Monthly Archives: July 2012

Weekly Commentary, July 18th

The Markets

Should the Federal Reserve raise interest rates to fire up the economy?

For the past few years, the Fed has been on a mission to lower rates as much as possible. The thinking is lower rates will spur economic growth by making it less costly for businesses and consumers to borrow money.

Unfortunately, it hasn’t quite worked as planned.

Short-term interest rates are near zero and 30-year mortgages are at a record low, yet the economy is still just muddling along, according to Barron’s. Now, some investment managers are saying the Fed should reverse course and raise interest rates.

Last week, prominent money manager David Einhorn went on CNBC and said, “I think having very low zero rates is depressing to people. I think it deprives savers of reasonable incomes, the ability to forecast a reasonable income, and it cuts down on consumption.” He went on to say low rates drive up food and oil prices and lower standards of living.

Folks relying on a stream of income from their fixed investments can probably relate very well to what Einhorn is talking about. As recently as July 2007, $100,000 worth of 1-year Treasuries would have generated about $5,000 of annual income (a 5 percent yield), according to data from the Federal Reserve. Now, it would generate only about $200 (a 0.2 percent yield).

The Fed may be in a classic Catch-22, according to CNBC. With sluggish economic growth, it’s certainly hard to justify a rate hike, yet, low rates are increasingly ineffective. CNBC says a growing number of analysts suggest the best course of action is to allow “the cash-rich private sector to sort out its own problems without the government’s interference.” However, they acknowledge it “likely would be painful, but could be the only sustainable path to recovery.”

With the Fed on the record as saying they plan “to keep interest rates at their historically low range of 0 to 0.25 percent through late 2014,” investors shouldn’t expect the Fed to raise rates any time soon, according to Fox Business. Only time will tell if this low rate strategy is the right medicine for the economy.

Data as of 7/13/12

1-Week

Y-T-D

1-Year

3-Year

5-Year

10-Year

Standard & Poor’s 500 (Domestic Stocks)

0.2%

7.9%

3.1%

14.6%

-2.7%

4.0%

DJ Global ex US (Foreign Stocks)

-1.1

-0.2

-17.4

5.7

-7.9

5.2

10-year Treasury Note (Yield Only)

1.5

N/A

2.9

3.4

5.1

4.6

Gold (per ounce)

0.5

1.3

1.1

20.7

19.1

17.5

DJ-UBS Commodity Index

2.5

-0.2

-14.8

7.2

-4.3

3.5

DJ Equity All REIT TR Index

0.9

17.3

12.7

34.8

2.3

11.6

Notes: S&P 500, DJ Global ex US, Gold, DJ-UBS Commodity Index returns exclude reinvested dividends (gold does not pay a dividend) and the three-, five-, and 10-year returns are annualized; the DJ Equity All REIT TR Index does include reinvested dividends and the three-, five-, and 10-year returns are annualized; and the 10-year Treasury Note is simply the yield at the close of the day on each of the historical time periods.

Sources: Yahoo! Finance, Barron’s, djindexes.com, London Bullion Market Association.

Past performance is no guarantee of future results.  Indices are unmanaged and cannot be invested into directly.  N/A means not applicable.

 

HOW DO YOU TURN A PENNY INTO 1.25 BILLION DOLLARS? Sounds like a magic trick, right? Well, there’s really no magic other than the law of large numbers.

Here’s how it works and how it may benefit our economy.

A report from the Federal Highway Administration shows Americans traveled approximately 2.94 trillion miles in motor vehicles for the 12 months ending April 2012. Now, when you figure how many gallons of gas that burns up, you get a really big number! Moody’s Economy.com chief economist Mark Zandi has done the math and, by his reckoning, each penny change in the price of a gallon of gas equates to, you guessed it, about $1.25 billion over the course of a year, as reported by CNBC.

With the wild swings we’ve seen in the price of gas, the savings – or cost – can add up quickly. A recent check with AAA showed the average price for a gallon of regular gas dropped by about $.25 over the past year. So, multiply $1.25 billion by 25 and you get, to quote Carl Sagan, “billions upon billions” of additional coin in consumer’s pockets. And, that coin could fuel further growth in consumer spending.

You’ve heard the old saying, “A penny saved is a penny earned.” Today, a few pennies saved on gas can add up to billions!

