Weekly Market Returns

For the last trading week of the year the markets were mixed. The NASDAQ Composite led with a gain of +.7%, the S&P 500 +.1%, and the DJIA was down -.4%.

For the year the DJIA was up +3.1%, the NASDAQ +8.6% and the S&P 500 lead with a +9% gain for the year. Editors note: these are capital change returns and we will update them with total returns when they are available from Barra.

Thanks for joining us here at Marketweek in 2004, we wish you a happy and healthy 2005.

Euro/US$

Dollar keeps on falling...

BusinessWeek 2005 Outlook...

SEC Divulges Details Of How Edward Jones Pushed Mutual Funds

If your Edward Jones broker is taking trips to the Carribean, he may have been doing so to the detriment of your college savings account performance. I, for one, am looking forward to the post on their website disclosing all the conflicts of interest.

A regulator gets it right...before the deal goes down.

June, 2003 as the US 10 Year Treasury sailed from a low of 3.07% yield to a 4.57% yield in just over one months time, we held our collective breath.

What was going to break? Fannie? Freddie? Another LTCM, Mexico or Orange County, CA? Leverage, derivatives, systems only PhD's understand. Yikes!

Thankfully we made it through with no major crisis making the headlines.

Even though Fannie Mae (NYSE:FNM) had been a darling of Wall St and widely held we have always eyed it with suspicion due to it's size relative to the marketplace and how political they had become in the last ten years.

Fannie's sheer size in the marketplace makes it hard for us to believe that they can adequately hedge their portfolio. In order to do so they have had to become a larger piece of the marketplace and must engage in ever more esoteric (and unseasoned) hedging strategies.

The political side bothered us as well. Franklin Raines was Clinton's director of OMB prior to taking the reins at FNM. Fannie has scaled up it's political contributions to both parties and to some outsiders, including ourselves this looked to be blood money paid so that Fannie could maintain the current regulatory structure it operates under.

Given that audit firms have signed off on complex financial transactions in the past based more on managements word than a clear understanding there were large and unanswered questions out there.

The situation at FNM was a source of systemic risk to the financial system both here and abroad. Fannie should be administered conservatively and every effort should be made to improve it's capital adequacy ratios based on fully restated and transparent financials.

Resources:
Washington Post Timeline of Events

Current News Headlines for FNM from Bloomberg

Santa Claus Rally in full effect!

End of year check-up on your portfolio

Some good ideas for year-end reviews for those who manage their own assets. In our opinion, it is important to do a top-down macro review on your accounts (as well as consider other financial decisions) at least annually. Not necessarily a check-list here, but a starting point for ideas.

Outsourcing to Rural America...

This is a great concept and I wish her much success. I wish this story would get more ink.

The call center stuff in India really bothers me. My own experience with call centers in India has not been good. There is definitely a language problem.

If speaking the king's English is not a requirement, why then not open call centers in the rural Southeast. People there are loyal to employers who treat them as team members and have a solid work ethic.

Edward Jones to Pay $75 Million To Settle Fund-Steering Charges

When Cornerstone refers to "hidden fees and commissions", this is what we are talking about... Unknowing investors being steered towards certain investments because those are the ones that compensate the broker. Unfortunately, it often begins from the top, and this is a prime example of the betrayal of investor trust we are trying to expose with an hourly compensation model that offers analysis and not sales.

Weekly Market Returns

For the week the Dow Jones industrials advanced 1.0%, followed by the S&P 500, +.5% and the NASDAQ +.3%

Some market participants have moved to protect gains going into the last two trading weeks of the year.

Oil remains a "worry" but until there is a glut of supply or every terrorist around the globe is brought to justice those same fears are going to keep popping up from time to time.

Over the next two weeks marketweek will review 2004 and provide outlook for 2005. Be sure a check back with us.

Start Expensing Options!

It's been a long time coming. It's a simple concept, expenses must be run through the income statement and compensation is an expense!

Oil up, stocks down...

Same song, third verse. Crude oil futures rise on fears, supply and terror and stocks fall.

Watching Jobless Claims

Positive news today from the jobless claims front, but nothing to bet the farm on. The 4 week average of this series, which removes some of the noise, indicates the trend in the series.

The 4 week average is at a level that is healthy but has been flat for some time. Continued improvement would be welcome.

Yet another example...

