Monthly Archives: August 2014

Weekly Market Commentary

August 18, 2014

The Markets

If you have young children or grandchildren, you may have read “Alexander and the Terrible, Horrible, No Good, Very Bad Day” by Judith Viorst. Well, that’s what last week was like on the European continent from an economic perspective.

Hopes of economic recovery were put on hold when gross domestic product (GDP) figures across the region showed no – nada, zero, zip – growth overall during the second quarter of 2014. First quarter’s growth (0.2 percent) hadn’t been all that impressive either, but at least it was headed in the right direction. The strongest second-quarter performers were Netherlands, Spain, and Portugal, according to The Economist. However, some of Europe’s largest economies (Italy, Germany, and France) contracted during the period.

Geopolitical unrest prompted the Euro area’s poor showing. Turmoil in the Middle East, violence in Ukraine, and sanctions against Russia have, among other things, led to a slowdown in demand for luxury goods that has negatively affected European economies. After delivering strong performance in 2013, the MSCI Europe Textiles, Apparel, & Luxury Goods Index was down more than 10 percent in the month of July and down 4.75 percent for the year. China’s anti-bribery and corruption campaign also has reduced demand for luxury goods, according to Bloomberg.

The Euro area’s economic growth (or recent lack thereof) has sparked fears of deflation in the region.  The Economist offered this insight:

“Deflation would be particularly grave for the euro area because both private and public debt is so high in many of the 18 countries that share the single currency. Even if inflation is positive, but stays low, it hurts debtors as their incomes rise more slowly than they expected when they borrowed. If deflation were to set in, the effects would be worse still: when prices and wages fall, debts, which do not shrink, become harder to repay.”

Woes across the Atlantic put a shine on markets in the United States, according to Reuters. Major U.S. stock markets finished the week ahead and benchmark U.S. treasury yields finished the week at a 14-month low.

AT A CERTAIN AGE, YOU BEGIN TO UNDERSTAND WHY YOUR ELDERS shook their heads at newfangled ideas like television, 24-hour convenience stores, automobiles, and buying on credit. Here are a few business and marketing trends that may change the way baby boomers think about things:

  • Where words fail, music speaks. Athletic shoe companies, fast-food retailers, and luxury brands are using digital music services to amplify their brand identities and engage with customers. For instance, a well-known cruise line’s playlist includes tunes with fun summer vibes, while a shampoo brand’s list embraces singing-in-the-shower songs.
  • Have a commercial with that commercial. A popular music identification app is helping television networks and advertisers connect with consumers’ second screens – their smart phones and tablets. The app’s logo appears during commercials and TV shows. If viewers interact with the logo, then the show or product has opportunities to re-market to viewers through their mobile devices.
  • It’s a meal ticket, literally. Some of the hottest restaurants around aren’t taking reservations anymore. They’re selling tickets in advance. It’s a business decision that eliminates the cost of last-minute cancellations which may lead to better prices for diners, according to experts cited by National Public Radio.
  • Want to attract a crowd? New and growing businesses have a lot of options when it comes to raising capital. If a business wants to borrow money, in addition to traditional sources, they can turn to peer-to-peer and social lending platforms. If a company wants equity investors, they may pursue equity crowdfunding. In fact, a recent study reported:

“Today, it’s apparent the crowdfunding phenomenon has indeed affected the VC (venture capital) ecosystem – as a complementary force. With thousands of consumer-oriented hardware campaigns looking for financing for everything from smart watches to beacon technologies, crowdfunding platforms… have provided VC investors with a valuable source for dealflow.”

Whether you’re a consumer or a businessperson, it’s important to remain aware of the ways in which the world is evolving and take advantage of opportunities that can make your life easier and/or your business more successful.

Weekly Focus – Think About It

“If your actions inspire others to dream more, learn more, do more and become more, you are a leader.”
                                                                         –John Quincy Adams, Sixth President of the United States

* This newsletter was prepared by Peak Advisor Alliance. Peak Advisor Alliance is not affiliated with the named broker/dealer.
* Government bonds and Treasury Bills are guaranteed by the U.S. government as to the timely payment of principal and interest and, if held to maturity, offer a fixed rate of return and fixed principal value.  However, the value of fund shares is not guaranteed and will fluctuate.
*Corporate bonds are considered higher risk than government bonds but normally offer a higher yield and are subject to market, interest rate and credit risk as well as additional risks based on the quality of issuer coupon rate, price, yield, maturity, and redemption features.
* The Standard & Poor’s 500 (S&P 500) is an unmanaged group of securities considered to be representative of the stock market in general. You cannot invest directly in this index.
* The Standard & Poor’s 500 (S&P 500) is an unmanaged index. Unmanaged index returns do not reflect fees, expenses, or sales charges. Index performance is not indicative of the performance of any investment.
* The 10-year Treasury Note represents debt owed by the United States Treasury to the public. Since the U.S. Government is seen as a risk-free borrower, investors use the 10-year Treasury Note as a benchmark for the long-term bond market.
* Gold represents the afternoon gold price as reported by the London Bullion Market Association. The gold price is set twice daily by the London Gold Fixing Company at 10:30 and 15:00 and is expressed in U.S. dollars per fine troy ounce.
* The Bloomberg Commodity Index is designed to be a highly liquid and diversified benchmark for the commodity futures market. The Index is composed of futures contracts on 19 physical commodities and was launched on July 14, 1998.
* The DJ Equity All REIT Total Return Index measures the total return performance of the equity subcategory of the Real Estate Investment Trust (REIT) industry as calculated by Dow Jones.
* Yahoo! Finance is the source for any reference to the performance of an index between two specific periods.
* Opinions expressed are subject to change without notice and are not intended as investment advice or to predict future performance.
* Economic forecasts set forth may not develop as predicted and there can be no guarantee that strategies promoted will be successful.
* Past performance does not guarantee future results. Investing involves risk, including loss of principal.
* You cannot invest directly in an index.
* Consult your financial professional before making any investment decision.
* Stock investing involves risk including loss of principal.

