March 2012 Archives

The major stock indexes closed out a strong quarter with a mixed session. The Dow gained 66 points, and the S&P 500 advanced by 5. The Nasdaq lost three points. Twenty-seven of the Dow’s 30 components gained ground, led by Disney (DIS), which rose 1.8%. While the day was unremarkable, the quarter was a barn-burner with the Dow gaining 8%, the S&P advancing 12%, and the Nasdaq popping by 18%.

Today’s volume was light, and advancing issues outnumbered decliners by about four to three on the NYSE and decliners outnumbered advancers by seven to six on the Nasdaq. The prices of Treasuries weakened, while the price of gold futures gained 1% to $1,671.90 an ounce. The price of crude oil on the New York Mercantile Exchange gained 0.2% to $103.02 a barrel.

In Other Business News:

The year 2011 was certainly known for its periods of high volatility—stirring up the muck as it were. When the waters muddy, what kind of opportunity does that create for bond investors? Here with his thoughts is portfolio manager Troy Ludgood.

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The major indexes closed mixed as crude oil prices fell and Spaniards demonstrated in the streets in anticipation of the government’s new austerity budget. The Dow gained 19 points, the Nasdaq lost 9, and the S&P 500 fell 2. Eighteen of the Dow’s 30 components lost ground, led by Bank of America (BAC), which fell by 2.3%. Volume was light, and declining issues outnumbered advancers by three to two on the NYSE and by a nose on the Nasdaq. The prices of Treasuries strengthened, while the price of gold futures lost 0.3% to $1,654.90 an ounce. The price of crude oil on the New York Mercantile Exchange lost 2.4% to $102.78 a barrel.

In Earnings News:

Summary:

• Myth #1: There is this thing called “the interest rate.”
• Myth #2: Interest rates cannot go below zero.
• Myth #3: Interest rates on Treasury securities are predictions of economic growth.
• Myth #4: TIPS predict inflation rates.

Before we dispel some of the myths surrounding fixed-income investing, here are four facts about interest rates that few people believe:

1. There is no one interest rate. There are lots of them, and they have their own dynamics.
2. There is no “zero lower bound.” Interest rates can, and have, gone below zero.
3. Treasury rates do not predict economic growth. For the U.S., interest rates are usually below nominal gross domestic product (GDP) growth.
4. Treasury Inflation Protected Securities (TIPS) do not predict inflation. TIPS provide a valuable form of “inflation insurance,” so the difference between yields on TIPS and other Treasuries should not be interpreted as a prediction of inflation.

A “wall of oil” will soon be on its way to the U.S. Gulf Coast, and it’s just one of many tactics Saudi Arabia is using to bring oil prices back down to $100 a barrel.

Even though some players in the Greek situation are saying the worst is behind us, there are a number of parties still mapping out ways Greece could exit the euro.

It’s still early in the game, but researchers may have found a way to use Twitter to predict the trading volume and value of a stock.

Last week, President Obama announced his nomination for the next president of the World Bank.  While some may question Jim Yong Kim’s qualifications for the role, you can’t deny the man’s ability to rap and sing.

If you think about it, waiting in line (if you can handle the elements) could probably be a fairly lucrative endeavor. Concert tickets, Apple products, Black Friday, judicial hearings…yes, you read that right.  A DC area company is charging $50 per hour to hold your place in line to hear the health care debate at the Supreme Court.

Sometimes it’s just too difficult to pick up a phone or sit down at a computer to order a pizza, right?  Well, never fear—push button ordering is here!

A lower-than-expected durable goods report helped sink stocks most exposed to economic recovery, particularly materials, energy, and industrials stocks. On the Dow, Alcoa (AA) fell 2% and Caterpillar Inc. (CAT) dropped 3% to lead the index lower.

The Dow lost 71 points, with 20 of its 30 components lower; the S&P 500 declined 6; and the Nasdaq fell 15. Decliners led advancers by five to three on the NYSE and almost two to one on the Nasdaq. The prices of Treasuries weakened. Gold futures dropped $27 to close at $1,657.90 an ounce, and the price of crude oil fell $1.92 to settle at $105.41 a barrel.

In Other Business News:

Brazil, Russia, India and China (the BRIC countries) have had a tremendous decade of growth. Do good values still exist? Derrick Irwin, portfolio manager on Wells Capital Management’s Emerging Markets Equity team, shares his optimism in this excerpt from On the Trading Desk^SM on Friday, March 23, 2012.

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In the BRIC countries, what kind of growth have we been seeing over the past ten years?
It’s been an incredible ten years. In fact, it’s been almost exactly ten years since Jim O’Neill from Goldman Sachs coined the term BRICs due to accelerating growth in emerging markets after the economic crisis in the 1990s. We’ve seen the BRICs move from effectively being an economic sideshow to a driving force in the global economy. China is now the second-largest economy in the world. More interestingly, Brazil surpassed Spain in 2009 and Italy in 2010 to become the seventh-largest economy in the world. India passed Spain in 2010. Russia passed poor old Spain in 2010 as well. BRICs have become a major driver of global growth. For the years between 2002 and 2007, they counted for about 27% of global gross domestic product (GDP) growth. Since the economic crisis, they’ve accounted for more like 50% of global growth. And during the economic crisis they were over 100% of global growth as the advanced economies shrunk. So a big, big change in the emerging markets.

And does the growth the BRIC’s experienced make you skeptical or optimistic about finding good values in these countries going forward?
I think there’s no question that the fundamentals in emerging markets are very good. We’re seeing what appear to be structurally lower inflation, stronger real exchange rates, and higher levels of reserves. Is there room for continued expansion of valuations? The answer is probably yes. To look at it very simplistically, consider BRICs as a share of world GDP versus their share of the global equity markets. BRICs right now represent 18% of world GDP versus only 6% of the MSCI All Country World Index. Emerging markets as a whole represent 37% of the world GDP but only 13% of that index.  So from that standpoint, there is room to expand. In terms of return on equity, emerging markets as a whole seem to have a higher return on equity, yet are trading at a discount to both price-to-book and price-to-earnings, which is compelling. Just as importantly, if you look at price-to-book, one of our preferred method of looking at valuations, versus their own history, most emerging markets today are trading at a pretty substantial discount to their historical price-to-book multiples. And the BRICs in particular are trading at a very meaningful discount. So I think a case can be made that there is value in emerging markets.