WSJ on-line provides yet another example of how some on Wall St. play the game. There are a lot of examples of self-dealing on the Street, and you're best to know some of the practices of firms before you conduct business with them. As a small investor, how can you avoid the incremental costs of unfair trading? It's tough to do, but that is why we use a discount brokerage firm to minimize the cost of trading and seek good execution. When you're selling larger blocks of shares as an institution, it's best to know the traders you're working with and deal only with those who place duty to client first.

Headline risk to deploying an international investment strategy now...

The US dollar is weak, the administration proclaims "we are for a strong dollar", but actions speak louder than words. Currency traders say the greenback suffers from benign neglect.

Our fiscal position even adjusted for Iraq and the war on terror is a mess. We need a sound plan to act to correct it in the next 5 years, not over the next 50. Our position as the world’s reserve currency has allowed us to monetize (print money to pay for) many of our past financial sins. As the economic world rises up around us this will be more and more difficult to do in the future. Is Washington aware of this? Do they care? So far the Republicans have shown that they can spend like drunk sailors just as well as the Democrats did while in power.

Are we on the verge of a dollar crisis? Or a slow and painful slide? It depends on policy decisions in Washington going forward.

Is now the time to jump on the international bandwagon? Only very, very carefully. Many of the euro block countries will be hurt by the strength of the euro, and we are talking about countries whose economies were not very robust to begin with. Buying an international fund that has done well recently may not get you the results you anticipate.

Diversifying internationally within your investment portfolio is the right thing to do from a risk/return prospective, but not because it is making headlines.

This is a high stakes game of chicken and in the end there may be many losers and few winners.

Fair & Balanced? Textile Trade, China

We are 100% for free trade but we have to be careful about the dislocations caused by new entrants into markets. In the case of textiles, in the USA textiles are a low margin, low return business that will continue to move abroad no matter what policy decisions are made in Washington, DC. Production cost is the biggest driver of this change.

Hopefully this move by the Chinese is a sign that the Bush Administration is going to make them come to the table and negotiate some trade items in good faith, to the benefit of both parties.

We shall see...

Site of the Month...

While some think that domestic terror was a once in a lifetime event, or even the bogeyman some believe is out there but not real, our motto is "hope for the best, plan for the worst."

Where we live on the Gulf Coast of the US a major portion of the US Petrochemical industry is within a couple of hundred of miles of us to the West. Should an accident or a terror event take place it is possible that a cloud of something noxious could pass over us. There may be a period of hours or days that our safety is in our own hands as the government is powerless to help us.

Better safe than sorry. Check out the recommended prep steps at ready.gov today.

Weekly Market Returns...

The markets sold off this week, consolidating gains achieved over the past couple of weeks.

For the week the S&P 500 was down -.3%, the Dow Jones -.5% and the NASDAQ -.9%.

technically the market is strong, but slightly overextended and we are at the upper end of fundamental valuation. Equities remain attractive here, but we would not commit major capital in here, be patent and take positions on dips.

Crude falls to 4 month low on skepticism OPEC to adhere to quotas....

The market is right to be skeptical, the quotas have just been numbers on a piece of paper for years, most OPEC producing countries need as much cash as they can get hence the incentive to produce over their quota.

Inflation cools in China

Hot new search engine...

Take Clusty for a spin, it clusters your results by category so you can drill down into your search and find what you want.

Try it today!

Falling crude prices...

Falling crude oil prices are talking down energy stocks and the broader market today. Over the past week energy stocks have underperformed the overall market.

High demand and tight supply combined with terror fears initially drove crude above $40, hurricane Ivan took supply in the Gulf of Mexico offline and drove prices above $50. With supplies from the Gulf coming back online the picture doesn't look so bleak (unless you are long crude oil futures).

Rant! Bear Market Funds...

I was perusing the fund category returns at morningstar.com today and I was struck by something, the bear market funds. You know these funds, the eternal doomsayers who like a broken clock will eventually be right about something. Newsletters that tout them publish things like "we are on the 4th leg of the EOT wave, the next leg in the market is down!"

But here is the rub, for the last five years large growth funds have averaged -6.6%. Over the same term the S&P 500 index is still negative even on a total return basis. During the same five year period of negative returns the bear market funds have averaged -1.47%. That's right a negative return in a negative market!

Year to date large growth funds are up 5.70% and bear market funds are down
-12.92%.

So I guess that it is truth in advertising here, if you own one of these bear market funds it is always a bear market!

Grandpa's 'ghost cane' sells for $65,000 on eBay

Beware!

Capitalism at work!

