TIME FOR OPTIMISM IN THE HOUSING MARKET?
Existing home sales have improved in five of the past six months. In December, they rose 12.3%. While December’s sales pace was still 2.9% below year-ago levels, the National Association of Realtors also noted that the glut of unsold homes had been reduced to 8.1 months of supply compared to 9.5 months’ worth in November. The median existing home sale price fell 1.0% last month to $168,800.^1,2

LEI INDEX SHOWS MORE IMPROVEMENT
The Conference Board’s Leading Economic Indicators index rose 1.0% in December. Pair that with its 1.1% ascent in November and you have the two best months since it rose 1.4% in March. The building permits indicator showed the most improvement.³

HOUSING STARTS DOWN, PERMITS WAY UP
Government data seems to affirm one of the findings of the Conference Board index. The Census Bureau just reported a 16.7% increase in building permits in December (the best month in that category since March). Yet housing starts were down 4.3% in December, hitting a 14-month low.⁴

GOLD & OIL TURN LOWER
Optimism about the global economy seems to have increased appetites for risk, and last week you also had the fear that China might hike interest rates. So gold lost 1.43% for the week to settle Friday at $1,341.00 an ounce. Oil prices plunged 3.74% on the week to end up at $89.11 a barrel Friday.⁵

DOW ADVANCES AGAIN
The DJIA posted its eighth straight weekly gain, rising 0.72% across four market days to settle at 11,871.84 Friday. The S&P 500 (-0.76% to 1,283.35) and the NASDAQ (-2.39% to 2,689.54) saw weekly retreats.⁶

THIS WEEK: Monday brings earnings reports from McDonald’s, Halliburton, Amgen and American Express. Tuesday, we have the Conference Board’s latest consumer confidence index, the November Case-Shiller home price index and earnings from 3M, US Steel and Verizon. Wednesday brings an FOMC meeting and December new home sales figures plus earnings from Boeing, Netflix and Xerox. Thursday gives us weekly jobless claims figures, December durable goods orders and November pending home sales plus earnings from AT&T and Caterpillar. Friday offers earnings from Chevron and Honeywell, the final January University of Michigan consumer sentiment survey, and the first 4Q 2010 GDP estimate.

Last week’s riddle:

An interesting occurrence happened about 25 minutes on the clock and months and years on the calendar. What was this numerically interesting moment?

Last week’s answer:

Early on that afternoon, the time and date read 12:34 on 5/6/78.

This Week’s Riddle (Answer in the Comments Section Below):

“Knowledge is more than equivalent to force.”

– Samuel Johnson

CONSUMER & PRODUCER PRICES RISE
The U.S. inflation rate hit an 18-month peak in December: the federal government’s Consumer Price Index advanced 0.5%. Pump prices were a big factor in that gain: gasoline grew 8.5% more expensive last month. However, core CPI (minus food and energy prices) only rose 0.1% for the month, and consumers experienced just 1.5% inflation across 2010. The Producer Price Index went 1.1% higher in December, and energy costs were responsible for most of the gain. Core PPI (again, minus food and energy prices) was just +0.2% for December. Wholesale prices rose 4.0% in 2010.^1,2,3

ENCOURAGING RETAIL SALES FIGURES RELEASED
The Commerce Department announced a 0.6% gain in retail sales for December. While this was smaller than the 0.8% advance forecast by economists polled by MarketWatch, the increase wrapped up a positive year for the indicator. Retail sales have now improved for sixth months in a row, and 2010 was the best year for the category since 1999.⁴

GOLD SLIDES, BUT OIL RECOVERS
Gold is certainly off to a rocky start in 2011: as of Friday’s COMEX close, it was down 4.27% YTD to $1360.40 per ounce following news that China had tightened bank reserves. Oil, on the other hand, gained 3.99% last week to settle Friday at $91.54 a barrel on the NYMEX with prices up +0.18% YTD.⁵

