Week of September 17, 2007

The Markets
 
It seems rather surprising that oil prices hit a new all-time high last week (unadjusted for inflation), while at the same time, the Dow Jones Industrial Average registered its largest weekly gain since April 22nd, according to Reuters.

Normally, you’d expect the stock market to struggle in the face of record oil prices. Higher oil prices tend to increase the cost of doing business and act as a brake on economic growth. So, is the stock market acting irrationally here?

Despite what academics say, investors do not always appear to act rationally. Humans are emotional people and we do not always make investment decisions with a cool, detached demeanor nor do we always make decisions with complete information. For example, over the past few weeks, we’ve seen the stock market bounce around like a pinball machine as it reacts to the latest information. Some people would say that’s a sign of a rational market that quickly adjusts to new data. Others would say it’s a sign of human emotions getting in the way of a sound, long-term investment plan.

Oil is another good example. On any given day, oil companies produce about 200,000 barrels of West Texas crude. However, last Thursday, almost 600 million barrels of benchmark West Texas crude were traded on the New York Mercantile Exchange. If you do the math, that means about 3,000 times more barrels were traded than were produced that day, according to Ted Kloza, publisher and chief oil analyst at the Oil Price Information Service. With that level of trading volume, it appears there’s a tremendous amount of (irrational?) speculation going on and that speculation may or may not bear any resemblance to the fundamental economics of oil.

Astute investors understand that irrational behavior may occur from time to time in the markets and when it does, they try to take advantage of it. 
 

Source: Yahoo! Finance, Barron’s Past performance is no guarantee of future results.  Indices are unmanaged and cannot be invested into directly. Three-, 5-, and 10-year returns are annualized.  Assumes dividends are not reinvested.

MAYBE YOU MISSED IT because you were squeezing the last precious days out of summer, but the National Shopping Confederation announced a new campaign to turn the Tuesday after Labor Day into the first day of the holiday shopping season. Calling the campaign “Operation Grab,” the organization claims a longer holiday shopping season will give consumers more time to comparison-shop.

The flip side, of course, is that a longer shopping season just hypes what consumers already say is too great an emphasis on gift-giving. According to a 2005 survey conducted for the Center for a New American Dream, nearly 9 in 10 Americans (87%) believe that the holidays should be more about family and caring for others, not giving and receiving gifts.

This year, if you want to focus more on family, not frenzy, try these gift-giving ideas:

Draw names so each family member is responsible for buying just one gift.
Make time for a special get-together over the holidays instead of exchanging gifts.
Choose a gift-giving theme. For instance, “time” could produce a watch, calendar, or a picture of a great time you had together.

If you have other family-friendly holiday season ideas, we’d love to hear them.

Weekly Focus – The Road to the White House

This fall, students and faculty across multiple academic disciplines and organizations at Western Illinois University will participate in the nation’s largest hands-on collegiate civics project -- a full-scale mock presidential election.

"The Road to the White House Starts at Western Illinois University," a five-night simulation set to begin October 23rd, will showcase Western Illinois’ American Democracy Program’s promotion of civic engagement. In addition to promoting a better understanding of the electoral process, students and faculty hope to encourage students to get involved in American politics.

The mock election is patterned after a simulation Rick Hardy, chair of the university’s political science department and project director, and associate project director John Hemingway organized at the University of Iowa in 1976, and another simulation Hardy conducted at the University of Missouri-Columbia in 1988.  In both cases, the simulation winner was, in reality, elected president.

Are you curious who will win? For more information, visit the university’s web site at http://www.wiu.edu.

Best regards,

Fredrick J. Livingston, CLU, CFP

Securities offered through LPL Financial, Member NASD/SIPC

* The Standard & Poor's 500 (S&P 500) is an unmanaged group of securities considered to be representative of the stock market in general.

* The Dow Jones Industrial Average is a price-weighted index of 30 actively traded blue-chip stocks. 

* The Nasdaq Composite Index is an unmanaged, market-weighted index of all over-the-counter common stocks traded on the National Association of Securities Dealers Automated Quotation System.

* Yahoo! Finance is the source for any reference to the performance of an index between two specific periods.

Brain Teaser Answer:  It contains the numbers one to nine, in alphabetical order.