Ken, what do you think about the falling dollar and the rising price of gold?
This is a very sophisticated question. I hear a lot of people saying gold is the currency of the future. Generally, the value of the dollar is lower because you have lower interest rates. When the value of the dollar goes down, the price of gold goes higher as a hedge for a lot of investors and institutions. Conversely, if rates go up, the value of the dollar goes higher and gold would, perhaps, go down because there is an inverse relationship.

It is very cyclical and right now we're going through a rate environment that keeps going down. Sometimes, when there is very low inflation, low interest rates are not enough to maintain the desired level of money supply. The Federal Reserve Bank is expected to implement a concept known as “quantitative easing” which includes the government buying up bonds and still trying to push rates down lower to stimulate the economy and demand.

While gold will go up under those conditions, interest rates will also start going higher, the economy will start to do better and you will, then notice gold start to pull back. One thing to note about gold is that it is not a building material like copper or other metals. Though gold is important – it is used as a way to hedge against currency – it is not used as a significant source in construction unless, of course, you are modeling your bathroom with gold fixtures.

Also, in the last several years gold has dramatically beat stocks and bonds. But, again, this is cyclical because over the last 10, 20, 30 years, stocks and bonds have generally performed better than gold.

Over the past several years gold has become very a popular investment but I would watch out from running with the herd. Again, it works well for awhile and the momentum is with gold right now but again I would caution anyone to try to follow past performance over the last couple years and characterize gold as the definite investment. If anything, a sophisticated investor will opt to pick up an investment that's out of favor and that's important to consider.

As far as whether I see gold as the currency of the future I don't think so. I don't think the currency of the future is gold because you still have other currencies from around the world; you'll still have the Euro, you’ll still have the sterling pound and you'll still have the dollar. With all these different currencies out there I don't think they're going to mold into that of gold.

Finally, and as an aside, I want to comment on the comparison of BRIC (an acronym for the combined economies of Brazil, Russia, India and China) versus PIIGS (an acronym used to refer to the five Eurozone nations – Portugal, Italy, Ireland and Spain). A lot of attention has been paid to PIIGS as all have debt issues and other economic problems in their respective countries. What we don't hear enough about is BRIC where the largest amount of growth is in the world. If you put it together, basically, you have PIIGS versus BRIC - PIIGS and debt bringing down the rest of the world versus BRIC and growth bringing up the rest of the world.

How does currencies, gold, and international trade affect your finances? By Ken Mahoney

What is the G-20? What is a currency war? And what does any of this have to do with my money? If you’ve been asking yourself these questions, you’re not alone. The relationships that exist between global currencies and the officials who control monetary policy have been a regular feature in recent headlines. Why?

Currency values affect international trade. When the value of a nation’s currency is low, it encourages countries with higher valued currency to spend money there because their exports are “cheaper” so to speak. When the value of a nation’s currency is high, its exports become “more expensive”, and nations with lower valued currency are discouraged from purchasing goods and services produced there. While recovering from a global recession that brought high levels of debt and unemployment, it’s no wonder countries would want an advantage when peddling their wares abroad. This scenario explains why there has been a measure of tension between the U.S. and China in recent weeks.

China’s currency (the Yuan) is widely seen as being at least 20% artificially undervalued, which has driven up Chinese exports, but has also amassed a U.S. trade deficit with China of $227 billion in the last year alone. Ripple effects of this trade deficit are being felt throughout the U.S. political system. In Congress, the House of Representatives has already passed a bill that would give the administration power to penalize countries judged to be manipulating their currency values to gain a competitive edge in international trade.

On Saturday, the Group of Twenty (G-20) Finance Ministers and Central Bank Governors met in Gyeongju, South Korea to pursue an end to battles over currencies, with the goal of maintaining trade balances. At this meeting, the world’s currency keepers agreed to "be vigilant against excess volatility and disorderly movement in exchange rates" and China agreed to "move towards more market-determined exchange-rate systems that reflect underlying fundamentals." Although the language is not strong enough to impose strict guidelines on anyone, the G-20 agreed to adopt "indicative guidelines," an intentionally vague phrase that is yet to be clarified.

So how does all of this relate back to the average American investor? First, it is a reminder that taking a global approach to investing is prudent. Because currency values – like many other factors – commonly affect a country’s economic stability, it is better to avoid keeping all your proverbial eggs in one basket. Second, it can help you keep the right perspective when the dollar falls in value. Although a severely undervalued dollar would be bad, a slightly undervalued dollar can invite foreign money into our economy, boost domestic manufacturing, and create jobs.