Stocks pulled back after yesterday's strong rally. Consumer confidence slipped, while seasonally adjusted home prices in January were flat. A much-better-than-expected earnings report from homebuilder Lennar, particularly the number of new orders for homes, helped to push up other stocks in the homebuilding industry.

The Dow fell 43 points, with 22 of its 30 components lower; the S&P 500 was off 3; and the Nasdaq lost 2. Decliners led advancers by seven to five on the NYSE and five to three on the Nasdaq. The prices of Treasuries strengthened. Gold futures fell 70 cents to close at $1,684.90 an ounce, and the price of crude oil gained 30 cents to settle at $107.33 a barrel.

In Earnings News:

Today's market update comes to us from Brian Jacobsen, Ph.D., CFA, CFP^®, Chief Portfolio Strategist, and John Manley, CFA, Chief Equity Strategist.

“When a man retires, his wife gets twice the husband and half the income.”
-Chi Chi Rodriguez

“...Give the people what they want and you’ll draw a crowd every time.”
-Red Skelton, commenting on the enormous turnout at the funeral of studio head Sam Goldwyn

After the tumult of the last six years, investors (both individual and institutional) seem to have two goals: return of their money and return on their money. In other words, they want to keep their wealth safe from loss and generate enough income on their investments to cover current expenses without depleting future capital. These goals can be contradictory, since getting more income usually involves putting your money at a risk of loss. Similarly, avoiding loss usually involves giving up income.  While these are not new ambitions or tradeoffs, they are made increasingly acute by an aging population and endowments that have chosen to make more and more commitments to illiquid long-term programs.

Corporate leaders have a different goal than that of investors. They have to answer to corporate boards that, in turn, have to keep shareholders satisfied. While this is not always a smooth and efficient process, it is one that is enshrined in law and hard to deny over the long run. Corporate managers, ultimately, are pressured to produce results that benefit shareholders and, to succeed; they must be responsive to the needs of those shareholders. They must recognize the changing demands of investors and the changing business landscape they will confront.

For investors today, there are few, if any, safe harbors
U.S. Treasury securities of short duration are close to “yieldless.” Longer-term specimens offer modest yields but also the likelihood that that even benign inflation will erode the true buying power of their principal. Lower-quality fixed income vehicles are better priced and do offer sizeable current returns—relatively speaking. However they too are subject to real principal erosion over the long term. In addition, the fixed maturity on all of this paper and the call features on much of it would tend to limit any capital appreciation brought on by an improvement in the perceived quality of the issuer.

Stocks jumped after comments from Federal Reserve Chairman Ben Bernanke indicated the Fed’s commitment to job growth would keep interest rates low and perhaps even lead to another round of some form of quantitative easing.

The Dow advanced 160 points, with 29 of its 30 components higher; the S&P 500 rose 19; and the Nasdaq was higher by 54. Advancers led decliners by 16 to 5 on the NYSE and on the Nasdaq. The prices of Treasuries weakened. Gold futures gained $23.20 to close at $1,685.60 an ounce, and the price of crude oil rose 16 cents to settle at $107.03 a barrel.

In Other Business News:

Summary:

• Under current law, every tax bracket is set to get a bump in rates; the two-percentage-point payroll tax cut is set to expire; capital gains taxes will rise; dividend tax rates are scheduled to increase; and additional taxes will be imposed on individuals earning more than $200,000 a year (or $250,000 per year for a married couple filing jointly).
• The tax code changes (including the health care reform taxes) could effectively put the economy at 0% growth for 2013 and create another year of pathetic job growth.
• Regardless of the outcome of the tax code debate, I maintain there is still a strong argument for investing in companies that combine growth with income.

“In this world nothing can be said to be certain, except death and taxes.” Benjamin Franklin (1789)

“Death, taxes, and childbirth! There’s never any convenient time for any of them.” Margaret Mitchell, Gone With the Wind (1936)

I have yet to meet a person who actually likes paying taxes. Benjamin Franklin drew a parallel between death and taxes. As the April 17 deadline for filing quickly approaches, so, too, does the deadline for U.S. politicians to decide whether the U.S. economy hits what I call the “tax wall” at the end of the year.

The major indexes bounced back from an early morning dip into the red and closed modestly higher. The Dow gained 34 points, the Nasdaq rose by 4, and the S&P 500 advanced 4. Nineteen of the Dow’s 30 components gained ground, led by Hewlett-Packard (HPQ), which rose 2.6%. Volume was light, and advancing issues outnumbered decliners by five to two on the NYSE and by two to one on the Nasdaq. The prices of Treasuries strengthened, while the price of gold futures gained 1.2% to $1,662.40 an ounce. The price of crude oil on the New York Mercantile Exchange gained 1.4% to $106.87 a barrel.

For the week, the Dow lost 1% and the S&P 500 declined by 0.5%. The Nasdaq, however, edged higher by 0.4% this week.

BATS Global Markets, an alternative trading exchange, caused a stir on Wall Street by canceling its own initial public offering after the opening, as apparent technical glitches on its own exchange marred the IPO and caused the price of Apple shares on the exchange to plummet. Trading in Apple shares was also temporarily halted.

In Earnings News:

The BRIC countries—Brazil, Russia, India, and China—have had a tremendous decade of growth. Have all the good values been found? What is the potential for investment returns in these emerging markets going forward? Here with some answers is returning guest Derrick Irwin, CFA.

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Jim Kochan, Wells Fargo Funds Management Chief Fixed Income Strategist, summarizes why he believes the current environment supports high-yield corporate and municipal bonds. Considering the low-yield environment, new bond issuance has been near record levels, but demand technicals have been strong enough to absorb bonds as they come to market. Jim feels that this is the sweet spot for the current credit cycle—a spot that may provide an opportunity for both issuers and investors to benefit.

