Monthly Archives: March 2014

She Moves in Mysterious Ways

Weekly Market Commentary

March 31, 2014

 

The Markets

 

Whether it’s good news or bad news, it is often surprising how investors and markets react. Last week, Russia annexed Crimea and the Standard & Poor’s 500 Index gained about 1.4 percent.

 

This week, U.S. investors had the chance to bask in the glow of some good news: jobs growth was healthy, consumer spending improved modestly, consumer confidence numbers were better than expected, and fourth quarter’s U.S. gross domestic product (GDP) growth number was revised upward. How did U.S. markets respond? Only the Dow Jones Industrial Average finished the week in positive territory.

 

What offset the good domestic news?

 

First, there was some not-so-good domestic news. Several banks, including a leading global bank, failed the Federal Reserve’s stress test causing share prices in the banking sector to fall.

 

Next, there was some global news that proved to be unsettling for American investors. According to Barron’s, U.S. markets had a strong negative response to comments made by President Obama after a summit meeting with top European Union (EU) officials. Reuters quoted the President as saying, “If Russia continues on its current course, however, the isolation will deepen, sanctions will increase, and there will be more consequences for the Russian economy.”

 

The President also said NATO would increase its presence in Eastern European member states that share borders with Russia and Ukraine. The upcoming Group of Eight summit meeting was cancelled and a G-7 meeting – excluding Russia – was scheduled for June in Brussels.

 

Investors and stock markets in other countries were far more sanguine about world events, and most finished the week higher. As reported by Econoday, “Investors were cheered by talk of Chinese stimulus and encouraging U.S. economic data… Equities advanced thanks to renewed chatter about monetary stimulus from the European Central Bank.”

 

Data as of 3/28/14

1-Week

Y-T-D

1-Year

3-Year

5-Year

10-Year

Standard & Poor’s 500 (Domestic Stocks)

-0.5%

0.5%

18.4%

12.3%

18.7%

5.2%

10-year Treasury Note (Yield Only)

2.7

NA

1.9

3.5

2.7

3.5

Gold (per ounce)

-3.1

7.8

-19.0

-3.0

6.9

11.9

DJ-UBS Commodity Index

1.4

7.2

-2.0

-6.8

4.7

-0.9

DJ Equity All REIT TR Index

0.4

8.1

2.7

11.1

29.8

8.4

S&P 500, 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 does the future hold? If you’re wondering about reality television, National Public Radio says it may be virtual reality goggles that let viewers feel as though they are part of a show or let them interact with shows. If you’re asking about astronomy, it could be finding a planet that’s ten times larger than earth orbiting our sun. Of course, if you’re curious about global economic growth, it’s almost as exciting – experts indicate we can expect relatively steady growth.

 

The Economist asked a group of economiststo predict GDP growth for 2015. GDP is “the monetary value of all the finished goods and services produced within a country’s borders in a specific time period.” For the most part, they predicted 2015 will be better for developed nations than 2014.

 

“Only the economies of Britain and Japan are expected to expand at slower rates in 2015. But for those European countries that have suffered deep recessions, notably Italy and Spain, growth is likely to remain sluggish over the two year period.”

 

The story in emerging countries is improving, too. According to Price Waterhouse Coopers, economic fundamentals (such as labor force growth and potential for capital investment and productivity improvement) in emerging countries look good over the longer term.

 

The International Monetary Fund, which has more robust projections for growth than The Economist’s economists, expects to see improvement in emerging markets. Growth is projected to increase to 5.1 percent this year and 5.4 percent in 2015. Eastern Europe and Latin America aren’t expected to grow much faster than the United States in 2015. However, growth in developing Asia is expected to reach 6.8 percent. One exception to the rule is China where growth is forecast to slow from 7.5 percent in 2014 to 7.3 percent in 2015. Even for an economy with slowing growth, those are some pretty good numbers.

 

Weekly Focus – Think About It

 

“The fact that an opinion has been widely held is no evidence whatever that it is not utterly absurd.”

–Bertrand Russell, British philosopher

 

Best regards,

 

John A. Raudat, AIF, CFS, PPC

 

P.S.  Please feel free to forward this commentary to family, friends, or colleagues. If you would like us to add them to the list, please reply to this e-mail with their e-mail address and we will ask for their permission to be added.

 

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.

* 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 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.

*The economic forecasts set forth in the presentation 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.

* Economic forecasts set forth may not develop as predicted and there can be no guarantee that strategies promoted will be successful.

