ALL SEASON INVESTING WEEKLY 05-13-2012 | Markets Declined for the Second Week on Renewed Concerns on European Debt Crisis

Top Stories Last Week

  • Failure to Form a New Government in Greece Renewed Concerns on  European Debt Crisis

Anti-austerity parties gained more seats in the Greek parliamentary elections on Sunday. Syriza, the Coalition of the Radical Left, won 16 % of the vote, projections showed. That exceeded the 13% won by socialist Pasok, one of the two main political parties.  The conservative New Democracy topped the poll with 20%. During the week, the efforts of forming a coalition government by all three parties have failed because the pro- and the anti-bailout parties could not reach an agreement in the hung parliament. New elections will probably be held in June. EU leaders have warned that without a government backing the 130-billion euro rescue plan agreed in March, Greece would stop getting bailout and could find itself pushed out of the euro. Many analysts concluded that the chances of Greece’s exit from euro were rising.

Global stock markets tumbled for the week as continued fears about the uncertainties on Greece and economic crisis in Europe drove the S&P 500 Index down by 1.2% on the week. MSCI EAFE Index and Emerging Market Index also slumped by 2.1% and 3.4% respectively.

  • J.P. Morgan Slumped After $2 Billion Unexpected Trading Loss

 Shares of J.P. Morgan Chase & Co. dropped by more than 9% on Friday, hit by the bank’s revelation that it had incurred a $2 billion trading loss. In its chief investment office, the bank had suffered a pretax trading loss of about $2 billion on its synthetic credit positions. It was a surprise to investors and an embarrassment to Jamie Dimon, the J.P. Morgan’s CEO, who dismissed the concern earlier.  

  • Disney Shares Reached All-Time High

Shares of Walt Disney Co. reached their all-time high after the company reported strong earnings growth on Tuesday, driven by rising revenues at ESPN, and promised to capitalize on the runaway success of “The Avengers.”  Shares were traded as high as $45.80 on Wednesday.

  • Bank of England Kept Monetary Policy Unchanged

The Bank of England kept its base interest rate at 0.5% on Thursday, and did not approve any additional monetary stimulus, despite Britain‘s falling back into recession, on the concern over persistently above-target consumer price inflation, currently at 3.5%.

Top Stories to Watch This Week

  •  US Inflation and Retail Sales

Analysts expect the headline Consumer Price Index is to increase by 0.1% in April, slower pace than last month. This will helps the Fed to maintain its ultra-loose monetary policy until 2014.

Retails sales, the gauge about US consumers,  are expected to rise by 0.2% in April, much lower than in March.

  • US Housing Starts

US Housing Starts in April is expected to improve slightly to 0.69MM. The housing market recovery will have a long way to go.

  • Greece’s Efforts to Form a New Government

Market-watchers will continue monitoring the situation in Greece. Any developments on Greek’s promise to stick to the austerity measures may have impacts on the markets.

  •  Euro-zone GDP

Most analysts expect that Euro-zone economy contracted 0.2% in the first quarter as results of continued debt crisis.

  • Facebook IPO

Facebook is expected to make its debut late this week. The upcoming IPO, which is expected to value the company at around $95 billion, is the biggest technology IPO since Google went public in 2004

Weekly Performance Summary

All the portfolios declined in the week as results of negative performance across all the risk assets.

Table 1: ETF Performance

Asset Class Return Last Week Return MTD Return YTD Return
Equities
SPY US Large Cap -1.01% -3.05% 8.53%
IWM US Small Cap -0.24% -3.15% 7.32%
EFA Developed Market Equity -2.12% -4.82% 3.29%
VWO Emerging Market Equity -3.41% -5.36% 5.42%
Dividend Assets
IYR US REIT 0.57% 0.17% 13.67%
AMJ US Energy Master Trust -2.49% -2.92% 0.80%
Commodities
GLD Gold -3.71% -5.14% 1.03%
GSG Commodity -2.42% -6.87% -2.12%
Bonds
HYG US High Yield -0.07% 0.13% 3.91%
AGG US Bond 0.11% 0.38% 1.43%
TIP US Treasury Inflation Indexed Bond 0.09% 0.33% 2.96%
IEF US Treasury Bond 0.47% 0.87% 1.51%
TLT US Long Term Treasury Bond 1.15% 2.10% -0.48%
SHY US Short Term Bond 0.00% 0.04% 0.09%

Table 2: Portfolio Performance

Portfolio Solutions Asset Allocation
(%Risk Asset
/%Bond)
WTD MTD
(1 day delay)
YTD
(1 day delay)
1-YR
(as of 12/11)
5-YR
(as of 12/11)
10-YR
(as of 12/11)
Aggressive 80/20 -1.2% -2.9% 4.8% 12.4% 16.4% 16.1%
Moderate 60/40 -0.8% -2.1% 4.3% 12.4% 14.8% 14.4%
Conservative 40/60 -0.6% -1.3% 3.9% 12.5% 13.7% 12.8%
Defensive 20/80 -0.2% -0.3% 3.6% 13.2% 12.5% 11.1%
Concentrated Portfolio Two ETFs -0.2% -1.4% 5.1% 12.1% 19.1% 19.3%
S&P 500 Index -0.1% -3.0% 8.5% 2.0% -0.3% 2.9%
Barclays Bond Index 0.1% 0.4% 1.4% 10.3% 6.9% 5.8%
CPI Inflation 3.2% 2.3% 2.5%

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