Bond fund values fluctuate in response to the financial condition of individual issuers, general market and economic conditions, and changes in interest rates. In general, when interest rates rise, bond fund values fall and investors may lose principal value. High-yield securities have a greater risk of default and tend to be more volatile than higher-rated debt securities. Loans are subject to risks similar to those associated with other below-investment-grade bond investments, such as credit risk (for example, risk of issuer default), below-investment-grade bond risk (for example, risk of greater volatility in value), and risk that the loan may become illiquid or difficult to price. Consult the fund's prospectus for additional information on these and other risks. A portion of the municipal bond fund's income may be subject to federal, state, and/or local income taxes or the alternative minimum tax (AMT). Any capital gains distributions may be taxable.

This website is accompanied by prospectuses for Wells Fargo Advantage Funds^®.

Economic data suggesting that the economy of China may be slowing sent stocks and oil prices lower. The Dow fell by 78 points, the Nasdaq lost 12, and the S&P 500 declined by 10. Twenty-two of the Dow’s 30 components lost ground, led by Alcoa (AA), which declined by more than 2.5%. Volume was light, and declining issues outnumbered advancers by almost three to one. The prices of Treasuries strengthened, while the price of gold futures fell by 0.5% to $1,642.50 an ounce. The price of crude oil on the New York Mercantile Exchange lost 1.8% to $105.35 a barrel.

In Earnings News:

Fed Chief Ben Bernanke is getting back to his roots and guest lecturing for a course called “Reflections on the Federal Reserve and Its Place in Today’s Economy” at Georgetown University.

Earlier this year, China projected a slowdown in its economic growth. The Week looks into whether or not this may be good for the global economy.

There’s currently a disconnect between actual U.S. gross domestic product (GDP) and potential GDP (a figure calculated by the Congressional Budget Office)—the disconnect being our actual GDP being much lower.  Is it possible that we’re overestimating our growth?

Minimalist movie posters are all the rage these days, so NPR’s Planet Money blog took a shot at creating their own, with an economic twist.

Tide has turned into “liquid gold” on the streets and become a popular target for shoplifters. (Yes, the laundry detergent.) 

Legos are big deal in our house (literally pouring out of our oldest son’s closet), so this new ad campaign caught my eye. Can you guess the characters?

As recently as early 2008, there were more than a handful of unambiguously AAA-rated monoline insurers providing credit enhancement to municipal issuers. In that environment, almost 70% of the bonds in the municipal market carried a AAA rating (most because of insurance). It was easy to build AAA municipal ladders in this market, since insurance was creating enough AAA paper to keep yields pretty juicy. These proved heady times for investors structuring AAA-rated municipal bond ladders.

Then along came the financial crisis of 2008, and with it, the news that many of these monoline insurers were also providing credit enhancement to subprime mortgage bonds, subprime collateralized debt obligations (CDOs), etc. Many of them had their heads handed to them. One by one, an alphabet soup (remember MBIA, FIGC, CIFG and XLCA) of these insurers were downgraded…and downgraded…and downgraded…leaving no AAA-rated monoline insurers standing today. As a result, the AAA-rated space is now less than 20% of the size that it was in 2007 (with only natural AAAs left), leaving a paucity of AAA-rated municipal paper.

A mediocre housing market report showed that existing home sales retreated last month, while Federal Reserve Chairman Ben Bernanke’s testimony to a Congressional committee reawakened investors’ concerns about Europe. Stocks struggled much of the trading session, and the major indexes closed mixed.

The Dow fell 45 points, with 20 of its 30 components losing ground; the S&P 500 lost 2; and the Nasdaq gained 1. Decliners narrowly led advancers on the NYSE, and advancers narrowly led decliners on the Nasdaq. The prices of Treasuries strengthened. Gold futures gained $3.30 to close at $1,650.30 an ounce, and the price of crude oil rebounded $1.20 to settle at $107.27 a barrel after a report showed an unexpected decline in crude inventories.

In Earnings News:

Now that the Dow is back above 13,000 and the Nasdaq above 3,000, the major indexes have mostly recovered the losses stemming from the 2008/2009 financial crisis. But a stock market index is not the same thing as an investor's portfolio. Has your portfolio recovered as well?

Please leave your comments about how you handled the crisis. (But please, no stock tips or financial advice about future portfolio positioning. Not that they're bad, just that we can't publish those.)

Worries about global growth, particularly a potential slowdown in China, put the brakes on the market rally. Housing starts in the U.S., meanwhile, pulled back in February, although starts are significantly higher than a year ago.

The Dow fell 68 points, with 20 of its 30 components losing ground; the S&P 500 was off 4; and the Nasdaq lost 4 points. Decliners led advancers by two to one on the NYSE and seven to three on the Nasdaq. The prices of Treasuries strengthened. Gold futures fell $20.30 to close at $1,647 an ounce, and the price of crude oil dropped $2.49 to settle at $106.07 a barrel after comments from the Saudi Arabian oil minister that analysts took to mean that the country would work to lower oil prices to sustainable levels.

In Other Business News:

On Friday, Apple launched its new iPad, and today it announced plans to launch a new quarterly dividend, as well. Also today, the credit default swap, CDS, market functioned as intended, with CDS sellers of protection against a default by Greece having to pay $2.5 billion in contracts after an auction determined the value of the bonds. Greece’s bond swap with creditors was determined to be a credit event, triggering the CDS.

The Dow gained 6 points, with 17 of its 30 components higher; the S&P 500 advanced 5; and the Nasdaq rose 23. Advancers led decliners by five to three on the NYSE and just under two to one on the Nasdaq. The prices of Treasuries weakened, with the yield on the 30-year rising to the highest level since September. Gold futures rose $11.50 to close at $1,667.30 an ounce, and the price of crude oil rose $1.03 to settle at $108.09 a barrel.

