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November 5, 2012

US equities markets were lower last month along with most commodities as concerns of a slowing economy overshadowed investors and the politicians for most of the month. While tomorrow’s elections were the focus last month that appears to have changed with the arrival of Hurricane Sandy. Now the mixture of the political landscape, global and domestic economies, and recovery from the “Frankenstorm” is providing investment managers and investors with challenges and opportunities for the future. October has held the reputation as the most dangerous month of the year for investors. Last month the markets were slightly lower, helping to build confidence for both investors and consumers. The S&P 500 Index (SPX) was 2% lower (see chart this Page) while the Dow Jones Industrial Average (DJIA) fell 2.5% and the Nasdaq Composite Index (COMPQ) sank 4.5%. Despite the general decline for stocks the DJ Transportation Average (DJTA) jumped 3.9% Managers curtailed activity for the second straight month, analyzing and adjusting positions ahead of the presidential elections. The expectation for clear winning and losing sectors over the next few years, dependant on the winner of the Whitehouse, had managers strategizing while balancing against evidence of slowing economic conditions. Commodities Fall Following rising prices in September, largely tied to concerns about the Euro zone, base metals gave up most if not all of those gains last month. Gold dropped 2.9% month/month and 4.1% from the mid-month highs while the December futures con-tract for Silver fell 6.5% month/month. This was par-tially the result of lower inflationary pressures. Other metals, such as platinum and palladium were also lower. High Grade Copper declined, a sign that industrial usage for commodities was also lower. Another sign that economic growth and infla-tion are declining came from a drop in energy prices.

A 6.5% drop in the West Texas Intermediate Crude Futures (CL/X2), to a three month low, showed that supplies were rising and demand was contracting for energy, despite continued geopolitical tensions. Agriculture prices continued to decline, but for some, the rate of change has eased. This was very evident for Corn and Pork Bellies. Soybean Oil was down and Soybean Meal slightly higher. Cotton prices continue to contract. US Dollar and Interest Rates The US Dollar rose at the end of October and the beginning of November, with the US Dollar Index (DX/Y) climbing to the highest level in two months. Conversely the Euro/Dollar (EURDLR) dropped to its lowest level in two months. Also falling against the “Greenback” was the Japanese Yen, Canadian Dollar, and Swiss Franc. Interest rates rose on a month/month basis. A look at the Yield on the 10-year T-Note (TNX) shows that rates were up but ended the month in the middle of the monthly range after setting a lower high when compared to September. The chart on Page 2, First Column illustrates this very well. The higher dollar may be tied to a rise in con-sumer confidence. The Conference Board’s monthly Consumer Confidence Index (CBCCI) jumped for the second consecutive month to the highest level in more than four years (see chart Page 2, Column 2).

Numerous Challenges and Opportunities Ahead

S&P 500 Index (SPX) - Daily Chart

Source: Yahoo! Inc.

© Copyright 2012, Olympian Capital Management. All rights reserved.

EQUITIES, A DEEPER VIEW As we noted earlier, market activity continues to decline as uncertainty over the election and economic growth challenges managers. Third quarter earnings were mixed and many companies lowered their forecasts for fourth quarter and 2013. As we noted last month, a warning from FedEx Corp. (FDX) indicated that shipments were declining, but rival UPS Corp. (UPS) reported better-than-expected results, which aided DJTA to a gain last month. Among the strongest groups in October were coal & consumable fuels (+20.7%), household appli-ances (+17.8%), trucking (+15.5%) automobile manufacturing (+13.2%), and motorcycle manufac-turing (+10.4%). The weakest groups included edu-cational services (-30.9%), office electronics (-12.3%), computer hardware (-11.1%), computer storage & peripherals (-10.9%), and consumer elec-tronics (-9.2%)

ECONOMIC RESULTS For the second consecutive month the num-ber of new jobs created exceeded expectations. While the unemployment rate ticked higher to 7.9% in October from 7.8% in September, the number of private sector jobs increased xxx,000 for the two months while total non-farm payrolls rose xxx,000 during that period. An initial reading of Gross Domestic Product (GDP) for the third quarter showed that the economy rose at an anemic pace of x.x%, which continues to frustrate corporate CEO’s, government leaders, and investment decision makers.

HURRICANE SANDY One of the worst storms to hit the United States came ashore in New Jersey, playing a Halloween punishment on the Northeast and Mid-Atlantic states. Millions of people and businesses were left without powers, thousands completely los-ing their homes and places of employment. From Main to California crews of electrical workers have descended on the area to help rebuild the power grid and help get the infrastructure up and running. Nearly a week later businesses in the world’s financial district continue piecing operations back together while, at the same time, consumers search out transportation alternatives as well as gasoline to power their cars and generators. As businesses and people attempt to rebuild, demand for certain resources, products, and labor are expected to rise. This should provide some opportunities for the near-term.

WHAT TO WATCH FOR The major focus over the next several weeks will likely be the election. As the choice of President (and policies) becomes clear, investment managers will adjust their portfolios accordingly. Additionally, the opportunities created from rebuilding in the storm ravaged region should also garner the attention of profit seeking investors.

CBOE 10-Year T-Note Yield (TNX) — Daily Chart

Source: Yahoo! Inc.

Consumer Confidence Index (CBCCI) — Monthly

Source: The Conference Board

© Copyright 2012, Olympian Capital Management. All rights reserved.

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