Weekly Update

This past week marked a momentous occasion for my family: my daughter, Taylor, entered first grade on Thursday. Her mother, Marea, who is currently self-employed as a one-woman economic stimulus, has been steadily increasing her contributions to our nation’s recovery by addressing Taylor’s back-to-school needs at various malls and websites.

Marea painstakingly attempts to convince me that she is saving us maximum bucks because everything she purchases is on sale.

“OK,” I retort, “So answer me one question: do we have more or less money in the bank after your day of saving money?”

For once, I sort of get the last word.

Since Taylor will be in school full-time, Marea can begin taking our new oolong metallic Audi to “work.”  (I am now starting to see why she wanted me to purchase a car offering an excessive volume of trunk space.) What is truly wonderful about Marea’s job is that if things get too hectic at her office, she can work from home.

Just ask our UPS driver.

Larry, who is on a first-name basis with Marea, Taylor, and our dog, Bella, has witnessed my wrath several times, as I have threatened to hose him down if he drops off one more package to my house.  He simply laughs and gives me a good-natured toot of the horn from his big brown rig.

What will Brown do for me?  Put me in the poor house!

So by this time, you must be wondering: what does this have to do with investing?

Think about it…

We recently purchased a new car. Larry is dropping by far more often. Our six-year-old just received a brand new fall wardrobe of dresses, skirts, jeans, leggings, sweaters, tops, sneakers, gym clothes, multiple pairs of shoes, and who knows what else. And, do you believe for a New York minute that my workaholic wife hasn’t taken advantage of any sales for her own personal collection?

This all adds up to an increase in discretionary spending. Kids of all ages (including my wife and I) are spending more money on flat screen TV’s, cellular phones, iPods, PCs, end-of-model-year autos, make-up, restaurants, new fall styles, and so much more. Fashion designers recently decided to reduce the width of neckties, so Marea will have to shop for me, too!

Companies are also getting into the action. They may not be hiring as much as we would like, but they are beginning to spend down the largest corporate hoard of cash ($1.6 trillion) in our nation’s history.

Then, in a few months, we move right into the holidays! And, as an added bonus, China and Europe are boosting their economies.  The Fed may follow suit over the next couple of weeks, since the latest jobs report fell short of expectations. Yes, many investors consider bad news to be good news, especially if the bad news leads to cheap money.

In review, SPDR S&P 500 (SPY) delivered a 2.23% return last week. The S&P, which is a slightly more aggressive investment than the Dow (DIA, up 1.65%) or First Trust Morningstar Dividend Leaders (FDL, up 1.49%), tends to generate superior performance during “risk on” investing periods. Additionally, gold (GLD) returned 2.53% last week, leading to a trailing four-week total return of 7.78%. Last week’s other update recommendation was to prepare for the holidays by slowly investing in tech (VGT), which rose 2.27%.

For a moment, let’s discuss the importance of diversification by examining my wife’s work schedule. She shops on-line at 10+ stores, including high-end retailer, Saks, plus department stores like Nordstrom’s and discount chains T.J. Maxx and Marshalls. As you can see, she is a well-diversified purchaser, and it may be prudent to follow her lead when it comes to investing.

Portfolios should be populated with fixed-income securities and large-cap dividend producers such as FDL, which may initially appear somewhat boring but actually provide support during market corrections. (Note that the market is at a multi-year high, Septembers are historically poor performers and many analysts expect a correction.)

The next step is to compliment those positions primarily with SPY and then consider an allocation in GLD, VGT, a mid-cap fund, and possibly a small-cap position. Since I do not believe that stocks are over-priced, I will cautiously add to SPY as well as GLD and VGT as long as it appears that the Fed will pump cheap money into our economy. Thus, the future of this rally is now contingent on a new Fed stimulus program.

Lastly, in case you doubt my optimism in consumer spending, Taylor stepped off the school bus on day one and excitedly informed us that she had been invited to not just one, but THREE very important birthday parties in the month of September.

Hello, Larry!

Have a productive week.  I’m sure Marea will!

This Update is written by Ron Mastrogiovanni and Chris Leone