In Other Business News:

Summary:

• The bond markets are adjusting to somewhat healthier economic indicators that have removed the near-term prospect of more quantitative easing by the Federal Reserve (Fed).
• Looking at our strategic recommendations for 2012, we remain focused on those markets that we believe could continue to produce positive returns even if Treasury yields were to increase, namely the high-yield corporate market and the A/BBB segments of the municipal market.
• Since we do not believe this is the beginning of a prolonged uptrend in market yields, we recommend that investors consider reducing cash positions in favor of income-oriented investments between now and mid-April.

The bond markets are adjusting to somewhat healthier economic indicators that have removed the near-term prospect of more quantitative easing by the Fed. In addition, a better outlook for the euro markets has probably reduced foreign demand for Treasuries, now that Greece has received another cash infusion. Taken together, these factors have produced a correction in the Treasury market that has pushed up the yield on the 10-year Treasury note by approximately 50 basis points (100 basis points equals 1.00%) since February 1.

While more quantitative easing might not be in the offing, investors should keep in mind that a shift to a tighter Fed policy is at least a year off. Some Fed officials believe it is still two years off. Thus, the recent rise in market yields is probably not the onset of a prolonged cyclical bear market in bonds. Cyclical uptrends in bond yields have historically been sustained by Fed tightening. In the absence of Fed tightening, bond market corrections are typically limited in duration and scope.

The major indexes closed mixed as the Dow edged lower for the first time in eight sessions. The Dow fell 20 points, and the Nasdaq lost 1 point. The S&P 500, however, advanced by 1 point. Fourteen of the Dow’s 30 components gained ground, led by Bank of America (BAC), which climbed 6%. Volume was moderate on the NYSE and light on the Nasdaq. Declining issues narrowly outnumbered advancers. The prices of Treasuries were mixed, while the price of gold futures lost 0.2% to $1,655.80 an ounce. The price of crude oil on the New York Mercantile Exchange gained 1.8% to $107.06 a barrel.

For the week, the major stock indexes each gained more than 2%.

In Other Business News:

In recent years, stock market volatility and low interest rates have led to a proliferation of absolute return funds, an investment that takes a nontraditional approach to seeking positive returns regardless of market direction. This may leave investors wondering, "Does the nontraditional investment approach meet my goals, and what differentiates one portfolio manager from the next?" Here with some answers is Ben Inker, portfolio manager and head of the Asset Allocation team at GMO LLC.

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Today we have a guest post by Lyle Fitterer, CFA, CPA, and Managing Director of Wells Capital Management’s Municipal Fixed Income Team. Lyle discusses recent events involving specific muni issuers.

Municipal investors have ridden a bigger roller coaster in the last five years than they had been accustomed to historically. More recently, we had the selloff and redemptions plaguing the end of 2010 and start of 2011. That was followed by a strong rally during the bulk of 2011 as investors sought stability in the face of Europe’s troubles and a weak U.S. economy. Year to date, many investors are searching for income among historically low municipal yields. That has led many investors to lower-rated municipals. The BBB-rated portion of the Barclays Municipal Index has returned 290 basis points more than the AAA-rated portion as of 03-12-2012.

Many investors wouldn’t have recognized the strong returns of municipal credit had they been focusing only on the news media. Headline risk has been another ongoing nuance of the market. Elected officials continue to use the newswires as ways to communicate the state of their finances. While some of these stories are genuinely dire, many reflect a technique of shading the finances in a negative light to allow for the political cover to make unpopular—but necessary—decisions.

The major indexes advanced: The Dow gained ground for the seventh consecutive session, closing higher by 58 points, and the S&P 500 rose by 8 points and closed above 1,400 for the first time since June 2008. The Nasdaq rose by 15 points. Twenty-two of the Dow’s 30 components gained ground, led by Bank of America (BAC), which rose 4%. Volume was light, and advancing issues outnumbered decliners by three to two on the NYSE and by two to one on the Nasdaq. The prices of Treasuries weakened, while the price of gold futures advanced by 1.0% to $1,659.50 an ounce. The price of crude oil on the New York Mercantile Exchange lost 0.3% to $105.11 a barrel.

In Other Business News:

Troy Ludgood and Thomas O’Connor, CFA—portfolio managers for the Wells Fargo Advantage Total Return Bond Fund—discuss how amplified volatility in the domestic bond markets has provided some compelling opportunities to capture excess returns in recent quarters.

And more important, for investors focused on security selection and relative-value trading, elevated volatility actually created a favorable environment for generating excess returns. Managers with expertise in performing bottom-up fundamental analysis and the ability to transact quickly on their information found some compelling opportunities to collect additional value. We continue to see similar opportunities for excess returns in 2012.

Read the full report and feel free to leave any comments or questions for the team below.

Bond fund values fluctuate in response to the financial condition of individual issuers, general market and economic conditions, and changes in interest rates. In general, when interest rates rise, bond fund values fall and investors may lose principal value. The use of derivatives may reduce returns and/or increase volatility. Certain investment strategies tend to increase the total risk of an investment (relative to the broader market). This fund is exposed to foreign investment risk and mortgage- and asset-backed securities risk. Consult the fund’s prospectus for additional information on these and other risks.

This website is accompanied by current prospectuses for Wells Fargo Advantage Funds^®.

Today's market update comes to us from Brian Jacobsen, Ph.D., CFA, CFP^®, Chief Portfolio Strategist, and John Manley, CFA, Chief Equity Strategist.

Summary:

• At the risk of sounding stodgy, the recent rally in response to the Fed’s mostly positive “stress test” of U.S. banks seems like the right thing at the wrong time.
• We suspect that new challenges will emerge as the year progresses.
• Despite the challenges, we still remain optimistic—though not exuberant.

On Tuesday, the Fed gave us a glimmer of hope on the economy and mentioned that “only” four banks had failed its latest stress test—and quite a stress test it was, as it assumed a scenario in which the economy would tank worse than it did in the 2008 financial crisis. However, the mostly positive results were enough to change more than a few minds about the direction the economy is taking. Most major U.S. equity market indexes climbed nearly 2% and closed at levels not seen in four years. For the technology-heavy NASDAQ Composite Index, it was the highest close of the century (or millennium, if you want to get technical). The S&P 500 Index went through the top end of our projected trading band (1,250–1,375) with great enthusiasm.