ECONOMIC CALENDAR:
Monday – Existing Home Sales
Tuesday – Consumer Confidence, S&P Case-Shiller HPI (Home Price Index)
Wednesday – Durable Goods Orders, New Home Sales, EIA Petroleum Status Report
Thursday – Jobless Claims, EIA Natural Gas Report
Friday – GDP, Employment Cost Index, Chicago PMI, Consumer Sentiment

Data as of 10/22/2010 1-Week Y-T-D 1-Year 5-Year 10-Year
Standard & Poor's 500 0.59 6.10 8.25 0.06 -1.53
Dow 0.63 6.76 10.4 1.80 0.89
NASDAQ 0.43 9.27 14.5 3.81 -2.88
MSCI EAFE -0.42 2.72 1.44 1.10 1.03
10-year Treasury Note (Yield Only) 2.58 3.84 3.42 4.39 5.64

Notes: All index returns exclude reinvested dividends, and the 5-year and 10-year returns are annualized.
Sources: Yahoo! Finance, MSCI Barra. Past performance is no guarantee of future results.
Indices are unmanaged and cannot be invested into directly. NA means not available.

HEADLINES:

Since August 27, when Federal Reserve Chairman Ben Bernanke signaled the central bank was likely to pump more dollars into the economy, the greenback’s value has fallen about 4.8% against the currencies of U.S. trading partners (data through October 15). Given the historical behavior of U.S. exports and imports, a sustained move of that magnitude should shrink the U.S. trade deficit by nearly $140 billion over the next two years. That’s the equivalent of an added 0.5 percentage point of economic growth in each year.

The Bureau of Labor Statistics has released data on regional and state unemployment for September. “Twenty-three states and the District of Columbia recorded unemployment rate decreases, 11 states registered rate increases, and 16 states had no rate change", the U.S. Bureau of Labor Statistics said as it compared numbers to August figures.

U.S. Treasury Secretary Timothy Geithner met China's Vice-Premier Wang Qishan on Sunday and "exchanged views" about economic relations between their countries, both sides said.

The simple credit card is on its way toward a makeover. The familiar plastic cards may one day be overtaken by credit-transactions over cell phones. Next month, Citibank will begin testing a card that has two buttons and tiny lights that allow users to choose at the register whether they want to pay with rewards points or credit, at most any merchant they please.

There is more positive news recently; can that hold the Dow over 11,000? by Ken Mahoney

Fortune magazine showcased a headline on Friday that read, “Who can magically fix the economy?” A picture of a magician pulling a skunk out of Uncle Sam’s hat was comically pictured below. The article went on to read: “There is nothing that the U.S. government or the Federal Reserve or tax cutters can do to make our economic pain vanish overnight. There are no all-powerful, all-knowing superheroes or super villains who can rescue or tank the economy all by themselves.”

Do you agree with the quote above? We do. The simple truth is, no one has a magic wand. Some politicians peacock as if they do. Some analysts would have you think they do. But as a nation, we’ve suffered a huge financial setback. Home values – investment accounts – jobs – all have taken a big hit. It took us a long time to get into this mess, and it will take us a long time to come out of it. Just because the “great recession” technically ended in June of 2009 , doesn’t mean we’ve healed. Despite the best efforts of the Fed, Congress, President Obama, and the famous talking heads, the recovery will take time.

So what’s the good news? We’re headed in the right direction and Americans seem to be sensing that. For the third straight month, retail sales are on the rise nationwide. Shoppers spent more than $367 billion at retailers in September, which reflects a 7.4% year-over-year increase. Because personal consumption expenditures comprise 70% of national output, these healthy percentage gains create a solid base for U.S. Gross Domestic Product (GDP). The level of total U.S. retail sales has now recovered two-thirds of its recessionary peak-to-trough decline from late 2007 through the end of 2008.

In other positive news, since June, the private sector has added an average of 85,000jobs a month. By contrast, the economy lost 8 million jobs in 2008 and 2009.
Speaking on Friday, Federal Reserve Chairman Ben Bernanke said banks are slowly becoming more proactive in seeking out credit-worthy borrowers, and added that he expects a pickup of economic growth next year due to a "somewhat faster pace" of household spending. Tempering his optimism, he did express that economic growth would continue to be "relatively modest" due to persistent high unemployment and dampened consumer demand.

