January 07, 2011

Market Wrap: for the week ending 7-Jan-2011

Weekly Snapshot
• U.S. unemployment rate fell to 9.4%, nonfarm payroll employment increased by 103,000 (BLS)
• Euro area seasonally-adjusted unemployment rate was 10.1% in November 2010 (Eurostat)
• Brazil's inflation rate at 5.91% in 2010 - highest in 6 years (Bloomberg)
• An index of world food prices reached a record level in December (Economist)
• Brazil's central bank to limit banks' short positions in US$ versus Real (Reuters)
• Irish 10-year yields rose to 9%, Greek 10-year yields to over 12% (Eurointelligence)
• Industrial new orders in Oct-2010 were up by 1.4% in Euro area (Eurostat)
• Euro area annual inflation is expected to be 2.2% in December 2010 (Eurostat)
• US Consumer bankruptcies reached a five-year high in 2010 rising to 1.53M filings (Reuters)
• DST and Goldman invested $500m in Facebook, valuing the company at a whopping $50bn (Economist)
• China is said to buy 6 billion Euros of Spanish debt (Reuters)
• Tim Geithner says U.S. could hit debt limit of $14.3 trillion by March 31 (Reuters)

Market Barometers 

st-2011-0107 fx-2011-0107

Chart Of The Week
As we start the new year, most investors have been asking for some insights from the crystal ball.  Sadly, I cannot provide that perfect viewpoint from the crystal ball.  However,  I found an amazing long-term chart of the S&P 500 which, in terms of potential market direction, looks quite encouraging for 2011.  Encouraging in a sense that a typical market correction, which is usually driven by the notion of prices reverting to the mean, may not happen until 2012 or perhaps later. Peter Lee’s chart below sets the potential downside at a level of 750-850 in the coming two years.  The upside target is clear as well.  Look for a test of about 1575 on the S&P to get a sense of higher market prices.  As of now, the previous two highs from 2000 and 2007 look an awful lot like a double-top chart pattern.

Source: 2011 Technical Market Outlook, Peter Lee, UBS

Important Reminders 
No resolutions for me this year but I’ve started to post a few important reminders on my office walls; hopefully those reminders will turn into good habits one day.  I also wanted to start the year taking things a little slower than usual.  Having said that, I’d like to share an investment reminder that cannot be repeated enough.  From no other than Burton Malkiel, author of “A Random Walk Down Wall Street” comes this simple but essential market wisdom:

The one thing I know for sure:  The less I pay to the purveyor of the investment service, the more there is going to be for me.

We all would do well remembering this simple piece of advice!

Recommended Video
Here’s the follow up interview on Burton Malkiel’s essential market wisdom.  Let’s make this a healthy and prosperous new year and let’s keep more of our money in our pockets rather than in the pockets of the purveyors of investment services.

Good luck and good investing!

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