While we had written last month in “Swan flu” that equities were being constrained mainly by investors’ fixation on the possibility of negative “surprises,” we clearly did not expect this kind of surge—though we will welcome it, as we have consistently been recommending an overweight to equities relative to fixed income.

Better does not mean good
At the risk of sounding stodgy, the recent rally seems like the right thing at the wrong time. While we are aware of the systemic problems that have dogged equities for years, we are also cognizant of the market’s acceptance of healthier future earnings growth, the apparently real sustainability of progress in domestic employment, improvements in the European debt situation, and the easing of emerging markets monetary policy that has been made in recent months. However, despite these positives, market expectations seem modest and skepticism rife.

Twitter’s 2010-2011 financials were leaked last week, and things don’t look great for a company that wants to go public in 2013.

Everyone knows that higher gas prices can impact the economy, and many people think they can also influence the presidential election. The Washington Post’s Wonkblog explains why that may be incorrect.

One of the biggest concerns of the Occupy Wall Street movement is the sharp increase in student loan debt. M.I.T. may have found a solution in their new online offering M.I.T.x.  

Apparently, if you’re still focused on getting your child into the best preschool in town, you’re way too late. The hot trend now is to start even earlier and get into the best early childhood (under 2) learning center possible (which will probably cost you upwards of $30,000 a year). 

I’ve never thought of the Olive Garden as haute cuisine, but that’s the type of restaurant that gets the town of Grand Forks, North Dakota talking.

And, finally, here’s an answer to a burning question that I’m sure we’ve all had: How will they get the horses to the Olympic Games this summer?

It was a slow-motion seesaw of a day that ended with the major indexes essentially flat, as investors digested the results of the bank stress tests released yesterday and the Fed’s decision to stay the course after the latest meeting of the Federal Open Market Committee.

The Dow gained 16 points, with 13 of its 30 components higher; the S&P 500 lost 1; and the Nasdaq was higher by less than a point. Decliners led advancers by 11 to 4 on the NYSE and 13 to 6 on the Nasdaq. The prices of Treasuries weakened. A stronger dollar weighed down gold and oil. Gold futures dropped $51.30 to close at $1,642.90 an ounce, an eight-week low, and the price of crude oil lost $1.28 to settle at $105.43 a barrel.

In Other Business News:

What causes a trading range to develop? How should investors react? John Manley, CFA and Chief Equity Strategist with Wells Fargo Funds Management, LLC, explains in this excerpt from On the Trading Desk^SM on Friday, March 9, 2012.

Listen to the full interview.

John, in 2012, you were thinking the markets wouldn’t go up a whole lot or down for that matter. Briefly, could you tell us again why you think this?
I think it’s just too soon for them to go anyway other than straight sideways. It’s too soon for it to go up because things really aren’t fixed—Europe has definitely made some progress, Asia has gone towards accommodation, and the U.S. is progressing. But the real underlying problems aren’t solved. On the downside, we’ll see scares from time to time. I think the markets will deal with them, but I think more importantly, the central banks, the powers that be, do have the ability, even if they aren’t properly fixed, to push them on down the road. So that sort of leaves you in the middle.

Historically speaking, when have we seen this before?
We saw the Dow Jones industrial average back in the sixties and seventies, the market ran up very strongly up through 1966, peaked at around a thousand in ’66, didn’t see that again until 1972 and it sort of went back and forth between 800 and 1,000, 750 and 1,000 for a long period of time. There were bouts of inflation and bouts of economic weaknesses. We didn’t see the problem fixed. The inflationary problem stayed with us. We knew what the problems were so it didn’t go down an awful lot more than it had in 1973 and ’74, and it gave you one enormous trading range for a long period of time.

A good retail sales report for February, an uneventful announcement from the Federal Open Market Committee’s meeting, and news from the banking industry combined to send stocks solidly higher. The Federal Reserve said that it was moving up its announcement of its bank stress test results to after market close today from its originally scheduled release on Thursday, prompting speculation about whether a host of bank dividend increases would follow the announcement.

The Dow closed above 13,000, and the Nasdaq closed above 3,000. The Dow jumped 217 points, with all of its 30 components higher; the S&P 500 rose 24; and the Nasdaq was higher by 56. Advancers led decliners by just over four to one on the NYSE and seven to two on the Nasdaq. The prices of Treasuries weakened. Gold futures fell $5.60 to close at $1,694.20 an ounce, and the price of crude oil gained 37 cents to settle at $106.71 a barrel.

In Other Business News:

Not surprisingly, the Federal Open Market Committee (FOMC) mildly upgraded its assessment of the economy, but stressed that there are still downside risks to the outlook.  Consequently, the FOMC gave no indication that it plans to tighten or loosen policy anytime soon.  Instead, it seems to be in a "wait and see" mode.  With the recent positive news on the economy—February payrolls expanding by 227,000, February retails sales increasing by 1.1%, and business and consumer confidence rising—the Fed might actually be in a "wait, see, and pray" mode.

In early 2011, the economic news seemed to be improving until the tsunami in Japan, high oil prices resulting from conflicts in the Middle East and North Africa, the European debt crisis, and the U.S. debt debacle.  At that same time, the Fed was discussing how it would eventually unwind its bloated balance sheet.  The European Central Bank even went so far as to raise its target rate, twice, to 1.5%.  But as the year moved on, central banks had to do an about-face.  Today, the Fed and other central banks probably don't want to find themselves in a similar position, especially if the recent bout of encouraging economic news is merely temporary.  The Fed might be viewing the data skeptically because the data tends to be seasonally adjusted and doesn’t compensate for unseasonably warm (or cold) weather.

Today we have a guest post from Ann Miletti, Managing Director and Senior Portfolio Manager of the Wells Capital Management's Core Equity Team. In it, she shares her team's evaluation of the rapidly changing telecommunications sector.

