Monthly Archives: July 2017

July 10, 2017

The Markets 

Things you may want to know…

Last Friday, Financial Times (FT) published, ‘Five markets charts that matter for investors.’ Among the issues addressed in the charts were:

The bond market bear watch. The yield on 10-year German Bunds (Germany’s government bonds) reached an 18-month high of 0.58 percent recently. Yields rose after the European Central Bank’s Mario Draghi indicated its stimulus efforts would end at some point.

When bond yields rise, bond values fall, and that makes rising interest rates quite a significant event for anyone who holds lower yielding bonds. In the United States, 10-year U.S. Treasuries moved to a seven-week high last week and then dipped lower following the release of the Federal Open Market Committee meeting minutes, reported CNBC.com.

• Financial companies gaining favor. During the past month, U.S. stock markets have seen a sector rotation. FT reported:

“…S&P financials have gained some 6 percent, with tech sliding almost 4 percent. That still leaves financials lagging behind the S&P 500 for the year and well behind the roughly 17 percent gain for tech. A similar story has unfolded in Europe between banks and tech.”

Investors’ appetite for financial companies may reflect the belief higher interest rates are ahead. Banks and other financial firms generally benefit when interest rates rise. Investor’s Business Daily reported

“Several Wall Street giants have warned of weak trading revenue in Q2, continuing the lackluster trend in 2017…Still, bank stocks large and small have been leading in recent weeks, helped by higher bond yields and massive buyback and dividend plans.”

Last week, the unemployment rate in the United States rose from 4.3 to 4.4 percent. It was good news according to an expert cited by Barron’s, “…the rise in labor force participation indicates slack remains in the labor market.” That may be the reason wages showed little improvement.

  

IT DOESN’T APPEAR TO BE COMMON KNOWLEDGE BUT there may be an affordable car crisis in the United States. The latest Bankrate.com Car Affordability Study found:

“…typical households in most of America’s larger cities don’t earn enough to afford the average new vehicle, under a common budgeting rule for buyers… The ‘20/4/10’ rule says you should aim to put down at least 20 percent of a vehicle’s purchase price, take out a car loan for no longer than four years, and devote no more than 10 percent of your annual income to car payments, interest, and insurance. If you can’t stay within those lines, you can’t afford the car.”

The only major city where a new car remains affordable is Washington, D.C.!

For some, the obvious solution is choosing a less expensive model. For others, the answer is buying a used vehicle. For the latter group, here’s some bad news: even an average-priced used car – nationally, the average price is about $19,200 – is unaffordable for households in eight of the 25 largest cities.

Leasing is also an option; one that may have helped create an oversupply of used cars. In July, Automotive News reported:

“…millions [of] cars that were leased two or three years ago, many of them used compact and midsized cars with low mileage, are heading toward auction lots and used car dealerships. That surge in supply threatens to depress prices for new and used vehicles, raising the risk of losses for automakers and finance companies on lease deals. It also undercuts the value of cars customers want to trade in for a new vehicle.”

The rising popularity of ride-sharing and car-sharing, and the introduction of self-driving vehicles, may also depress prices. In fact, some automakers have introduced their own ride-sharing services.

Weekly Focus – Think About It 
“A man is rich in proportion to the number of things he can afford to let alone.”–Henry David Thoreau, American philosopher and naturalist

* These views are those of Peak Advisor Alliance, and not the presenting Representative or the Representative’s Broker/Dealer, and should not be construed as investment advice.* 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.* All indices referenced are unmanaged. Unmanaged index returns do not reflect fees, expenses, or sales charges. Index performance is not indicative of the performance of any investment.* The Dow Jones Global ex-U.S. Index covers approximately 95% of the market capitalization of the 45 developed and emerging countries included in the Index.* 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:

https://www.ft.com/content/c4de73e2-17a1-11e7-9c35-0dd2cb31823a (or go to https://s3-us-west-2.amazonaws.com/peakcontent/+Peak+Commentary/07-10-17_FinancialTimes-Five_Markets_Charts_that_Matter_for_Investors-Footnote_1.pdf)http://www.cnbc.com/2017/07/06/why-a-surge-in-bond-yields-could-be-around-the-corner.htmlhttps://www.investors.com/news/q2-earnings-season-why-analysts-are-so-bullish/ (or go to https://s3-us-west-2.amazonaws.com/peakcontent/+Peak+Commentary/07-10-17_InvestorsBusinessDailyNews-Earnings_Season_on_Tap-Here_are_the_3_Top_Sectors-Footnote_3.pdf)http://www.barrons.com/articles/june-jobs-report-payrolls-climb-but-wages-dont-1499431826?mod=BOL_hp_highlight_1?mod=BOL_hp_highlight_1 (or go to https://s3-us-west-2.amazonaws.com/peakcontent/+Peak+Commentary/07-10-17_Barrons-June_Jobs_Report-Payrolls_Climb_More_than_Expected_But_Wages_Dont-Footnote_4.pdf)http://www.bankrate.com/auto/new-car-affordability-survey/http://www.autonews.com/article/20170707/RETAIL04/170709866/automakers-auctions-align-to-prop-up-used-car-priceshttps://www.nytimes.com/2017/06/08/technology/automakers-race-to-get-ahead-of-silicon-valley-on-car-sharing.htmlhttps://www.brainyquote.com/quotes/quotes/h/henrydavid108303.html

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July 3, 2017

The Markets

This is the way the quarter ends – with a central bank scare.

Central bankers are stodgy. They speak carefully. For many, reading the words ‘Federal Reserve’ is enough to cause boredom to set in and web surfing to ensue.

Last week, though, the European Central Bank and Bank of England cracked the ‘open secret’ (i.e., central banks will provide less stimulus and increase rates at some point), and investors did not like what they heard.

Central bankers were quick to say they didn’t necessarily mean what people had heard, but the rumor of less accommodative monetary policy was already moving markets. Barron’s wrote:

“But make no mistake: Last week was a game changer. Federal Reserve Chair Janet Yellen fretted about the high level of asset prices, the Bank of England’s Mark Carney hinted at a rate hike, and Mario Draghi suggested the European Central Bank could be nearing the end of its bond buying…The market didn’t take it sitting down. Long-term Treasury yields surged, resulting in a wider spread off of short-term bond yields.”

A wider spread between short- and long-term Treasuries could be good news. The Federal Reserve Bank of Cleveland explained:

“The slope of the yield curve – the difference between the yields on short- and long-term maturity bonds – has achieved some notoriety as a simple forecaster of economic growth. The rule of thumb is that an inverted yield curve (short rates above long rates) indicates a recession in about a year, and yield curve inversions have preceded each of the last seven recessions…”

Central bankers comments affected U.S. stock markets, too. The technology sector lost its allure, while the possibility of rising interest rates made the financials sector more attractive. It didn’t hurt that all major institutions passed the Fed’s stress tests for the first time. That could translate into share buybacks and higher dividends, reported Financial Times.

There were some notable statistics during the second quarter of 2017. For instance:

Investors were preternaturally calm
Throughout second quarter, investors have been confident the Standard & Poor’s 500 Index would offer a smooth ride. The CBOE Volatility Index (VIX), a.k.a. the fear gauge, has only closed below 10 sixteen times; seven occurred during the second quarter of 2017.

Consumer sentiment was quite positive
Consumers were feeling highly optimistic throughout the quarter. In June, the University of Michigan Consumer Sentiment Survey reported, “Although consumer confidence slipped to its lowest level since Trump was elected, the overall level still remains quite favorable. The average level of the Sentiment Index during the first half of 2017 was 96.8, the best half-year average since the second half of 2000…”

Investor sentiment shifted into neutral
Last week, the number of investors who were neutral (rather than bullish or bearish) about markets hit its highest level in a year. The AAII Blog reported:

“This year’s record highs for the S&P 500 and the NASDAQ have encouraged some individual investors, but the Trump administration’s ability (or lack thereof) to move forward on economic and tax policy remains on the forefront of many others’ minds. Also playing a role in influencing sentiment are earnings, valuations, concerns about the possibility of a pullback in stock prices, and interest rates/monetary policy.”

The U.S. economy appears to be growing, albeit slowly. Last week, the Federal Reserve Bank of Atlanta forecast real GDP (Gross Domestic Product) growth during the second quarter of 2017 at 2.7 percent.

