Change is in the Air

One of life's pleasures is to rise early on a late summer morning and smell the air, looking for that first hint of fall in the air and the coming seasonal change. If you let your mind work, it's not hard to sense change coming.

It's like that with the stock market . with a sniff here and a whiff there . the signs of change are in the air.

Up to the end of the second quarter this year, the broad general stock market, as measured by the S&P 500 Index has been rather anemic, posting a year to date return of -1.6%. But, with the start of the new quarter that has changed. Thru the   15th of July, the S&P 500 Index has finished up 9 of the 10 trading days, while the Dow Jones Industrial Average was up 8 of those 10 days.

More to the point, last week the S&P hit a 4-year high at 1226. 50 . best since July 3, 2001. The index is still 19.7% below its March 2000 peak. But that's a short-term statistic.

If you fancy yourself a long-term investor and are among the first wave of baby boomers turning 60 this summer, consider that the overall stock market, as measured by the DJIA, is up more times than you are old. If you were born June 15, 1945, the Dow was up 63 times on your 60th birthday.

Of course making your stock portfolio the topic of conversation at the neighborhood BBQ is not cool when everyone else is talking about their real estate appreciation. Nevertheless, here are a few items you can throw out to your neighbor when asked why you haven't given up on stocks.

The second quarter earnings are starting to roll in, better than expected according to USA Today. The Commerce Department reported that June retail sales rose by a higher-than-expected 1.7%, following a 0.3% decline in May. Inflation was virtually non-existent according to the Labor Departments Consumer Price Index. Meanwhile the real barometer of future inflation, the 10-year Treasury bond continues to trade under a 4.2% yield!

This is not the economy the Kerry political forces were forecasting last fall. The economic apocalypse they promised if Bush were reelected has yet to materialize. Those of you looking for higher long-term interest rates because of government fiscal policy may have to wait awhile. With job growth up, higher productivity, continued growth in the housing market, and willingness for businesses to continue to spend to support productivity, inflation is tempered and interest rates remain low.

And on top of it all, we are doing this with $60 barrel oil! To add meat to your argument for stocks consider these facts from the U.S. Department of Energy, Bureau of Economic Analysis and the Bureau of Labor Statistics.

• From 1970-2003, the amount of energy consumed to produce a dollar's worth of output of goods and services has dropped 48%.
  
• Energy use per person, has remained steady since 1970 and is down 57% since the 1950s.
  
• The top country supplying total petroleum (crude oil plus refined petroleum products) to the U.S. is Canada .
  
• In 1965 the U.S. average hourly wage was $2.58. Gas was $.31 per gallon. Minutes worked to pay for a gallon of gasoline = 7.2.
  
• In 1980 our average wage was $6.56 and we worked 10.19 minutes for a gallon of gas.
  
• In May 2005 we worked 7.89 minutes to pay for a gallon of gas!
  
• The Gross Domestic Product grew at a 3.8% annual rate in the first quarter of 2005 . greater than the 3.1% estimate.
  
• Our economy is projected to grow to $12.396 trillion in 2005.
  
• The May 2005 unemployment rate was 5.1% ... down from 5.6% one year ago . while the average unemployment rate for May over the past 30 years is 6.263%.

Not a bad effort for an economy that was predicted
to be on the skids by some last fall!

Keith Springer, President of Capital Financial Advisory Services is a Registered Investment Advisor and a Mortgage Broker here in Natomas, located on the river at 1383 Garden Hwy. You can contact him at 916-925-8900 or Keith@KeithSpringer.com