NEWEST UMICH POLL UNDERWHELMS
The initial Reuters/University of Michigan consumer sentiment survey for January showed a little slip in consumer sentiment. It came in at 72.7, down from 74.4 at the end of 2010. Economists polled by Bloomberg News had reached a consensus forecast of 75.5.⁶

TWO WINNING WEEKS IN A ROW TO START 2011
A strong Friday contributed to nice weekly advances for the three major U.S. indices. The weekly numbers: DJIA, +0.96% to 11,787.38; NASDAQ, +1.93% to 2755.30; S&P 500, +1.71% to 1293.24. At Friday’s close, the S&P was at its highest level since August 28, 2008.⁷

THIS WEEK: Stock markets are closed Monday for the national holiday honoring Dr. Martin Luther King, Jr. Looking at the notable economic releases next week, we get data on December housing starts and building permits on Wednesday, and a look at December existing home sales, the latest index of leading indicators from the Conference Board and the latest initial and continuing claims reports on Thursday.

Last week’s riddle:

Complete these words by putting the same three letters into each one: F—RISH, C—DY, S—GH.

Last week’s answer:

The missing letters are LOU, and the words are FLOURISH, CLOUDY and SLOUGH.

This Week’s Riddle (Put your answer in the comments section below):

An interesting occurrence happened about 25 minutes before 1:00pm on May 6, 1978, and it involved numbers on the clock and months and years on the calendar. What was this numerically interesting moment?

.

Alternative investment ideas are attracting a surge of investors seeking diversification and reduced volatility.

www.youtube.com/watch?v=0o5C5zNnG5k

Alternatives for interesting times. The last 18-24 months have been wild ones on Wall Street, and the volatility has motivated some sophisticated investors to look into non-correlated or indirectly correlated asset classes. With the rise in oil and gas prices, high net worth investors are naturally examining the potential of alternative investment programs, especially in the energy sector.

Sunny forecast for energy firms. The world appetite for energy – especially clean energy – is surging. Analysts project that global energy needs will be 50% higher in 2030 than now, with the economies of China and India spurring 45% of the increase.¹ Therefore, some economists and Wall Street analysts have become quite bullish about the long-term outlook for energy investments.

In recent years, accredited investors seeking greater portfolio diversity have begun to direct some of their investable assets into energy programs, oil and gas equipment leases, and private REITs focusing on the energy sector. Additionally, other investors are moving assets into ETFs and mutual funds focused on energy firms.

What was once “exotic” now seems fundamental. Direct energy investments represent just a slice of the alternative investment world. Commodities, managed futures, tax credits, real estate securities, real estate exchanges, annuities, even collectibles … there are all kinds of investment vehicles apart from Wall Street. While many people historically dismissed some of them as too exotic or speculative for their portfolios, that opinion has changed as investors have become more educated about their potential.

Let’s look at these intriguing numbers. As any financial advisor wisely notes, past performance is no guarantee of future results. But just for a moment, let’s compare a couple of blue chip indices with a couple of commodity indices.

Over the last three years ending April 25, the S&P 500 returned nearly 21%, and the DJIA about 27%. Across the same 3-year period, the S&P GSCI Commodity Index went up 57%. It also posted a year-over-year gain of 22% for the 12 months ending April 25, 2008. The Dow Jones-AIG Commodity Index returned about 27% in that same 12-month stretch. Did the blue chips do this well in the last 12 months?²

Interesting options for sophisticated investors. To make some of these investments, you do need to be an “accredited investor”. That is a category of investor defined by the Securities and Exchange Commission. In general terms, the SEC defines an accredited investor as

• an organization, partnership, corporation, business, or trust with $5 million or more in assets
• an individual or couple with a net worth of $1 million or more or stable annual income of $200,000 or more ($300,000 for a couple).³

As the value of these investments can fluctuate notably, they are not usually suited for the risk-averse retiree or the middle-class investor. But if you are a high net worth investor in search of diversification, they may be for you.

To learn more about how an investment in energy or other alternatives can help you hedge rising costs or add balance to volatile stock portfolios, please speak with a qualified financial advisor familiar with these kinds of investments today.