* Stock investing involves risk including loss of principal.

* To unsubscribe from the “Weekly Market Commentary” please reply to this e-mail with “Unsubscribe” in the subject line.

 

Sources:

http://online.wsj.com/public/resources/documents/b-econoday.htm (Click on Resource Center » U.S. & Intl Recaps, Simply Economics/”Spring thaw slow so far”, Stocks section and the Economy section)

http://www.usatoday.com/story/money/business/2014/03/26/fed-stress-tests/6922129/

http://www.reuters.com/article/2014/03/26/us-ukraine-crisis-idUSBREA2P0VB20140326

http://online.wsj.com/public/resources/documents/b-econoday.htm (Click on Resource Center » U.S. & Intl Recaps, International Perspective/”Ukraine and China blur outlook”, Global Markets and Europe and UK sections)

http://www.npr.org/2014/03/10/288712948/path-to-televisions-future-may-be-paved-in-virtual-reality

http://www.theguardian.com/science/2014/mar/26/dwarf-planet-super-earth-solar-system-2012-vp113

http://www.economist.com/news/economic-and-financial-indicators/21598659-economist-poll-forecasters-march-averages (or go to http://peakclassic.peakadvisoralliance.com/app/webroot/custom/editor/03-31-14_The_Economist-Poll_of_Forecasters-March_Averages-Footnote_7.pdf)

http://www.economist.com/blogs/graphicdetail/2014/03/daily-chart-14 (or go to http://peakclassic.peakadvisoralliance.com/app/webroot/custom/editor/03-31-14_The_Economist-Growing_and_Spreading-Footnote_8.pdf)

http://www.investopedia.com/terms/g/gdp.asp

http://www.pwc.co.uk/economic-services/global-economy-watch/emerging-markets-will-they-be-stranded-at-low-tide-march14.jhtml

http://www.imf.org/external/pubs/ft/weo/2014/update/01/ (Scroll down to Table 1)

http://www.brainyquote.com/quotes/quotes/b/bertrandru108785.html

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Putin’s Real Motivations?

Weekly Market Commentary

March 17, 2014

 

The Markets

Russian President Vladimir Putin sure has stirred up a hornets’ nest. Why is annexing the Crimean peninsula and, possibly, Ukraine such a priority for the Russian leader? When asked, Putin has indicated Russia’s military influence is necessary to protect Russian-speaking populations in Ukraine. However, The Economist has a different take on Putin’s actions:

“Russia’s economic stagnation has exposed the limits of Mr. Putin’s political and economic model, which relied on rising oil revenues and allowed him to buy the support of the elite and the acquiescence of the population at large. Real disposable incomes, which rose by 12 percent in 2007, on the eve of the war with Georgia, are forecast to rise by 3 percent this year. The Kremlin faced a choice between political liberalization and mobilization of the country by the means of war and repression. Mr. Putin has chosen the latter. Confrontation with the West is one of the main goals of Mr. Putin’s operations. Any sanctions imposed will allow him to blame Russia’s economic downturn on the West, though that may not placate the ruling class, with its cash stashed abroad in property and bank accounts.”

No matter what Mr. Putin’s motivation really is, he faces clear opposition from the international community. Last week, a United Nations Security Council resolution was introduced which stated Sunday’s referendum in Crimea – a vote to determine whether Crimea would remain part of Ukraine or join Russia – had no validity and could not form the basis for any alteration of the status of Crimea. The resolution was supported by 13 of 15 member nations. China abstained from voting and Russia vetoed the resolution.

 

Perhaps more importantly, the economic consequences of Russia’s actions have been quite harsh. According to Barron’s, the ruble has fallen to a record low against the U.S. dollar. As a result, the Russian central bank has spent $28 billion to support the currency and has increased short-term interest rates by 1.5 percentage points, pushing yields on 10-year bonds to nearly 9.75 percent. In addition, capital is fleeing Russian markets. During the past three weeks, the MICEX equity index, in U.S. dollar terms, has lost about one-third of its value relative to its 2013 high.

 

Russia’s failure to back away from Crimea unsettled U.S. markets last week and gave the Federal Reserve pause when its holdings of U.S. Treasury securities for foreign and official accounts fell by more than $100 billion (for the week ended Wednesday). Since Russia had threatened to sell its U.S. Treasury bonds if sanctions were imposed, some believe the drop was Russian muscle-flexing. Others suggest Russia hasn’t divested itself of its U.S. holdings; it simply moved them outside of the United States so the assets wouldn’t be vulnerable to sanctions.