Weekly Focus – Did You Know…

There’s about $1.1 trillion of US dollars in circulation today – an all-time record high. However, most of it is not “floating” around in everyday transactions. About 75 percent of the $1.1 trillion is in $100 bills which don’t circulate much. On top of that, about 50 to 66 percent of U.S. cash is held abroad. Despite the proliferation of credit cards and debit cards, we still seem a long way away from a cashless society.

Source: CNNMoney

Best regards,

John Raudat

Canoga Wealth Management LLC

Securities offered through LPL Financial, Member FINRA/SIPC.

* 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.

* The DJ Global ex US is an unmanaged group of non-U.S. securities designed to reflect the performance of the global equity securities that have readily available prices.

* 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 London afternoon gold price fix as reported by the London Bullion Market Association.

* The DJ 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 TR 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.

* Past performance does not guarantee future results.

* You cannot invest directly in an index.

* Consult your financial professional before making any investment decision.

Sources:

http://online.barrons.com/article/SB50001424053111903431804577502672376902492.html?mod=BOL_twm_mw#

http://www.federalreserve.gov/releases/h15/data.htm (Treasuries constant maturities/1-year/Monthly)

http://www.cnbc.com/id/48121736

http://www.foxbusiness.com/economy/2012/04/25/fed-decision/#ixzz20jPr0zfc

http://www.fhwa.dot.gov/policyinformation/travel_monitoring/12aprtvt/12aprtvt.pdf

http://www.cnbc.com/id/48096924

http://fuelgaugereport.aaa.com/?redirectto=http://fuelgaugereport.opisnet.com/index.asp

http://tech.fortune.cnn.com/2012/07/12/6-fascinating-facts-about-cash/

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John Raudat is a Registered Representative with, and securities offered through, LPL Financial. Member FINRA/SIPC.

Please remember to contact Private Advisor Group, LLC, in writing, if there are any changes in your personal/financial situation or investment objectives for the purpose of reviewing/evaluating/revising our previous recommendations and/or services, or if you want to impose, add, to modify any reasonable restrictions to our investment advisory services, or if you wish to direct that Private Advisor Group, LLC effect any specific transactions for your account. Please be advised that there can be no assurance that any email request will be reviewed and/or acted upon on the day it is received-please be guided accordingly. A copy of our current written Disclosure statement discussing our advisory services and fees continues to remain available for your review upon request. Copyright 2011 – LPL Financial. All Rights Reserved.

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Weekly Commentary, July 2nd

The Markets

 

A dose of good news from a European summit last Friday helped fuel a strong rally in world financial markets and took some of the sting out of a weak second quarter.

 

With the expectation bar set very low, the 19th European Union (EU) summit since 2008 “delivered more steps toward fiscal integration than pessimistic investors had expected,” according to The Wall Street Journal.

 

Four new measures in particular sent a signal to investors that the EU is taking steps toward a banking union, which could lead to a fiscal union, which could lead to a political union, which could lead to a much stronger European economic bloc. Even though much would have to go right for that sequence of events to occur, investors felt Germany made some important concessions at the meeting which could eventually pave the way for a stronger EU. So, maybe, just maybe, the 19th time is the charm. We’ll see.

 

After an incredibly strong first quarter, stocks gave up some of those gains in the second quarter as the S&P 500 index dropped 3.3 percent. Here are a few concerns that weighed on investors during the past three months:

 

1.      Political question marks in the U.S.

2.      Another flare-up of worry over Europe

3.      Slowing global economic growth

4.      Concern that the Federal Reserve may be near the limit in its ability to prop up the economy

 

Despite these worries, the S&P 500 index is still up a very respectable 8.3 percent for the year due to the very strong first quarter.

 

The second half of the year will likely offer some fireworks as we have a presidential election, the continuing saga in Europe, and a looming “fiscal cliff” at the end of the year, which could usher in a number of major tax-and-spending changes, according to BusinessWeek.

 

In the meantime, enjoy the 4th of July fireworks this week!

