Category Archives: Weekly Market Commentary

Weekly Market Commentary 10/6/14

The Markets

“Life is fine! Fine as wine! Life is fine!”

During the third quarter of 2014, U.S. investors remained as optimistic as the narrator in Langston Hughes’ poem, Life Is Fine. All major U.S. indices pushed higher during the quarter despite mixed economic signals, monetary policy concerns, and geopolitical tensions.

U.S. Treasury bond markets continued to confound investors and analysts during the quarter. Rates have remained low even with the end of quantitative easing in sight and the Federal Reserve preparing for the next step in unwinding monetary policy which is raising the Fed Fund’s rate. Although the timing of the rate increase remains uncertain, in theory, bond rates should be moving higher in anticipation of the change. A Bloomberg survey found economists anticipate 10-year Treasury yields will reach 2.78 percent by the end of 2014. They began the year at 2.98 percent and finished last week at 2.45 percent.

Bond yields have remained low, in part, because of geopolitical conflicts. Relations between Ukraine, Russia, and the West deteriorated further when an international commercial airliner carrying hundreds of passengers was shot down over Ukraine by a surface-to-air missile. Sanctions imposed by the European Union (EU) and United States have negatively affected the Russian economy. BBC.com reported about $75 billion in capital has fled Russia and the country’s economy appears to be on the brink of recession.

Sanctions also hurt economic growth in the EU where recovery has been as precarious as a newborn foal trying to stand. World stock markets were disappointed, late in the quarter, when the European Central Bank confirmed it was ready to pursue further stimulus but failed to offer any specifics. Over the quarter, interest rates in Europe drifted lower. The Wall Street Journal reported, “Record-low interest rates in Europe have flipped bond investing on its head. Some bond buyers, typically paid for lending out their money, have begun paying borrowers to look after their cash.”

Renewable energy issues aggravated problems in Germany. “On June 16… the wholesale price of electricity fell to minus €100 per megawatt hour (MWh). That is, generating companies were having to pay the managers of the grid to take their electricity,” reported The Economist. The problem was less predictable forms of energy, like solar and wind, create challenges for utilities accustomed to power plants that run constantly and produce a predictable amount of energy.

Throughout the quarter, geopolitical issues increased at a rate that might rival Fibonacci’s hypothetical rabbit population (okay, maybe not quite that fast):

  • The Ebola crisis captured the attention of governments around the world. Safety trials for experimental vaccines are underway in the United Kingdom and the United States, and the first unexpected case arrived on U.S. shores.
  • Violence continued to roil through the Middle East and North Africa. ISIL/ISIS accomplished what many had thought impossible – uniting most countries in the world against a common enemy.
  • In Hong Kong, protests supporting free elections and opposing the Chinese government’s vetting of political candidates were marked by an increase in violence.
  • Japan suffered its worst volcanic disaster in 90 years.

The third quarter of 2014 was many things, but it certainly wasn’t boring.

IS ANOTHER INDUSTRIAL REVOLUTION UPON US? Sure, sure, historians still debate whether the term ‘revolution’ is a misnomer since the first industrial revolution began in the 1700s and sort of merged into the second industrial revolution in the mid-1800s. Revolution is apt when a new way of doing things completely replaces an old way. However, the changes in agricultural techniques, technology, and industrial organization happened so slowly it was hardly a revolution in the traditional sense of change occurring rapidly.

The Economist suggests we are in the throes of another period of sweeping change:

“A third great wave of invention and economic disruption, set off by advances in computing and information and communication technology in the late 20th century, promises to deliver a similar mixture of social stress and economic transformation. It is driven by a handful of technologies – including machine intelligence, the ubiquitous web and advanced robotics – capable of delivering many remarkable innovations: unmanned vehicles; pilotless drones; machines that can instantly translate hundreds of languages; mobile technology that eliminates the distance between doctor and patient, teacher, and student.”

Industrial revolutions have been characterized by painful change; although, they created broad swatches of economic opportunity. While this revolution eventually may bring incredible improvements and open new economic opportunities across all levels of global societies, currently, it is “opening up a great divide between a skilled and wealthy few and the rest of society.”

