Editor’s note: Marc Leavy,CFP? is a regular financial columnist for Business Reform Magazine, the leading Christian business magazine with over 100,000 readers. Each issue features practical advice on operating successfully in business while glorifying God.
The markets had a down week, influenced mainly by the Institute for Supply Management (ISM) saying its index of manufacturing business activity fell to 50.5, barely above the positive growth number of 50. Although manufacturing is growing, it grew less than anticipated. The ISM’s employment index also slumped to its lowest reading in a year. That served as a grim harbinger for Friday’s employment number.
Personal income grew slightly in January but personal spending fell, probably due to the increase in oil prices. Higher prices at the pump mean fewer dollars spent in stores. Consumers also seem reluctant to buy big-ticket items.
Productivity numbers by the Bureau of Labor Statistics were also stronger than expected and continued productivity’s upward trend.
Technology spending seems to be increasing and construction spending remains strong.
The economy seems to have moved off bottom but remains sluggish and is giving conflicting signals.
Warren Buffet gave bearish indications Monday once again citing stock valuations. If you are a Buffet fan, there are investments that mirror his pricey Berkshire Hathaway.
My colleague at Raymond James, Jeffrey Saut, continues to question whether or not the end of the war in Iraq will lead to a rally. Valuations are still in question which makes the increasing productivity numbers more important. People will pay more for a more profitable company.
Friday’s unemployment numbers did come in much higher than expected but may be inflated by reservists being called for duty in the gulf. The markets also rallied and fell on rumors that Osama bin Laden had been captured. Well, maybe they caught his sons, and the markets rallied.
The Treasury Secretary learned to weigh his words carefully this week. Probably not being used to his market-moving powers, Treasury Secretary Snow commented Wednesday after his testimony before Congress that he saw, “nothing alarming” about the dollar’s current weakness. This off-hand comment sent the dollar down further leaving investors thinking that the United States had vacated its “strong dollar” policy. With an impending war on Iraq, global investors want a safe haven and want assurances our currency will remain the faux gold standard. Nothing is more important to our national well-being than confidence in the dollar. After all, the dollar is a fiat currency that is it is worth something because we say it is. There is no tangible backing to it, i.e., gold.
Learning his lesson, the next day at a ceremony to deliver his signature for the newly minted currencies, Secretary Snow went out of his way to confirm how important a strong dollar was. The administration has skeptics because they feel the administration is only giving lip service to a strong dollar and not backing it up. More so than Snow’s comment, fears are the Iraqi war and presumed deficit spending, will devalue the currency. A weak dollar would hamper the previously strong bond market. Why should anyone buy a bond denominated in a currency that was devaluing?
The highlight of the ceremony was supposed to be the new colored $20 bill due in circulation this fall. The new bill is supposed to reduce forgery in the digital age. (Perhaps the Treasury is secretly taking a page from Ted Turner’s book and “colorizing” an old standard to make it more interesting.)
The dollar has hit a four year low against European currencies. The good news is those European currencies decided this week to lower interest rates, thereby reducing the value of their own currency in relation. Some speculate the dollar may have a little more downside. This is where investing overseas and in multinational companies may be profitable.
The Federal Reserve released the “beige book” this week. The Fed’s analysis of grass roots economic data said little to inspire confidence. It showed a conflicted economy that is recovering slowly. The data may lead the Fed to cut rates .25% in March and possibly again in the summer.
The markets welcomed a deadline being set on the Iraq situation. Saddam Hussein must disarm by St. Patrick’s Day. (This time for sure we really, really mean it.) Perhaps as that great patron saint drove the snakes out of Ireland, the allied forces can drive that snake out of the desert. We hope and pray for a speedy resolution and the safety of men and women in uniform.
Marc Leavy, CFP is a Certified Financial Planner. Principled Investing teaches Solomon’s principles of investing and offers wisdom regarding comprehensive financial planning. You may contact Marc at [email protected] or visit principledinvesting.org.