There are hundreds of "ghost canes" listed on eBay trying to capitalize on the press this story has gotten.

Here is an example...

Buyer Beware!

Weekly Market Returns...

The markets had the wind to their back this week as oil continued to fall. The dollar weighed on the blue chips late in the week but not enough to spoil the fun for the week.

For the week the NASDAQ lead with a +2.2% gain, and the Dow Jones and the S&P were both up .7% each.

The solid gains we have put in place since the last week of October have the S&P 500 up 7.1% for the year, nothing to write home about but nothing to sneeze at either.

Monster Employment Index

Looking good, the help wanted index used to be the thing to follow but internet based employment searches have likely replaced it.

Monster Employment Index Rises to All-Time High in November


- Most Industries, Occupations and Regions Up Year-Over-Year -


- Wholesale Trade Maintains Upward Trend in Line with Busy Holiday Shipping, Receiving, and Returns Season, While Finance & Insurance Eases -


- Online Job Demand for Healthcare Workers Spikes Sharply
Indicating Organizational Pursuit of December Graduates -



NEW YORK, December 2, 2004 - The Monster Employment Index rose in November to its highest level since its inception, indicating further stepwise growth in online job demand and online job recruitment activity across the United States. The overall Index rose from 114 in October to 117 in November, establishing a new milestone and demonstrating a sharp year-over-year increase compared to November 2003, when the Index stood at just 88.


During the month of November, 10 out of the 20 industries tracked by the Index saw slight increases in online job demand. Industries that experienced the greatest increases included professional, scientific & technical services and utilities. Industries that remained essentially unchanged included manufacturing, construction, and public administration, while management of companies & enterprises; accommodation & food services; and finance & insurance all saw declines of varying degrees.


The continued upward trend within the wholesale trade industry is likely reflective of the increased need to support retail orders for the busy holiday shopping season when shipping, receiving, and returns are at their highest. Similarly, the slight decline in online job demand within the retail industry is probably indicative of retailers having completed the bulk of their holiday season hiring, which often begins as early as August to accommodate longer interview and training cycles. Finance & insurance also eased off its long growth trend, suggesting a possible slowdown in hiring as 2004 comes to a close.

Overall results for the Monster Employment Index for the 11 months through 2004 are as follows:

Nov. 04 Oct. 04 Sept. 04 Aug. 04 Jul. 04 Jun. 04 May 04 Apr. 04 Mar. 04 Feb. 04 Jan. 04 Nov. 03
117 114 114 112 107 108 105 103 97 95 93 88



"The November findings of the Monster Employment Index clearly indicate the steady continuation of step-wise growth in online job demand that started at the outset of 2004," said Jeff Taylor, Founder and Chief Monster. "Broadly speaking, the U.S. job market has been on a steady pace of expansion throughout the year. As online demand logically precedes payroll activity, the increased online job availability we've been tracking over the past several months is translating into the job growth documented by the Department of Labor."

Online demand for workers increased in 14 out of 23 occupational categories in November. Demand for healthcare support shot up more than 15 points, while demand for healthcare practitioners & technical workers also saw a healthy month-to-month increase. Both of these jumps indicate a broad increase in demand and suggest that organizations have actively begun recruiting the many students graduating from medical schools in December. Business & financial operations registered its eleventh month of sequential growth while demand for military specific occupations was up sharply, continuing a two-month upward trend. Office & administrative support; sales; and construction all remained unchanged.


The computer & mathematical occupations category, which captures the greatest number of IT-related positions, ended a four-month upward trend and registered the sharpest month-to-month decline. Other occupational categories experiencing minor declines in November included blue-collar-heavy categories such as food preparation & serving; installation, maintenance & repair; production; and transportation and warehousing. The only exception to this trend was building & grounds maintenance, which is likely due to organizations preparing for the winter season's maintenance demands.


Online Job Demand Rises in All U.S. Regions in November
Online job demand for workers rose slightly in all nine U.S. Census Bureau regions in November, with every region at very high levels when compared year-over-year. The West South Central region, which includes Texas, Oklahoma, Arkansas and Louisiana, saw the greatest increase in online job demand during the month.
40 out of the 50 U.S. states either remained unchanged or saw increases during the month of November. States that saw the biggest month-to-month increases included Texas, Florida and South Carolina. The District of Columbia remained unchanged, as did Alaska, Colorado, Kentucky, Maine, Michigan, Minnesota, New Jersey, Tennessee, West Virginia and Wyoming. Of the 11 states that saw slight declines, only 6 states dipped for the second month in a row. The District of Columbia and all 50 states are up sharply compared to their levels in November 2003.


