Monthly Archives: August 2012

GXV Investor Course: August 2012

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Economic Outlook for August 2012

The three components of a healthy economy are full employment, stable prices, and economic growth. We track three economic indicators monthly to gauge the health of the economy, more specifically to gauge whether the economy is getting better or worse:

  • Unemployment numbers to track employment
  • The Consumer Price Index (cpi) to track prices/inflation
  • Manufacturing Output to track economic growth

Unemployment Statistics

The unemployment rate has actually begun to rise slightly since the Spring of this year despite continued massive fiscal and monetary stimulus. As a result we expect accomodative fiscal and monetary policy to continue in the near term. The next reporting date is September 7, 2012.

Inflation

Despite massive fiscal and monetary stimulus, consumer prices have been rising at a very modest rate. Inflation is a major concern to policy makers. Until signs of inflation begin to emerge, expect the stimulus to continue. The next reporting date is September 14, 2012.

Output

Manufacturing output has surprisingly rebounded quite strongly in the last two years, but appears to have stalled in the second quarter of this year. Preliminary numbers came in at 1.7%. Based on the data, we don't expect the current policy makers to change their accomodative fiscal and monetary policy stance any time soon.  For now we would expect the Federal Reserve to continue to hold rates down, at least in the near term, not wanting to derail the fragile recovery. We will continue to monitor these economic indicators closely. Second quarter revised numbers will be released September 5, 2012.

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Asset Allocation Update Tutorial

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Sneak Peek: A Summary of the August 11th Intelligent Investor Class

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August 2012 Asset Allocation

Price to Earnings Ratio of the S&P 500 (P/E): 15.89
Dividend Yield of the S&P 500 (DY): 2.07
Average Yield on the AAA Corporate Bond (BY): 2.74
"Earnings Yield" on the S&P 500 - (1/PE) (EY): 6.29

Conclusion

For the month of August, we are maintaining our 50/50 allocation of stocks and bonds.

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