Weekly Focus – Think About It

“Believe you can and you’re halfway there.”                                                   –Theodore Roosevelt, 26th 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/Langston_Hughes and http://www.poets.org/poetsorg/poem/life-fine http://www.thestreet.com/story/12897560/1/stock-market-today-stocks-fizzle-but-end-higher-for-the-quarter.htmlhttp://www.bloomberg.com/news/2014-10-03/treasuries-fall-for-second-day-amid-speculation-hiring-quickened.htmlhttp://finance.yahoo.com/q/hp?s=^TNX&a=00&b=2&c=2014&d=00&e=4&f=2014&g=d http://www.bloomberg.com/news/2014-08-29/treasury-market-rally-is-stronger-than-every-economist-predicted.htmlhttp://www.bbc.com/news/world-europe-28400218 http://www.washingtontimes.com/news/2014/sep/15/russia-sanctions-risk-return-to-recession-for-euro/?page=all http://www.reuters.com/article/2014/10/02/us-markets-global-idUSKCN0HR01520141002 http://online.wsj.com/articles/european-bond-yields-go-negative-1412093167 (or go to http://peakclassic.peakadvisoralliance.com/app/webroot/custom/editor/10-06-14_WSJ-European_Bond_Yields_Go_Negative-Footnote_9.pdf) http://www.economist.com/news/briefing/21587782-europes-electricity-providers-face-existential-threat-how-lose-half-trillion-euroshttp://www.npr.org/2012/03/12/148318905/renewable-energy-throws-power-grid-off-balance http://en.wikipedia.org/wiki/Fibonacci_number http://www.bbc.com/news/uk-29462638 http://www.npr.org/blogs/thetwo-way/2014/09/23/350877632/obama-coalition-against-isis-shows-it-is-not-americas-fight-alone http://www.bbc.com/news/world-asia-china-29489387 http://www.bbc.com/news/world-asia-29472384 http://www.yale.edu/ynhti/curriculum/units/1981/2/81.02.06.x.html http://www.economist.com/news/special-report/21621156-first-two-industrial-revolutions-inflicted-plenty-pain-ultimately-benefited (or go to http://peakclassic.peakadvisoralliance.com/app/webroot/custom/editor/10-06-14_The_Economist-The_Third_Great_Wave-Footnote_18.pdf) http://www.brainyquote.com/quotes/quotes/t/theodorero380703.html

Weekly Market Commentary 09/29/14

The Markets

Last week offered some lessons in career management, economics, and investor impulse, among other things. Derek Jeter, the well-loved Yankees shortstop, finished the final home game of his career by smacking a game-winning hit. Throughout his last season, ticket prices for Yankees games soared on the secondary market with $16 bleacher seats selling for more than $200. By the end of the season, ticket vendors were asking as much as $11,000 a seat.

On the other coast, Bill Gross, renowned bond guru, did not retire. Gross left the firm he helped found for a smaller money manager. Shares of stock in his new company rose about 43 percent as investors anticipated the potential inflow of new assets. They also anticipated an outflow of assets from his old firm, according to Barron’s, which caused yields on Treasuries and corporate bonds to move higher on Friday, pushing prices south.

Gross’s shifting alliance wasn’t the only thing churning bond markets last week, however. Trepidation about global economic growth and geopolitical matters (e.g., Russia vs. Ukraine, etc.) had investors fleeing to “safe assets” earlier in the week. That pushed Treasury yields lower and prices higher. Barron’sreported:

“Thursday’s markets were all about a flight from risk, in part because of reports of a Russian draft law to confiscate foreign-owned assets in retaliation for Ukraine sanctions. More important is the message from “Dr. Copper,” suggesting weakness globally, whether in faltering Europe or slowing China. All of which suggests it will be an even more “considerable time” until the Federal Reserve raises interest rates.”

Volatility may be the name of the game for a while. Bloomberg suggested looking backward for guidance about the future. In 2013, Fed Chairman Ben Bernanke suggested tapering could begin sooner than expected. Treasury yields leapt by 1 percent as the market threw a “taper tantrum.” Just last week, Chairwoman Janet Yellen warned markets the Federal Open Market Committee statement was not a promise about the timing of rate hikes. Bloomberg said investors remained complacent. Apparently, they weren’t concerned unexpected economic strength in the United States could move the timetable forward.

At the end of the week, the Commerce Department reported economic growth was more robust than originally thought during the second quarter. The economy grew at the fastest rate in more than two years.