Is traditional cable TV as good as dead? That’s the impression given by headlines about streaming video services like Netflix, Hulu, and others. While we’re excited about what the changing technology can bring to customers, we thought we’d take a look at the actual fundamentals of cable companies to see if their private market values (PMV), or what a private equity investor would pay to acquire the entire business, hold up in a changing technological environment. After carefully assessing the value of cable companies’ assets and earnings growth potential, we see mispriced opportunities among firms such as Time Warner Cable Inc., Cablevision Systems Corp. and Comcast Corp.

Many investors have a limited view of the cable industry, which we believe causes them to discount the value of many of these stocks. Improving economic trends, customer loyalty, and increased growth through high-speed internet and other newly offered services are factors likely to support future earnings. Even considering all the hype about streaming video, we believe cable companies are well situated at the moment and could even adapt well to new technologies and viewing trends (since they’re also internet service providers, often enough).

The markets were cautious ahead of tomorrow’s Federal Open Market Committee meeting and the announcement later this week of the results of a new round of bank stress tests. China, meanwhile, announced it had slumped into a big trade deficit in January, which prompted some concern that fewer exports from China could eventually lead to lower demand in China for imports from the U.S. as well. In general, the market was led by defensive sectors like utilities and consumer staples, while energy and materials fell on the day. 

The Dow gained 37 points with 21 of its 30 components higher; the S&P 500 advanced less than a point; and the Nasdaq fell 4. On light volume, decliners led advancers by seven to six on the NYSE and four to three on the Nasdaq. The prices of Treasuries strengthened. Gold futures fell $11.70 to close at $1,699.20 an ounce, and the price of crude oil dropped $1.06 to settle at $106.34 a barrel.

In Other Business News:

One of the principal characteristics of this business/interest rate cycle has been an astounding collapse in borrowing by households and businesses. Indeed, for most of 2008 through 2011, the private sector of the economy reduced indebtedness—a process often called deleveraging. The latest Federal Reserve data suggest that that process may be ending. According to the Fed’s Flow of Funds reports, business borrowing started to recover early last year and household borrowing stopped declining last quarter. This turn in credit growth is encouraging for the economy but could present a challenge to monetary policy.

The collapse in private sector borrowing in this cycle was unprecedented.  Borrowing by households and businesses peaked at $2.1 trillion per year in 2006-07. By the second half of 2009, private-sector debt was contracting, declining at a rate of $675 billion per year. That was almost a $3 trillion drop in the pace of private sector borrowing—an unprecedented collapse that helps explain why interest rates could drop to such low levels and stay there for so long. Borrowing in the mortgage market led the collapse, plummeting from $1.2 trillion per year in 2006 to net declines starting in 2008 and continuing through 2011. At one point in 2010, mortgage debt outstanding was shrinking at a $500 billion annual rate. Last quarter, the rate of decline was $150 billion. In other words, mortgage borrowing was still approximately $1.3 trillion less than in 2006. The level of mortgage debt outstanding today is almost $1 trillion less than at the peak in 2008, but the rate of decline has slowed significantly in recent months.

The major indexes advanced for the third consecutive session on a better-than-expected jobs report, and they closed fractionally higher for the week. Today, the Dow gained 14 points, the Nasdaq rose by 17, and the S&P 500 advanced by 4. Twenty of the Dow’s 30 components gained ground, led by JPMorgan Chase (JPM), which rose more than 1%. Volume was light, and advancing issues outnumbered decliners by about five to two. The prices of Treasuries weakened, while the price of gold futures gained 0.75% to $1,711.50 an ounce. The price of crude oil on the New York Mercantile Exchange gained 0.76% to $107.40 a barrel.

The Greek government acted to force bondholders to participate in the government’s financial restructuring, bringing total participation in the plan to more than 90% and reducing Greece’s debt burden by 100 billion euros, clearing the way for the government to receive addition aid from the eurozone nations.

In Earnings News:

The equity markets have been trading within a narrow range—bouncing, as it were, from a floor to a ceiling and back without breaking out of the range to something higher or something lower. What causes a trading range to develop? And how should investors react when a trading range takes hold? Here to help is friend of the program John Manley, CFA. John is chief equity strategist for Wells Fargo Funds Management, LLC.

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Summary:

• More than 85% of the market value of private-sector investors of Greek debt agreed to a proposed debt swap.
• Greece will likely invoke collective action clauses (CAC), raising the participation rate to more than 95%.
• Most likely, the use of CACs will trigger credit default swap (CDS) payments.

At 1 a.m. Eastern Time today, the Greek government announced that private-sector investors holding 85.8% of the market value of Greek debt had agreed to a debt swap that will significantly lower Greece’s debt burden. To increase the participation rate to 95.7%, some investors will be dragged along as the Greek government likely invokes CACs, which will force the deal on hold-out investors. It is expected that the use of CACs will trigger CDS payments. Fortunately, the CDS payments will probably not cause many problems for the financial system as there is only a net $3.16 billion of CDS contracts outstanding.

Summary

• February nonfarm payrolls expanded by 227,000, a decent gain.
• Although inflation is low, wage gains are even lower, though that could be changing.
• The Fed’s premise for keeping rates low could prove to be wrong.

The unemployment rate rose slightly to 8.3% from January to February. Nonfarm payrolls increased by 227,000 in February, slightly better than my forecast of 225,000. Private payrolls rose by 233,000 while public sector payrolls continued to decline. Although gains were fairly broad-based, government payrolls and employment at general merchandise stores declined. Construction employment was unchanged in February. The December and January payroll numbers were both revised higher, adding an additional 61,000 jobs in total.

The major indexes moved higher for the second day on optimism that the Greek government would get participation approaching 80% or 90% in its call to bondholders for a voluntary debt swap. (The deadline for the swap was 3:00 p.m., ET, but the full extent of participation won’t be known for hours.) 