 

Data as of 6/29/12

1-Week

Y-T-D

1-Year

3-Year

5-Year

10-Year

Standard & Poor’s 500 (Domestic Stocks)

2.0%

8.3%

1.7%

13.7%

-2.0%

3.5%

DJ Global ex US (Foreign Stocks)

2.7

1.1

-16.0

4.5

-7.0

4.7

10-year Treasury Note (Yield Only)

1.7

N/A

3.1

3.5

5.0

4.8

Gold (per ounce)

2.1

1.5

6.3

19.6

19.7

17.7

DJ-UBS Commodity Index

5.6

-3.7

-14.8

2.8

-4.4

3.1

DJ Equity All REIT TR Index

4.1

14.9

12.9

32.3

2.6

10.4

Notes: S&P 500, DJ Global ex US, Gold, DJ-UBS Commodity Index returns exclude reinvested dividends (gold does not pay a dividend) and the three-, five-, and 10-year returns are annualized; the DJ Equity All REIT TR Index does include reinvested dividends and the three-, five-, and 10-year returns are annualized; and the 10-year Treasury Note is simply the yield at the close of the day on each of the historical time periods.

Sources: Yahoo! Finance, Barron’s, djindexes.com, London Bullion Market Association.

Past performance is no guarantee of future results.  Indices are unmanaged and cannot be invested into directly.  N/A means not applicable.

 

WHAT CAN TENNIS TEACH US ABOUT SUCCEEDING IN THE FINANCIAL MARKETS? Dr. Simon Ramo, a legendary engineer and an architect of our country’s rise as a global technology leader, wrote a book in 1970 about, of all things, tennis, titled Extraordinary Tennis for the Ordinary Player. The engineer in him noticed that the game of tennis involves two games – one is played at the professional level and the other is played at the weekend warrior level. Now, that’s not particularly brilliant, but the conclusion he reached from his observation is.

 

After extensive analysis, Ramo concluded that professional tennis players win points while amateur players lose points.

 

In other words, for professionals, most points are won by the pro hitting a spectacular winning shot that is just out of reach of their opponent (a “winner’s game”), while amateurs typically lose points by making an unforced error (a “loser’s game”).

 

Writing in a famous 1975 Financial Analysts Journal article, noted investment analyst Charles Ellis extended Ramo’s tennis concept to the investment business. Ellis said investing had flipped from being a winner’s game to a loser’s game. He meant that to succeed at investing, you need to focus on making fewer avoidable errors as opposed to making spectacular winning investments.    

 

So, how do you make fewer avoidable errors?

 

The key is to focus on getting the ball over the net instead of trying to always serve aces. Here are three ways we try to do that:

 

1.      Keep investment expenses low.

2.      Keep trading frequency to a reasonable level.

3.      Keep emotions in check so we don’t let fear and greed get the best of us.

 

If our main focus was on trying to hit aces all the time, then we’d likely end up with lots of double faults. And, with too many double faults, we won’t achieve your goals, let alone make it to Wimbledon.  

 

Weekly Focus – Think About It…

 

“Control the things you can control.”

Sam Stosur, professional tennis player

 

Best regards,

 

John Raudat

Canoga Wealth Management LLC

 

Securities offered through LPL Financial, Member FINRA/SIPC.

 

* 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.

 

* The DJ Global ex US is an unmanaged group of non-U.S. securities designed to reflect the performance of the global equity securities that have readily available prices. 

 

* 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 London afternoon gold price fix as reported by the London Bullion Market Association.

 

* The DJ 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 TR 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.

 

* Past performance does not guarantee future results.

 

* You cannot invest directly in an index.

 

* Consult your financial professional before making any investment decision.

 

 

Sources:

http://online.wsj.com/article/SB10001424052702304830704577499551320597874.html

http://www.businessweek.com/news/2012-06-26/u-dot-s-dot-should-avoid-fiscal-cliff-overhaul-taxes-oecd-says

http://viterbi.usc.edu/news/news/2008/engineering-legend-si.htm

http://www.collinsward.com/Articles/CWCM_The_Loser’s_Game.pdf

http://www.bodyandsoul.com.au/soul+happiness/celebrity+profiles/spotlight+on+sam+stosur,14373

 

 

1-080510

 

 

John Raudat is a Registered Representative with, and securities offered through, LPL Financial. Member FINRA/SIPC.

Please remember to contact Private Advisor Group, LLC, in writing, if there are any changes in your personal/financial situation or investment objectives for the purpose of reviewing/evaluating/revising our previous recommendations and/or services, or if you want to impose, add, to modify any reasonable restrictions to our investment advisory services, or if you wish to direct that Private Advisor Group, LLC effect any specific transactions for your account. Please be advised that there can be no assurance that any email request will be reviewed and/or acted upon on the day it is received-please be guided accordingly. A copy of our current written Disclosure statement discussing our advisory services and fees continues to remain available for your review upon request. Copyright 2011 – LPL Financial. All Rights Reserved. 

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