DO YOU HAVE WHAT IT TAKES? If you’re about 74 inches tall, have a deep voice, and have run a marathon, you may. The Economist’s recent article, Look of a Leader, found, “It is remarkable, in this supposed age of diversity, how many bosses still conform to the stereotype.” The article included a mixture of studies describing the characteristics of chief executive officers (CEOs) and other leaders:

  • 30 percent of Fortune 500 companies’ CEOs are 74 inches or taller (less than 4 percent of Americans are that tall).
  • Voice quality was more important than content when people were asked to evaluate executive speeches.
  • Male CEOs with the deepest voices earn $187,000 more each year, on average.
  • Companies with CEOs who had finished marathons were worth about 5 percent more, on average, than those with CEOs that had not.

Don’t worry. All is not lost. Those who have not been gifted with height, athleticism, and lower voice registers can give themselves a leg up by adopting power poses. Amy Cuddy, a Harvard professor (who delivered an exceptionally popular TED talk in 2012), has found non-verbal expressions of power dominance (body language) can influence other people’s perceptions and our own well-being:

“There’s one very important thing everyone should do before heading into a job interview, giving a big speech, or attempting an athletic feat… Everyone should spend two minutes power posing. What, you ask, is power posing? It is adopting the stances associated with confidence, power, and achievement – chest lifted, head held high, arms either up or propped on the hips.”

These poses can change body chemistry. High-power poses increase levels of testosterone and decrease levels of cortisol (a stress hormone), helping people feel more confident. Low-power poses, on the other hand, increase cortisol levels, causing people to feel more stressed. If you’re after an executive-level position competing with equally qualified candidates, power poses could give you an edge.

Weekly Focus – Think About It

“Your image isn’t your character. Character is what you are as a person.”
                                        –Derek Jeter, New York Yankee’s recently retired shortstop

* 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.

http://time.com/money/3052954/derek-jeter-yankees-farewell-tour-ticket-prices/
http://online.barrons.com/news/articles/SB52784017629588234037504580170200320391396?mod=BOL_hp_we_columns (or go to http://peakclassic.peakadvisoralliance.com/app/webroot/custom/editor/09-29-14_Barrons-Bond_Kings_New_Realm-Footnote_2.pdf)
http://online.barrons.com/news/articles/SB52784017629588234037504580170133745626458 (or go to http://peakclassic.peakadvisoralliance.com/app/webroot/custom/editor/09-29-14_Barrons-Dow_Off_1_Percent_for_Week-Footnote_3.pdf)
http://blogs.barrons.com/incomeinvesting/2014/09/25/long-treasuries-lead-in-risk-off-lurch/ (or go to http://peakclassic.peakadvisoralliance.com/app/webroot/custom/editor/09-29-14_Barrons-Long_Treasuries_Lead_in_Risk-Off_Lurch-Footnote_4.pdf)
http://www.bloomberg.com/news/2014-09-24/yellen-warns-on-market-calm-before-considerable-time-up.html
http://in.reuters.com/article/2014/09/26/markets-global-idINL6N0RR3AP20140926
http://www.economist.com/news/business/21620197-getting-top-much-do-how-you-look-what-you-achieve-look-leader?fsrc=nlw%7Chig%7C25-09-2014%7C5356caf9899249e1ccc3d14f%7CN (or go to http://peakclassic.peakadvisoralliance.com/app/webroot/custom/editor/09-29-14_The_Economist-The_Look_of_a_Leader-Footnote_7.pdf)
http://blog.ted.com/2012/10/01/10-examples-of-how-power-posing-can-work-to-boost-your-confidence/
http://investorplace.com/2014/09/derek-jeter-quotes/#.VCbFXUseW

Weekly Market Commentary 9/22/14

The Markets

About 25 years ago, Peter Jennings interrupted General Hospital to tell the nation Coca-Cola had decided to bring back its original recipe. The nation was thrilled and sales soared.

The Federal Reserve’s impending rate hike is about as popular as the New Coke; however, no soap operas were interrupted last week when the Open Market Committee statement indicated rates would remain in “the current target range” for a “considerable” period of time after quantitative easing ends.

Investors embraced the news pushing both the Dow Jones Industrial Average and the Standard & Poor’s 500 Index up more than 1 percent for the week.