The Dow gained 70 points, the Nasdaq rose by 34, and the S&P 500 advanced by 13. The two-day rally regained the ground lost in the big selloff on Tuesday. Twenty-six of the Dow’s 30 components gained ground, led by Alcoa (AA), which rose 2%, and Caterpillar (CAT), which rose 1%. The shares of Starbucks (SBUX) gained 1% in advance of the coffee chain’s anticipated announcement this evening of a strategic move in the premium single-cup market. Volume in today’s session was light, and advancing issues outnumbered decliners by almost four to one on the NYSE and by more than two to one on the Nasdaq. The prices of Treasuries weakened while the price of gold futures gained 0.8% to $1,698.70 an ounce. The price of crude oil on the New York Mercantile Exchange gained 0.3% to $106.58 a barrel.

In Earnings News:

David Sylvester, Head of Money Funds for Wells Capital Management, has released his team’s latest commentary on developments in the money markets. The commentary analyzes recent developments in the European and U.S. credit markets and provides the team’s outlook.

Read the commentary.

An investment in a money market fund is not insured or guaranteed by the Federal Deposit Insurance Corporation or any other government agency. Although the Wells Fargo Advantage Money Market Funds seek to preserve the value of your investment at $1.00 per share, it is possible to lose money by investing in a money market fund.

This website is accompanied by current prospectuses for Wells Fargo Advantage Funds®.

With Facebook’s imminent IPO on the horizon, Mashable posted an infographic of the ten largest Internet IPOs and where they stand today. Still interested in the Facebook IPO? Then go read Dr. Brian Jacobsen’s recent blog posts about IPO investing.

Another sign that the economy may be getting stronger: more people are visiting the dentist.

Here’s a breakdown of the economic conditions of each of the 12 Fed regions at year end.

Have you ever taken a sick day or vacation time to sit at home and wait for the cable guy?  Half of the respondents in a recent survey said yes. The Wall Street Journal looks at what companies are doing to minimize the wait time (and our stress levels).

I think we all have those days where we feel like we’re spending more time mired in email instead of actually being productive.  Use this flowchart to decide whether or not you really need to click “Send” on your next email.

Finally, NPR’s Planet Money blog took some liberties with a well-known Paul Simon song in their recent post and ode to Greece: “50 Ways to Leave Your Lender”.

A solid jobs report from ADP and news that the Federal Reserve is considering a new bond-buying program helped the major indexes partially recover from yesterday’s sell-off. The situation in Greece, however, remained unresolved ahead of tomorrow’s deadline to convince Greece’s bondholders to sign on to the proposed bond swap.

The Dow advanced 78 points, with 22 of its 30 components higher; the S&P 500 gained 9; and the Nasdaq was higher by 25. Advancers led decliners by four to one on the NYSE and just under three to one on the Nasdaq. The prices of Treasuries weakened. Gold futures rose $11.80 to close at $1,683.90 an ounce, and the price of crude oil gained $1.46 to settle at $106.16 a barrel.

In Other Business News:

Saber rattling in the Middle East, threats of economic sanctions, and the possible blockage of the Strait of Hormuz have crude oil prices firmly bid. The Iranian situation is likely to remain unsettled and in the forefront of the news for the foreseeable future. In response to this situation, the price for crude oil should remain above $100 per barrel. Iran is the second-largest producer and exporter of crude in the Middle East, behind Saudi Arabia, producing approximately 3.6 million barrels and exporting approximately 2.5 million barrels of oil per day. Other producers could eventually make up for the lost Iranian exports, but the price of crude is likely to be affected more by the unsettling developments in this key oil producing country and region than by promises for increased production.

The Strait of Hormuz is located between Oman and Iran and connects the Persian Gulf with the waterways that carry a meaningful amount of Middle Eastern oil to its end users. The Strait is shown in the image below. The green lines represent crude oil pipelines and loading ports. Approximately 20% of global daily oil consumption, or 17 million barrels of oil,¹ pass through the Strait of Hormuz. Closure of the Strait would most certainly disrupt the oil supply chain and send the price of crude oil and its products higher.

Source: U.S. Government, Selected Oil and Gas Pipeline Infrastructure in the Middle East (January 2012)

Facebook, the social networking giant, filed for an Initial Public Offering (IPO). Yelp, the internet review site, also had an IPO on Friday. The list is suddenly getting longer. Why the renewed interest? Dr. Brian Jacobsen, CFA, CFP, and Chief Portfolio Strategist with Wells Fargo Funds Management explains in this excerpt from On the Trading Desk^SM on Friday, March 2, 2012.

Listen to the full interview.

Brian, why are we seeing more IPOs now?
Part of the reason why we're seeing more IPOs is because the market has done a little bit better, things have recovered, and honestly, companies are looking to raise capital or perhaps the founders of the business are looking to maybe diversify their own personal portfolios and raise a little bit of cash to provide themselves with liquidity, when the market is—I don't want to say "when it's closer to its peak," but, at least when it's not close to its bottom.

To go public, why do they do it?
For Facebook, what they said is the principle reason was to create a market for their common stock and part of that is because they have given a number of their employees stock in the company, and so they want to create a market for it, so that if those employees want to monetize that stock, they can. And it also provides them access to additional sources of capital, so instead of having to go to, let's say, a bank to borrow money, go to the debt markets, it provides them another opportunity to expand.

Greece proved it can still move the markets, with the major indexes posting their biggest losses of the year over near-term uncertainty about the country’s bailout. Investors were jittery ahead of an upcoming Greek debt swap with private bondholders on Thursday evening, as Greece still hadn’t received approval from a high enough percentage of bondholders to proceed with the swap.

The Dow fell 203 points—its first triple-digit drop of the year—with 29 of its 30 components falling; the S&P 500 declined 20; and the Nasdaq was off 40. Decliners led advancers by more than 10 to 1 on the NYSE and 14 to 3 on the Nasdaq. The prices of Treasuries strengthened. A stronger dollar helped bring down prices of gold and oil. Gold futures dropped $31.80 to close at $1,672.10 an ounce, and the price of crude oil fell $2.02 to settle at $104.70 a barrel.