Sources:
http://en.wikipedia.org/wiki/Alexander_and_the_Terrible,_Horrible,_No_Good,_Very_Bad_Day
http://www.economist.com/news/finance-and-economics/21612254-recovery-grinds-halt-cyclical-stagnation (or go to http://peakclassic.peakadvisoralliance.com/app/webroot/custom/editor/08-18-14_The_Economist-Recovery_Grinds_to_a_Halt-Footnote_2.pdf)
http://www.nytimes.com/2014/08/07/business/international/italy-falls-back-into-recession-raising-concern-for-eurozone-economy.html?_r=0
http://www.msci.com/resources/factsheets/index_fact_sheet/msci-europe-textiles-apparel-luxury-goods-usd-net.pdf
http://www.bloomberg.com/news/2014-08-14/gold-demand-in-china-contracts-52-after-buying-frenzy-subsides.html
http://www.reuters.com/article/2014/08/15/usa-stocks-weekahead-idUSL2N0QL23Y20140815
http://www.qualitylogoproducts.com/blog/5-brands-jam-with-spotify-playlists/
http://adage.com/article/digital/shazam-plans-survive-social-tv-shake/291391/
http://www.npr.org/blogs/thesalt/2014/08/05/337834577/no-more-reservations-exclusive-restaurants-require-tickets-instead
https://www.cbinsights.com/blog/crowdfunded-venture-capital-hardware/
http://www.brainyquote.com/slideshow/topics/top_10_leadership_quotes.html

Taxable vs Tax Deferred Savings Calculator

Weekly Market Commentary

August 4, 2014

The Markets

Last week, investors took a long look at the crazy quilt of information and events around the world and decided they didn’t like what they were seeing.

Geopolitical tensions puckered a lot of seams: Conflict in Ukraine was embroidered with additional sanctions against Russia, difficulty investigating the downed commercial airliner in Ukraine, and escalating anti-American rhetoric in Russia. Violence continued to roil through Middle East and North Africa. In Libya, hostilities escalated, causing many western countries to withdraw diplomats and leading Tunisia to close its border with the country.

Financial and economic issues overseas, including ongoing issues with one of Portugal’s largest banks, and worries that European companies will be negatively affected by sanctions against Russia, marred investors’ views, too. In addition, controversy swirled around Argentinian bonds. In the midst of a legal battle over bond repayment, the country missed a June interest payment. The ‘credit event’ triggers a payout of about $1 billion for investors who hold insured Argentine debt.

Positive news in the U.S. offered some padding. The U.S. economy continued to recover and gross domestic product increased by 4 percent (annualized) during the second quarter which was a remarkable improvement after first quarter’s contraction. Reuters reported, “Consumer spending growth, which accounts for more than two-thirds of U.S. economic activity, accelerated at a 2.5 percent pace… Despite the pick-up in consumer spending, Americans saved more in the second quarter… which bodes well for future spending.”

The Federal Reserve issued a midweek statement confirming economic recovery was continuing apace. It caused some investors to throw what one expert called a ‘taper’ tantrum. Barron’s said, “As the Fed’s easy money policies reverse, people are forced to focus more on what they’re paying for investments. If last week is any indication, investors didn’t like what they saw in their portfolios.”

By Friday, U.S. markets had experienced their worst week in two years. As investors adjust to the idea of rising interest rates, markets may experience additional volatility.

JUST AS SOME SCIENCE FICTION NOVELS DESCRIBE PARALLEL UNIVERSES, the Congressional Budget Office (CBO) report entitled The 2014 Long-Term Budget Outlook described alternate realities for the United States, including futures that will be determined by the decisions of our policymakers today and in the future.

The CBO reported, “Between 2009 and 2012, the federal government recorded the largest budget deficits relative to the size of the economy since 1946, causing its debt to soar.” A deficit occurs when the government spends more than it takes in. One consequence of recent deficits is the federal debt (the amount of money the United States owes its creditors) is now equal to about 74 percent of the U.S. economy’s gross domestic product (GDP). That’s the highest percent ever except for a short period around World War II.

