December 2014

November ended another historic month for US stocks with all-time highs in the S&P 500 and DJIA, up 11.9% and 7.6% year to date without dividends respectively.

West Texas Intermediate oil prices dropped 31% from their June highs dragging down energy stocks as well as energy related MLP's. This is a boon to retailers and consumers.

In recent weeks, 2nd and 3rd Quarter GDP were revised up and now GDP is expected to grow over 3% trough 2015. We lead developed countries in growth, albeit the slowest since the 1940’s. Ebola and a global growth scare were quickly forgotten after the nearly 10% SPX correction ended mid-October.

30 year US Treasuries now yield 2.99%. The Treasury yield curve flattened somewhat with 2 year notes at 0.55%, 5 years at 1.61% and the 10 year note at 2.25%, down from 3% in January.

Long maturity U.S. government bonds are outperforming this levitating stock market against all predictions here and elsewhere.

We are experiencing a very strange world; global oil price tanks 30%, long bonds soar, and U.S. stock indices rise simultaneously. This new paradigm is based on rising earnings, low inflation, an abundant new energy supply sprinkled over with low global interest rates. U.S stocks and Government bonds have become assets of choice, here and abroad, despite our $18 trillion U.S. debt and continuing huge deficits.

Europe and Japan are either back in or teetering on recession. The U.S. dollar has appreciated about 10% on a trade weighted basis as our interest rates are significantly higher than nearly all developed counties. Comparatively speaking the U.S is a growth engine. China, Japan, and Europe are all trying to stimulate growth with more QE or lower rates.

Gold closed November down for the year after a horrible 2013 and a 15% rally in the first quarter. The yellow metal is -40% from Sept 2011 highs.

A majority of Hedge funds and Equity mutual fund managers continue to underperform the U.S. broad based stock market indices. Central banks rule the roost and can turn markets on command with words and printed money.

Tax considerations in December will likely exacerbate existing trends until the New Year has begun.

Douglas Coppola 

John Coppola

December 4, 2014

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