese imports and exports both fell for the first time in two years.  Although the price of oil fell on the release of the IEA report, it still closed just under $100 a barrel for the week.

In the US, though consumer confidence dipped on Friday, initial unemployment claims on Thursday fell for the second straight week, an encouraging sign.

Our trust preferred portfolios continue to perform well, returning almost 8.5% year-to-date through yesterday, Thursday, February 9^th, beating the Dow by almost 3%.

Next week, economic reporting highlights include January retail sales data on Tuesday, initial unemployment claims on Thursday, and January inflation data releases on Thursday and Friday.  Look for retail sales to increase over December, unemployment claims to rise a bit from last week’s 358,000 figure, and inflation to tick up slightly.

A healthy jobs report sent stocks soaring on Friday, pushing the Dow up 157 points, or 1.2%.  For the week, the Dow gained 1.6%, closing at its highest point since May of 2008.

On the heels of a better-than-expected unemployment claims report on Thursday, Friday’s employment release displayed even better numbers.  The economy added 243,000 jobs in January – the largest monthly gain since April of 2011 – and the unemployment rate fell from 8.5% to 8.3%.  To compliment, non-manufacturing data showed an increase in activity in January, with the related index producing its best result in a year.

In Europe, Greece is moving ever-closer to finalizing a deal with its lenders, with those owning Greek bonds expected to take a 70% “haircut,” or loss, on the investments.  The situation in Greece has temporarily taken the focus off other troubled Eurozone countries, but attention is shifting back to Portugal, the next “weakest link,” where bond yields have soared and a debt restructuring by the end summer is becoming a possibility.

Problems in Europe continue to inject nervousness in markets, but the promising US economic data indicates a gradual US recovery is underway.  Benefitting this week from the perceived economic growth was oil, which closed up $1.45 on Friday to $97.81 per barrel on the strength of a projected increase in demand stemming from economic expansion and tensions in the Middle East.  Financial stocks also exhibited strength, boosting trust preferred share prices.  For the month of January, our trust preferred portfolios returned almost 6.5%, besting the Dow by over 3% and the S&P 500 over 2%.  Foreign ETFs also had a big week.

Next week is a quiet one for economic reporting with the initial unemployment claims number on Thursday being the only release of great interest.  Watch for the claims number to continue its downward trend from 367,000 this week.

Have a good weekend,

James Skjong

 

Disappointing corporate earnings reports and US economic data drove the Dow 74 points lower Friday.  For the week, the Dow posted declines in all but one day, finishing down 60 points, or .5%.  It was the Dow’s first weekly decline in 2012, though for the year, the index is still up 3.6%.

Domestically, economic data for the most part discouraged investors.  The Fed’s announcement on Wednesday that interest rates will remain low until 2014 and that further stimulus measures are not out of the question spurred markets for a day, but reports announcing a decline in December home sales, an increase in weekly jobless claims, and a lower-than-expected first estimate of fourth quarter 2011 GDP (the consensus estimate was 3.0% – actual was 2.8%) sent markets lower.  Though the GDP result was the highest growth rate since the second quarter of 2010, it’s worth noting that most of the growth came from inventory rebuilding.

In Europe, negotiations continued between Greece and its creditors, with progress reportedly being made.  Borrowing costs for Italy and Spain fell to levels not seen in months, though the two countries were downgraded by Fitch Ratings, with a mention of the chance of further downgrades in the next two years.

Trust preferreds continue their solid performance in the new year.  Through yesterday, Thursday, January 26^th, our trust preferred portfolios were up over 6.5% year-to-date.

Next week, economic reporting highlights include the release of January manufacturing data on Tuesday and the ever-important January employment numbers on Friday.  Look for manufacturing to remain relatively flat from December, the number of jobs created in January to decline slightly from December, and the unemployment rate to remain at 8.5%.

Ulland Investment Advisors was featured today in a Bloomberg article highlighting Trust Preferred securities, or “TruPS”. The article focuses on the high dividend trust preferreds currently offer, over 7%, which is compelling in today’s low yield environment. Several top fund managers and strategists are also quoted, which we feel confirms our strategy. Feel free to forward this to those searching for better yields.

Here are a few of the key points and quotes from the article.

Jim Ulland, CEO, Ulland Investment Advisors

“ ‘These are the best buy of any fixed-income in the market’… clients are getting an average of 7.75 percent on their trust-preferred portfolios”

“ ‘The most attractive TruPS are those that are trading below or just at par’ ”

“ ‘clients who want to buy TruPS…. (should use) a diversified portfolio of the securities backed by the largest U.S. banks’ ”

Josh Peter, Editor, Morningstar DividendInvestor

“ ‘What was a cheap form of regulatory capital is now just an expensive form of long-term financing. The advantages for big banks to have them are essentially going away’ ”

(and thus trust preferreds will be redeemed at par over the next four years)

Guy LeBas, Chief Fixed Income Strategist, Janney Montgomery Scott

“Even with regulatory changes, not all TruPS will be called immediately. That would require a big outlay of capital”

“ ‘We’re in a yield-starved environment. With 10-Year U.S. Treasuries yielding less than 2 percent. That type of return won’t help investors with their retirement goals.’ ‘’

Phil Jacoby, Chief Investment Officer, Spectrum Asset Management

“ ‘Although TRuPS investors do have to be aware of the risk of banks failing, there’s not likely to be a better income game in town when comparing preferred yields relative to their overall long run historical default characteristics’ ‘’

A link to the entire article can be found here:

http://www.bloomberg.com/news/2012-01-04/bofa-trust-preferreds-tempt-investors-with-high-yields.html