If nothing changes – meaning laws governing taxes and spending remain the same, and the economy recovers as anticipated – deficits are expected to remain relatively low from 2015 through 2018. However, after that, the CBO projects government spending on healthcare programs and interest payments will grow and the federal debt could be 106 percent of GDP by 2039.

In an alternate universe, “certain policies that are now in place but are scheduled to change under current law would be continued, and some provisions of law that might be difficult to sustain for a long period would be modified. With those changes to current law, deficits, excluding interest payments, would be about $2 trillion higher over the next decade than in CBO’s baseline.” In that scenario, the debt of the United States balloons, swelling to about 180 percent of GDP by 2039.

A more attractive alternative requires deficit reduction measures. Depending on the amount of deficit reduction, the federal debt could diminish and be 42 to 75 percent of GDP by 2039. We can only hope the United States isn’t the country to answer an economic question recently discussed by The Conference Board: How high can debt-to-GDP ratios rise before crippling a nation?

Weekly Focus – Think About It

“The most difficult thing is the decision to act, the rest is merely tenacity.”
 –Amelia Earhart, American aviation pioneer

* This newsletter was prepared by Peak Advisor Alliance. Peak Advisor Alliance is not affiliated with the named broker/dealer.
* Government bonds and Treasury Bills are guaranteed by the U.S. government as to the timely payment of principal and interest and, if held to maturity, offer a fixed rate of return and fixed principal value.  However, the value of fund shares is not guaranteed and will fluctuate.
*Corporate bonds are considered higher risk than government bonds but normally offer a higher yield and are subject to market, interest rate and credit risk as well as additional risks based on the quality of issuer coupon rate, price, yield, maturity, and redemption features.
* The Standard & Poor’s 500 (S&P 500) is an unmanaged group of securities considered to be representative of the stock market in general. You cannot invest directly in this index.
* The Standard & Poor’s 500 (S&P 500) is an unmanaged index. Unmanaged index returns do not reflect fees, expenses, or sales charges. Index performance is not indicative of the performance of any investment.
* The 10-year Treasury Note represents debt owed by the United States Treasury to the public. Since the U.S. Government is seen as a risk-free borrower, investors use the 10-year Treasury Note as a benchmark for the long-term bond market.
* Gold represents the afternoon gold price as reported by the London Bullion Market Association. The gold price is set twice daily by the London Gold Fixing Company at 10:30 and 15:00 and is expressed in U.S. dollars per fine troy ounce.
* The Bloomberg Commodity Index is designed to be a highly liquid and diversified benchmark for the commodity futures market. The Index is composed of futures contracts on 19 physical commodities and was launched on July 14, 1998.
* The DJ Equity All REIT Total Return Index measures the total return performance of the equity subcategory of the Real Estate Investment Trust (REIT) industry as calculated by Dow Jones.
* Yahoo! Finance is the source for any reference to the performance of an index between two specific periods.
* Opinions expressed are subject to change without notice and are not intended as investment advice or to predict future performance.
* Economic forecasts set forth may not develop as predicted and there can be no guarantee that strategies promoted will be successful.
* Past performance does not guarantee future results. Investing involves risk, including loss of principal.
* You cannot invest directly in an index.
* Consult your financial professional before making any investment decision.
* Stock investing involves risk including loss of principal.

Sources:
http://www.washingtonpost.com/world/europe/ukraine-forces-capture-rebel-territory-close-to-malaysia-airlines-crash-site/2014/07/28/43b90a26-164a-11e4-9e3b-7f2f110c6265_story.html
http://blogs.reuters.com/great-debate/2014/07/29/putins-anti-american-rhetoric-now-persuades-his-harshest-critics/
http://www.usnews.com/news/newsgram/articles/2014/07/30/international-diplomats-evacuate-libya-as-violence-escalates
http://abcnews.go.com/International/wireStory/libya-islamic-militias-declare-control-benghazi-24790261
http://www.cnbc.com/id/101888491
http://www.reuters.com/article/2014/08/01/us-argentina-debt-idUSKBN0G13Z720140801
http://www.reuters.com/article/2014/07/30/us-usa-economy-idUSKBN0FZ09P20140730
http://online.barrons.com/news/articles/SB50001424053111903849404580057454278807016?mod=BOL_hp_we_columns (or go to http://peakclassic.peakadvisoralliance.com/app/webroot/custom/editor/08-04-14-Barrons_Dow_Slides_2.75_Percent-Into_the_Red_for_the_Year-Footnote_8.pdf)
http://finance.yahoo.com/news/despite-sharp-selloff-too-early-211642909.html
http://www.cbo.gov/publication/45471
http://www.investopedia.com/terms/b/budget-deficit.asp
http://www.investopedia.com/terms/f/federaldebt.asp
https://www.conference-board.org/press/pressdetail.cfm?pressid=4898
http://www.brainyquote.com/quotes/quotes/a/ameliaearh120929