One of Bernanke’s comments is particularly noteworthy in the context of this discussion. "Sustained expansion must ultimately be grown by private demand," he said. So regarding the “magic wand” we mentioned earlier, if anyone has it, it looks like it is the American Public. Hire people – lend money – spend money. Take these actions, and the wheels of capitalism will turn.

ECONOMIC CALENDAR:

Monday – Industrial Production
Tuesday – Housing Starts
Thursday – Jobless Claims, Leading Indicators, Philadelphia Fed Survey
Friday – G20 finance ministers and central bank governors meet in Seoul, South Korea

Data as of 10/15/2010 1-Week Y-T-D 1-Year 5-Year 10-Year
Standard & Poor's 500 0.95 5.48 7.26 -0.17 -1.44
Dow 0.51 6.09 9.94 1.51 0.85
NASDAQ 2.78 8.80 13.6 3.91 -2.56
MSCI EAFE 1.16 3.19 1.80 0.72 0.98
10-year Treasury Note (Yield Only) 2.38 NA 3.47 4.49 5.72

Notes: All index returns exclude reinvested dividends, and the 5-year and 10-year returns are annualized.
Sources: Yahoo! Finance, MSCI Barra. Past performance is no guarantee of future results.
Indices are unmanaged and cannot be invested into directly. NA means not available.

HEADLINES:

President Barack Obama will press Congress to approve $250 stimulus payments to seniors, veterans and the disabled, the White House said Friday amid persistent worries about the US economic recovery. The Social Security Administration earlier announced it would not be making cost of living adjustments to pension payments to seniors for the second year running.

Countrywide's notorious ex-CEO Angelo Mozilo settled with the Securities and Exchange Commission over a civil fraud and insider trading case on Friday. Mozilo agreed to repay $45 million of profit made and another $22.5 million in civil penalties, the SEC said.

U.S. retail sales rose for a third consecutive month in September, posting a stronger-than-expected increase that should fend off fears of a double-dip recession but doesn't signal a strong recovery.

U.S. President Barack Obama on Saturday said he wants to strengthen the labor market by closing tax loopholes that would encourage companies to send jobs overseas. Mr. Obama said he's aiming to replace the tax loopholes with new policies that would allow companies to write off the cost of new equipment, provide tax breaks for clean-energy manufacturing and make the research and experimentation tax credit permanent.
The U.S. government debt is expected to increase by 32% over the next five years if U.S. economic growth stays as slow as it is now, according to the International Monetary Fund.

The Dow Jones is at 11,000, can the momentum continue? by Ken Mahoney

Stocks have gained in five out of the last six weeks, and the Dow Jones Industrial Average closed above 11,000 for the first time in five months Friday.

Bolstering results last week, Friday’s depressed jobs report lifted expectations that the Federal Reserve will soon step in to stimulate the economy yet again, and earnings season kicked off with a bang. Several companies posted profits that beat Wall Street estimates and raised its outlook for the year. In the coming week, 15 S&P companies are set to report, and according to Thompson Reuters, third-quarter year-over-year results are expected to be up 24%. With such strong numbers anticipated this earnings season, many analysts predict that the market will continue to inch higher.

There isn’t much market-moving activity expected in the early part of the week, but Thursday begins a flood of economic data, including the next batch of U.S inflation figures. The Fed said in its last statement that inflation is lower than it would like, and this led many to predict that they will proceed with another round of quantitative easing – likely pulling the trigger at the next policy-setting meeting in November.

Through “quantitative easing”, the Federal Reserve buys up big chunks of government debt with money it creates from nothing – often colloquially described as "printing money”. Some economists insist that with unemployment stuck near 10% and inflation below target, the Fed cannot sit idly by without taking this action. Others remain vocally opposed due to the side effects of additional pressure on the U.S. dollar and a spike in commodity prices. So, will they? Or won't they? Investors will be alert for further signals.

Friday’s retail sales figures will also be in focus as investors try to gauge the appetite of the American consumer. Since consumer spending accounts for over 70% of economic activity, any sign that wallets are open is a welcome one.