In Other Business News:

Stocks fell modestly after news that China would plan for a lower rate of economic growth this year and a Department of Commerce report that showed U.S. factory orders in January fell the most in a year. Some of the market’s concerns, however, were countered by a better-than-expected reading of the Institute for Supply Management’s nonmanufacturing index.

The Dow fell 14 points, well off its lows for the session, with 16 of its 30 components lower; the S&P 500 declined 5; and the Nasdaq lost 25. Decliners led advancers by three to two on the NYSE and six to five on the Nasdaq. The prices of Treasuries weakened. Gold futures fell $5.90 to close at $1,703.90 an ounce, and the price of crude oil rose 2 cents to settle at $106.72 a barrel.

In Other Business News:

Margie Patel appeared on CNBC's "Closing Bell" on February 22, 2012. In the clip below, she outlines her case for a strong equity market in the second half of 2012, citing a supportive backdrop that is characterized by surprise U.S. market and economic developments, low levels of inflation and widening profit margins. She also provides her thoughts on sector positioning she believes could benefit in the "updraft" of a second half rally.

The major indexes slipped lower, and so did the price of crude oil and the value of the dollar. The Dow lost 2 points, the Nasdaq fell 12, and the S&P 500 declined by 5. For the week, the Nasdaq and the S&P 500 were fractionally higher; the Dow was fractionally lower. Fifteen of the Dow’s 30 components lost ground, led by American Express (AXP), which fell more than 1%. Volume was light, and declining issues outnumbered advancers by two to one on the NYSE and by five to two on the Nasdaq. The prices of Treasuries strengthened, while the price of gold futures declined by 0.7% to $1,709.80 an ounce. The price of crude oil on the New York Mercantile Exchange lost 1.9% to $106.70 a barrel.

In Earnings News:

Our Capital Markets Strategists just released their Market Roundup for March. From this month's Roundup:

For a while, we’ve been trying to determine whether 2012 will be more like 2011 or 2010. Perhaps this year will be completely different from previous ones, but we think the problems that were exposed in the financial crisis (too much debt, a great deal of political volatility, etc.) have yet to be resolved. In 2010, the major volatility began in May with the Greek debt crisis. In 2011, there was initial volatility after the Japanese tsunami in March, but the markets became particularly choppy at the end of July with the restatement of U.S. growth numbers, the debt-limit debacle in the U.S., and further troubles related to the Greek debt crisis. Looking ahead, we could have a mash-up of 2010 and 2011, with many problems coming to the fore in March, such as the Greek debt payment, which is due on March 20, and further issues related to Syria and Iran. In the summer months, the focus could shift to the U.S. fiscal situation as we approach the November presidential election. The quiescence we’ve had year to date has been pleasant, but perhaps temporary. We believe these issues call for patience on the part of investors, as equities still look inexpensive for the long run. It may be prudent to continue to trim your gains and reinvest in stocks that temporarily go on sale with price declines.

Continue reading the full report (pdf).

Facebook, the social networking giant, ended all speculation about going public this week when it filed with the Securities and Exchange Commission for an initial public offering (IPO). A glance at the list of upcoming IPOs shows the list is suddenly getting longer after a relatively dry spell. Why the renewed interest in IPOs; how can investors participate; and what are the pitfalls? Here with some answers is friend of the program Dr. Brian Jacobsen, CFA, CFP^®, chief portfolio strategist with Wells Fargo Funds Management, LLC.

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The major indexes advanced on encouraging economic data: The Dow gained 28 points, the Nasdaq rose by 22, and the S&P 500 advanced 8. Sixteen of the Dow’s 30 components gained ground, led by JPMorgan Chase (JPM), which rose almost 2%. The price of Wal-Mart shares (WMT) slipped lower by 0.4% after the giant retailer announced a dividend increase of almost 9% to $1.56 per share. Volume was light, and advancing issues outnumbered decliners by about three to two on the NYSE and by about four to three on the Nasdaq. The prices of Treasuries weakened, while the price of gold futures gained 0.6% to $1,722.20 an ounce. The price of crude oil on the New York Mercantile Exchange climbed to more than $110 a barrel on rumors of a pipeline explosion in Saudi Arabia. The reports were later denied by the Saudi government, and the price fell back to $108.84 a barrel for a gain of 1.6%.

In Other Business News:

Bad news on the housing front the past couple of weeks. The S&P/Case-Shiller index closed out 2011 at a new low, with prices down 4% from the previous year. On top of that, a new report states that the current economic recovery is moving at about half the pace of our recoveries from the last major recessions in 1982 and 1975.  One of the major culprits?  Housing.

Many portions of the Dodd-Frank Act, designed to improve transparency in the financial system, go into effect this year.  With over 800 pages that include 400 regulations, the Act itself doesn’t seem too transparent, but Bloomberg Businessweek summarizes it with a handy infographic.

Truckers and students swear by 5-Hour Energy drink, and they’ve turned it into a billion-dollar industry.

Gordon Gekko is back. And this time, he’s working for the government to help stop insider trading.

I loved Choose Your Own Adventure books growing up.  So, when I found this Choose Your Own Troika Program For Greece blog post, I was all in.

Scientists are in the process of creating the first lab-grown hamburger, which will be served this fall.  I just don’t see this ending well.

The International Swaps and Derivatives Association (ISDA) determined that a “credit event” has not yet taken place on Greek debt. While S&P has stated that Greece is in “selective default” on its debt, the credit rating agencies’ opinions are irrelevant. What does matters is the opinion of the ISDA, and its definitions of what constitutes a credit event are very specific.

The simple passage of the Greek law on the collective action clauses (a type of “cram down” provision whereby if more than half of private sector bond holders agree to the debt exchange, it gets forced upon any holdouts) and the exemption of the European Central Bank (ECB) from having to participate in a debt swap does not meet the definition of a credit event. In my opinion, the reason is relatively straightforward: these events may increase the likelihood of a coerced bond exchange (which would likely be a credit event), but that hasn’t happened yet. The ISDA will only decree that a credit event has occurred once the event has already happened, not before it happens.