Based on online job demand in relation to total working population, the Monster Employment Index found the following states to be the top ten in terms of online job availability during the month of November:


1. Arizona
2. District of Columbia
3. Maryland
4. Delaware
5. California
6. Massachusetts
7. Virginia
8. Connecticut
9. Florida
10. New Jersey


California continued to offer the most online job availability of any state during the month of November based on sheer quantity alone.


Top Five Industries Looking for Employees in November


Industries showing the greatest rate of increase in job availability in November included:
Industries Nov. 04 Oct. 04 Sept. 04 Aug. 04 Jul. 04 Nov. 03
Professional, Scientific & Technical Services 119 116 116 116 111 94
Utilities 110 107 101 112 108 83
Agriculture, Forestry, Fishing & Hunting 117 114 109 121 110 97
Wholesale Trade 120 118 111 113 109 92
Health Care & Social Assistance 111 109 108 111 109 96



Most Wanted Occupational Experience
Occupational categories showing the largest rate of increase in online job demand in November included:


Occupations Nov. 04 Oct. 04 Sept. 04 Aug. 04 Jul. 04 Nov. 03
Healthcare Support 117 101 110 106 102 110
Healthcare Practitioners & Technical 112 107 107 104 103 103
Military Specific 117 113 110 110 108 88
Business & Financial Operations 121 118 116 110 108 90
Management 119 116 115 112 108 90





Online Job Demand Rises in November
The following U.S. Census Bureau regions are listed in order of greatest month-to-month increases in online job demand in November:


U.S. Census Bureau Regions Nov. 04 Oct. 04 Sept. 04 Aug. 04 Jul. 04 Nov. 03
West South Central 118 113 117 111 103 88
South Atlantic 117 114 114 112 109 89
New England 116 114 115 113 108 91
Mid-Atlantic 115 113 117 112 107 93
East South Central 114 112 113 111 108 90
Pacific 116 114 116 111 108 91
East North Central 115 114 116 112 106 90
West North Central 116 115 117 114 107 92
Mountain 116 115 117 113 108 90



The Monster Employment Index is a broad and comprehensive monthly analysis of U.S. online job demand conducted by Monster Worldwide, Inc. (NASDAQ: MNST), the parent company of the leading global online careers property, Monster®. Based on a real-time review of millions of employer job opportunities culled from more than 1,500 Web sites, including a variety of corporate career sites, job boards and Monster, the Monster Employment Index presents a snapshot of employer online recruitment activity nationwide. The Index counts job postings as an indicator of employer demand for employees or, in other words, job availability. Job postings are online advertisements placed by an employer looking to fill one or more vacant job positions. The Monster Employment Index reports results on a monthly basis.


All of the data and findings in the Monster Employment Index have been validated for their accuracy through independent, third party auditing conducted on a monthly basis by ARC Research, a Cranford, New Jersey-based provider of innovative click and brick market research solutions. The audit validates the accuracy of the online job recruitment activity measured for the last six months within a margin of error of +/- 1.05%.


Additional information on the Monster Employment Index, including all charts and tables, is available online at http://eIndex.monsterworldwide.com. Data for the month of December will be released on January 6, 2005.

Shocking news from WSJ.com - Many Mismanage Their 401(k)s

When Cornerstone was looking for a service model to assist regular investors with a comfortable retirement, the first way we thought we could serve that market was through analysis and review of 401(k) packages. We had done a lot of work pro-bono for friends and knew that a professional review of the options available would assist participants in making more prudent allocations. After all, most had come to us with less-than-mediocre selections and poorly managed plans, either chasing performance or taking investment advice from the secretary as to how to allocate their hard-earned funds into their primary retirement plan.

The sad thing is that people seem to be unwilling to make the commitment to pay for this professional analysis, there are too many poor plans being sold with inadequate investment options available to participants, and there is a general apathy towards taking the process seriously. We stand firmly behind W's objectives of an ownership society, but if individual ownership of retirement is any indication, there need to be some serious considerations made to how best to go about accomplishing these goals. Comments?

Why 2004 was the year of the blog

Blog On!

Japan and China - The Wild Card in the Bond Market

This is a concern of ours, but not a prediction. The Japanese and Chinese are very important in financing our debt, if they just stopped buying, much less sold the effect on interest rates would be detrimental to our economy.