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We have so much to be thankful for and truly feel blessed.

A special thanks to all of our clients for their continued trust and confidence.

God Bless,
Jason R. Labrum, CFP®
President – Labrum Capital Advisors

111118 Investment Update #60

This is a late-Sunday-evening, abbreiviated release, as I spent a good deal of time reading and pondering the swirl of contradictory events last week. Here is just a sampling:

1. It was a very light week for economic data domestically; however, the two main reports of interest came in better than expected.

a. Jobless Claims have been inching lower at a snail’s pace for over 6 weeks, finally breaking under 400,000 new claims for unemployment insurance just a couple weeks ago. Thursday the expectation was for 400k, but instead the report was better at 390,000. This is the lowest level since April.

b. Consumer Sentiment was supposed to inch up to 61 from 60 on Friday, but instead came in quite a bit better at 64.

2. Also on the positive side was the nomination of a new Greek “Caretaker” Prime Minister who will oversee a newly formed coalition government. In the 37 years Greece has been democratic (it was ruled by the military prior to the mid-70’s), it has never been ruled by a coalition government. Nonetheless, the market was buoyed by reports that the new government, when formed, will pass the austerity measures needed to qualify Greece for more EU bailout funds.

3. Italy took center stage as the yield on the Italian 10-year bond continued to soar early in the week, peaking on Wednesday at ~7.25%. The market’s interpretation of yields is that anything over 6% spells trouble, but anything over 7% means a bailout will be needed fast. The latter level is when Portugal and Greece’s bond markets began fall apart….

a. except, Italy is no Portugal or Greece. Italy is the world’s third largest issuer of government debt behind the US and Japan, with over $2 trillion outstanding. Problems there, the market surmises, can not be contained even with the newly enhanced Stability (bailout) Fund.

b. Add to that rumors on Wednesday that French President Sarkozy mentioned the possibility of splitting up the Euro, and whammo!, we got the near-400 point drop on Wednesday. All of a sudden, it felt like we were back in the middle of Aug/Sept crazy volatility.

4. Then the market took heart that Italian PM Berlusconi would step down along with denial of the rumors from France. That’s when we got the bounce on Thursday, which carried into a Veteran’s Day Friday on very, very light volume. On the positive news, Italian bond yields dropped sharply; however, to a still-precarious 6.5%.

Was anything solved last week? Nothing, unless we take heart from better domestic economic data that continues to support the modest growth/no recession theme here. Nothing was really solved in Europe, although there is a “path” to stability based on recent developments. Nonetheless, our vigil must be maintained.

Note that the VIX jumped over 30% in one day Wednesday, back to ~36, after having just declined to the almost-normal range of ~27 by Tuesday’s close. By Friday as the market gained, the VIX settled back down right at that 30 level it has so stubbornly held with only brief interludes below. The VIX has only traded well below 30 on four days since 3 August when this all started.

This week will be more of the same….Eurozone schizophrenia. Sure, there’s a small chance that it takes a back seat until the new Italian Prime Minister is appointed, but not likely.

Here at home, the economic data highlights will be:

Monday None

Tuesday Oct Retail Sales Estimate X-Autos: 0.0%
Oct Empire States Mfg Index Estimate: -2.6

Wednesday Oct Industrial Production Estimate: +0.4%
Nov NAHB Housing Mkt Index No Est; Oct = 18

Thursday Jobless Claims Estimate: 395k
Oct Housing Starts Estimate: 605k
Oct Philly Fed Survey Estimate: 9.0

Friday Leading Economic Indicators Estimate: +0.5%

With the S&P 500 up less than 1% last week to close at 1,263, we can look back over the past two weeks and see a clear basing pattern above the 1,220 level. I indicated on Friday, 28 October as the market was concluding it’s robust rally that it probably should give us a week or two sideways to consolidate gains. It has largely done that, however, it remains to be seen if Europe can cool enough this week to allow a clear breakout north of that stubborn 1,275-1,285 range.

Until Europe cools and the VIX comes down commensurately, we’re stuck in a holding pattern, frustrating as that may seem. Should Europe cool, also note that it could happen just in time for attention to turn toward the Deficit/Debt “Super-Committee,” which is getting precariously close to its 23 November deadline. Just one more thing for the market to gnash its teeth over!