ECONOMIC CALENDAR:

Wednesday – Treasury Budget
Thursday – International Trade, Producer Price Index, Jobless Claims
Friday – Consumer Price Index, Retail Sales, Empire State Manufacturing Survey, Consumer Sentiment, Business Inventories, Federal Reserve Chairman Ben Bernanke speaks to the Boston Fed's conference on Revisiting Monetary Policy in a Low Inflation Environment

Data as of 10/08/2010 1-Week Y-T-D 1-Year 5-Year 10-Year
Standard & Poor's 500 1.65 4.49 9.35 -0.51 -1.73
Dow 1.63 5.55 12.5 1.39 0.39
NASDAQ 1.31 5.85 13.0 2.98 -2.85
MSCI EAFE 2.52 1.89 2.75 0.31 0.49
10-year Treasury Note (Yield Only) 2.53 N/A 3.26 4.36 5.82

Notes: All index returns exclude reinvested dividends, and the 5-year and 10-year returns are annualized. Sources: Yahoo! Finance, Google Finance, Barron’s, djindexes.com, MSCI Barra. Past performance is no guarantee of future results. Indices are unmanaged and cannot be invested into directly. N/A means not available.

HEADLINES:

The federal government ran a deficit of nearly $1.3 trillion in the fiscal year that ended Sept. 30, according to preliminary estimates released Thursday by the Congressional Budget Office. The Treasury Department will deliver the official deficit numbers later this month. According to the CBO, the fiscal year 2010 deficit came in $125 billion below last year – the worst on record since World War II.

President Barack Obama plans to veto a bill whose opponents say would make it harder for homeowners to stop foreclosures. The move marks the Obama administration's most direct intervention so far into a growing debacle tied to how banks foreclose on homes, and the first effective veto of Mr. Obama's presidency. The veto could make it more difficult for banks to complete paperwork and speed the foreclosure process, and could give homeowners more time to rework loans.

U.S. payrolls dropped by 95,000 in September as private employers added 64,000 workers, while governments shed 159,000, half of them temporary Census workers, the Labor Department said Friday. State and local governments shed 83,000 workers. The unemployment rate was unchanged at 9.6%.

The dollar fell against the euro for a fourth week in the longest stretch of losses in almost two years as bigger-than-expected U.S. job cuts spurred speculation that the Federal Reserve will buy more debt.


further information.

Does October have to be ‘spooky’ for the markets? by Ken Mahoney

Thursday marked the end of a quarter and the end of a month. Both turned out to be favorable for equity markets. Although September is historically one of the slowest months of the year, this September wasn’t slow at all. Last week’s slight drop followed four straight weeks of gains that allowed the month to go down as the strongest September since the days of World War II – 1939 to be exact. For the month, the S&P gained 8.8%, the Dow rose 7.72%, and the Nasdaq advanced 12.04%. For the quarter, the S&P gained 10.7%, the Dow added 10.4%, and the Nasdaq rose 12.3%, even as the U.S. economic recovery remained tepid.

A note out of Bespoke last Friday noted that "when the S&P 500 has been positive in September, the index has averaged a gain of 5.51% over the last three months of the year with positive returns 80% of the time...During mid-term elections, the average returns have been even better. When September is an up month during a mid-term election year, the S&P 500 has averaged a 3.5% gain during the month of October and a gain of 11.3% during the 4th quarter." So hopefully no goblins for October ??

Source: cnnmoney.com

Meanwhile, in a report released Friday, the Securities and Exchange Commission and the Commodity Futures Trading Commission said that a large investor – left unidentified – used automated trading software to sell futures contracts called E-minis at a time in the afternoon when the markets were already stressed, and that this action sparked the "flash crash" of May 6. The report indicates that this selloff in the futures market then spilled over into the market for individual stocks. As conditions worsened, the liquidity in the market dissolved because automated systems used by many firms paused when prices began falling severely. The ensuing plummet sent the Dow Jones industrial average down nearly 1,000 points, and briefly erased $1 trillion in market value. It was the largest one-day point drop on record.

The SEC-CFTC report detailed technical factors that led to the market turmoil, but it did not contain any specific policy recommendations that would prevent another flash crash from happening. The report has been submitted to a special advisory committee, which will eventually make recommendations to Congress related to market structure issues and incongruent trading rules across various markets.