On the surface, it appears everything is in perfect order. However, experts cited by Barron’s warned investors to pay attention to the subtleties of the Fed’s statement which seems to indicate monetary policy may be tightened faster than markets expect:

“Investors should keep an eye on the nuances of the Fed statement… The Fed’s estimates for the funds rate moved up again to a median of 1.38 percent, instead of 1.13 percent at year-end 2015, and rose also for 2016 and 2017. Such rises suggest that Fed Chair Janet Yellen might face increasing dissent from both rate hawks and centrists on the Fed’s Open Market Committee.”

Also of note last week, the Organization for Economic Cooperation and Development (OECD) reduced its economic growth forecasts for the United States and other advanced economies and recommended various economic policy changes suited to the needs of each country.

Reuters reported the organization has also recommended the implementation of measures designed to prevent multinational firms from shifting profits to low-cost tax countries. The topic was a point of discussion at the G20 summit last weekend. The measures could help countries recoup billions of tax dollars and potentially affect the balance sheets of companies targeted.

A PHARMACIST HAS A HEADACHE. Does she choose the name brand aspirin or the store brand? That’s the subject of a working paper (Do Pharmacists Buy Bayer? Informed Shoppers and the Brand Premium, August 2014) written by a pair of economics professors at the University of Chicago Booth School of Business and their co-authors. The team found: (Page 24)

“More informed shoppers buy more store brands and fewer national brands. Consumer information plays a quantitative role in health categories where our estimates imply that expenditures and market shares would change significantly if all households behaved like expert shoppers. By contrast, the role of consumer information is smaller in food and drink categories where our estimates suggest much smaller gaps between expert and non-expert shopping behavior.”

How much less would Americans spend if everyone were an expert shopper? Currently, we pay about $196 billion for packaged consumer goods (medications, juice, frozen foods, etc.) each year. If we bought store brands rather than name brands, we’d save about $44 billion dollars annually. (Page 2) That’s quite a chunk of change.

So, why do we buy premium brands? It may be because we believe they’re better. Freakonomics Radio recently held a peanut butter and jelly (PB&J) sandwich taste test. Tasters were told one sandwich was made with premium brands of PB&J and the other with store brands. The tasters universally preferred the premium-brand sandwich. As it turns out, both sandwiches were made with identical store-brand ingredients.

Consumers’ inclination toward national brands may reflect advertising-induced misinformation, according to some economists; other economists suggest premium products may indeed offer greater value to consumers. The working paper concluded, “…A more informed population of consumers might change whether and how much firms choose to advertise their products as well as which products are introduced to the market.” (Pages 2 and 24)

Now, getting back to the original question, it turns out 92 percent of pharmacists buy store- brand headache remedies. Just 74 percent of the rest of us do (although that statistic is somewhat skewed since doctors, nurses, and other healthcare professionals tend to buy store brands more often than other people). Either way, it’s a big difference.

Weekly Focus – Think About It

“Oh yeah, I’ll always buy the most expensive golf ball, because if there’s even the tiniest chance that there’s a little magic in there, then I want that magic.”
                                                                    –Steve Levitt, Co-author of “Freakonomics”

 

* This newsletter was prepared by Peak Advisor Alliance. Peak Advisor Alliance is not affiliated with the named broker/dealer.
* 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://content.time.com/time/specials/packages/article/0,28804,1913612_1913610_1913608,00.html
http://www.federalreserve.gov/newsevents/press/monetary/20140917a.htm
http://online.barrons.com/news/articles/SB52133021052493823286804580156051895490276?mod=BOL_hp_we_columns (or go to http://peakclassic.peakadvisoralliance.com/app/webroot/custom/editor/09-22-14_Barrons-Fervor_for_Large-Caps_Drives_Dow_to_New_High-Foonote_3.pdf)
http://www.oecd.org/newsroom/global-growth-continuing-at-a-moderate-pace-oecd-says.htm
http://www.reuters.com/article/2014/09/20/us-g20-australia-idUSKBN0HE0PD20140920
http://faculty.chicagobooth.edu/matthew.gentzkow/research/generics.pdf (Pages 2 and 24)
http://freakonomics.com/2014/09/11/how-to-save-1-billion-without-even-trying-full-transcript/