 

 

Data as of 3/14/14

1-Week

Y-T-D

1-Year

3-Year

5-Year

10-Year

Standard & Poor’s 500   (Domestic Stocks)

-2.0%

-0.4%

17.8%

12.4%

19.6%

5.2%

10-year Treasury Note   (Yield Only)

2.6

NA

2.0

3.4

3.0

3.8

Gold (per ounce)

3.7

15.3

-12.7

-0.9

8.5

13.3

DJ-UBS Commodity Index

-0.9

7.3

-2.4

-6.1

4.7

-0.9

DJ Equity All REIT TR Index

0.0

7.9

3.7

11.1

29.3

8.6

Notes: S&P 500, 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 quickly do we adopt new technology? More quickly all the time, it seems. MIT Technology Review looked at the time it took for nine different technologies to fully saturate the U.S. market. They started back in 1876 and looked through 2010, breaking the process into three phases:

 

  • Traction: The period from consumer availability to10 percent      market penetration     
  • Maturity: The period from 10 percent to 40 percent market      penetration
  • Saturation: The period from 40 percent to 75 percent market penetration      (the point at which new demand typically slows)

 

Some innovations, like the original telephone and electricity, took time to saturate markets. Alexander Graham Bell’s patented telephone took 25 years to gain traction, another 39 years to reach maturity, and almost a full century before the market for landlines was saturated. Electricity also was slow to reach saturation. Both technologies were hampered by infrastructure issues, like running enough cable and wire to provide services to businesses and homes.

 

Newer technologies have been and are being adopted far more rapidly. Television took more than a decade to gain traction, but progressed through maturity to saturation in less than a decade. The mobile phone caught on a lot faster than landlines, becoming mainstream in less than half the time. That’s nothing compared to smart phones which took about 10 years to reach maturity. Tablets appear to be catching on even faster. In fact, in a separate 2012 article, MIT Technology Review pointed out, “Mobile devices outsold PCs last year for the first time, and top smart-phone apps need little more than a year to win the kind of audience it used to take technologies decades to reach.”

 

The mobile revolution is progressing rapidly, and some businesses still need to prepare. According to Forrester Research, as reported via CSO.com, about 15 percent of employees are accessing sensitive data that may include client information, non-public financial data, intellectual property, or corporate strategies from their own devices rather than those provided by their employers. As a result, many firms need a more scrupulous identity management strategy, not to mention a chief mobility officer.

 

Weekly Focus – Think About It

 

“Success is not final, failure is not fatal: it is the courage to continue that counts.”

–Winston Churchill, British Prime Minister

Best regards,

 

John A. Raudat, AIF®, CFS, PPC

 

P.S.  Please feel free to forward this commentary to family, friends, or colleagues. If you would like us to add them to the list, please reply to this e-mail with their e-mail address and we will ask for their permission to be added.

 

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 MICEX Index is a capitalization-weighted composite index calculated based on prices of the 50 most Russian stocks.

* 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 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.

*The economic forecasts set forth in the presentation 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.

* Economic forecasts set forth may not develop as predicted and there can be no guarantee that strategies promoted will be successful.

* Stock investing involves risk including loss of principal.

* To unsubscribe from the Weekly Market Commentary, please reply to this e-mail with “Unsubscribe” in the subject line.

 

Sources:

http://www.economist.com/news/europe/21599061-kremlins-belligerence-ukraine-will-ultimately-weaken-russia-home-front

http://www.washingtonpost.com/world/europe/tensions-mount-as-crimea-prepares-for-referendum/2014/03/15/a384c36a-ac40-11e3-a06a-e3230a43d6cb_story.html

http://online.barrons.com/article/SB50001424053111904628504579431224041672330.html?mod=BOL_hp_we_columns#articleTabs_article%3D1 (or go to http://peakclassic.peakadvisoralliance.com/app/webroot/custom/editor/03-17-14_Barrons-Pain_from_Russias_Ukraine_Gain-Footnote_3.pdf)

http://www.technologyreview.com/news/427787/are-smart-phones-spreading-faster-than-any-technology-in-human-history/

http://www.technologyreview.com/news/427784/questions-for-mobile-computing/

http://www.cso.com.au/article/540549/secure_mobile_identity_management_tool_launched/?utm_medium=rss&utm_source=tagfeed

http://www.brainyquote.com/quotes/authors/w/winston_churchill.html

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