Back in May, as an initial response to the crash, the SEC adopted a rule instituting a circuit-breaker “pilot” program for all exchanges to halt or slow down trades of a particular stock if the price moves 10% or more in a five-minute period. In September, the agency expanded the circuit-breaker program to all stocks of the Russell 1000 index as well as 344 specified ETFs. The SEC is expected to use the results of this new report to justify additional measures.
If you’re feeling ambitious, you can read the full 104 page report from the SEC here:
http://www.sec.gov/news/studies/2010/marketevents-report.pdf
Or you can check out the edited summary from MarketWatch here:
http://www.marketwatch.com/story/text-of-flash-crash-reports-summary-2010-10-01
As your financial advisors, we consider it our responsibility to understand factors that have affected, are affecting, or could affect your financial future. We also aim to educate you about such factors so that you can feel comfortable with the recommendations we make. If you ever have questions about this or any other matter, please don’t hesitate to reach out to us. We consider it an honor and a privilege to be good stewards of the assets you have entrusted to our care.

Key things to watch this week:

Monday – Factory Orders,
Tuesday – ISM Non-Manufacturing Index
Thursday – Jobless Claims, Consumer Credit
Friday – Employment Situation

Data as of 10/01/2010 1-Week Y-T-D 1-Year 5-Year 10-Year
Standard & Poor's 500 -0.21 2.79 11.3 -1.34 -2.02
Dow -0.28 3.85 13.9 0.49 0.17
NASDAQ -0.44 4.48 15.2 2.04 -3.55
MSCI EAFE 0.16 -0.82 2.82 -0.64 0.19
10-year Treasury Note (Yield Only) 2.61 N/A 3.19 4.33 5.78

Notes: All index returns exclude reinvested dividends, and the 5-year and 10-year returns are annualized. Sources: Yahoo! Finance, Google Finance, Barron’s, djindexes.com, MSCI Barra. Past performance is no guarantee of future results. Indices are unmanaged and cannot be invested into directly. N/A means not available.

HEADLINES:
Beijing warned Washington on Thursday that economic ties might be damaged after American lawmakers escalated the conflict over China's currency controls, inching the two economic giants closer to a trade war.
Americans bought cars and trucks last month at the strongest pace since 2009's cash-for-clunkers program, giving Chrysler and Ford sharp increases – a trend that could give the industry and consumers a psychological boost in the year's final quarter, executives and economists said. U.S. auto sales jumped 28.5% in September, helping to lift year-to-date sales 10.3%.
The federal government is looking to raise corporate average fuel economy requirements to something between 47 and 62 miles per gallon by 2025, according to documents released Friday by the National Highway Traffic Safety Administration and the Environmental Protection Agency.
Personal income rose 0.5% in August, the largest increase this year, while spending by individuals remained steady, according to a government report released Friday. Personal income increased $59.3 billion, or 0.5% last month, the Commerce Department said. That's more than the 0.3% rise economists expected.
The dollar fell Friday, hitting a six-month low versus the euro, after a report showing weakness in the U.S. manufacturing sector supported investors who expect the Federal Reserve to resume large-scale bond purchases in coming months to boost the U.S. economy.
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Sources:
Marketwatch
The Wall Street Journal Online
Barrons
CNN Money
http://technews.tmcnet.com/topics/associated-press/articles/106097-china-warns-us-currency-bill-might-harm-ties.htm
http://www.freep.com/article/20101002/BUSINESS01/10020307/1322/Automakers-post-solid-Sept.-gains
http://money.cnn.com/2010/10/01/autos/2025_fuel_economy/index.htm
http://money.cnn.com/2010/10/01/news/economy/personal_income_spending/index.htm
http://www.marketwatch.com/story/dollar-weakness-continues-on-fed-fears-2010-10-01

Investing involves risk including the potential loss of principal. No investment strategy can guarantee a profit or protect against loss in periods of declining values.

The Standard & Poor's 500 (S&P 500) is an unmanaged group of securities considered to be representative of the stock market in general.
The Dow Jones Industrial Average is a price-weighted average of 30 significant stocks traded on the New York Stock Exchange and the Nasdaq. The DJIA was invented by Charles Dow back in 1896.
The MSCI EAFE Index was created by Morgan Stanley Capital International (MSCI) that serves as a benchmark of the performance in major international equity markets as represented by 21 major MSCI indexes from Europe, Australia and Southeast Asia.
The 10-year Treasury Note represents debt owed by the United States Treasury to the public. Since the U.S. Government is seen as a risk-free borrower, investors use the 10-year Treasury Note as a benchmark for the long-term bond market.
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