 
YOU SAY POTATO, I SAY POTATO. A persistent debate among the geek set is how to pronounce the abbreviation for Graphics Interchange Format (GIF). You know, GIFs, the animated images you see online. Graphics starts with a hard ‘g’ sound, but pronunciation conventions suggest that ‘g’ makes a soft sound before the vowel ‘i.’ The Economist wrote:

“Some questions will be pondered for all eternity. What is the meaning of life? Where do you go when you die? And, even more puzzlingly, what is the right way to pronounce “GIF?”…Debates over whether it begins with a hard “g,” as in “gift,” or a soft one, as in “giraffe,” can make discussions about religion or politics look civil by comparison. Well aware of the risk that taking a side could lead to protests, boycotts, or worse, the Oxford English Dictionary and Merriam-Webster have maintained strict neutrality. They proclaim that both pronunciations are acceptable, betraying nary a hint of favoritism.”

It’s interesting that dictionaries, those arbiters of correct spelling and pronunciation, would stake out neutral ground. After all, in the early days of the United States correct spelling was open to interpretation. In the American Constitution, the word ‘choose’ is spelled ‘chuse’ and ‘Pennsylvania’ was spelled ‘Pensylvania’ (the Liberty Bell inscription has one ‘n,’ as well). Also, ‘defense’ was spelled ‘defence.’

The first American dictionary wasn’t published until 1806. Its author, Noah Webster, decided many spelling conventions were artificial, so he imposed the standards he preferred, changing ‘musick’ to ‘music,’ ‘centre’ to ‘center,’ and ‘women to wimmen.’ Not all of his changes were accepted.

This year, in an effort to resolve the GIF issue once and for all, a forum for computer programmers surveyed 50,000 users in 200 countries. Sixty-five percent believed a hard ‘g’ pronunciation was correct, while 26 percent believed the soft ‘g’ was right.

The survey results inflamed soft ‘g’ users, who claim it was rigged.

Weekly Focus – Think About It

“My seven-year-old grandson sleeps just down the hall from me, and he wakes up a lot of mornings and he says, ‘You know, this could be the best day ever.’ And other times, in the middle of the night, he calls out in a tremulous voice, ‘Nana, will you ever get sick and die?’ I think this pretty much says it for me and most of the people I know, that we’re a mixed grill of happy anticipation and dread.”
–Anne Lamott, American novelist and non-fiction writer

* These views are those of Peak Advisor Alliance, and not the presenting Representative or the Representative’s Broker/Dealer, and should not be construed as investment advice.
* 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.
* All indices referenced are unmanaged. Unmanaged index returns do not reflect fees, expenses, or sales charges. Index performance is not indicative of the performance of any investment.
* The Dow Jones Global ex-U.S. Index covers approximately 95% of the market capitalization of the 45 developed and emerging countries included in the Index.
* 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:
https://www.reuters.com/article/us-ecb-policy-bundesbank-idUSKBN19M3FM
http://www.barrons.com/articles/a-game-changing-week-for-markets-sees-nasdaq-fall-2-1498887177?mod=BOL_hp_we_columns (or go to https://s3-us-west-2.amazonaws.com/peakcontent/+Peak+Commentary/07-03-17_Barrons-A_Game-Changing_Week_for_Markets_Sees_NASDAQ_Fall_2_Percent-Footnote_2.pdf)
https://www.clevelandfed.org/our-research/indicators-and-data/yield-curve-and-gdp-growth.aspx
https://www.ft.com/content/d7c47dae-5dd7-11e7-9bc8-8055f264aa8b (or go to https://s3-us-west-2.amazonaws.com/peakcontent/+Peak+Commentary/07-03-17_FinancialTimes-Second_Quarter_Ends_with_Fierce_Rotation_Away_from_Tech_Stocks-Footnote_4.pdf)
http://www.cboe.com/blogs/options-hub/2017/06/02/vix-index-closes-below-10-again-as-professor-called-vix-level-the-biggest-financial-mystery
http://www.cboe.com/products/vix-index-volatility/vix-options-and-futures/vix-index/vix-historical-data (click on “VIX data for 2004 to present”)
http://www.sca.isr.umich.edu (or go to https://s3-us-west-2.amazonaws.com/peakcontent/+Peak+Commentary/07-03-17_SurveysOfConsumers-Final_Results_for_June_2017-Footnote_7.pdf)
http://blog.aaii.com/aaii-sentiment-survey-highest-level-of-neutral-sentiment-in-nearly-a-year/
https://www.frbatlanta.org/cqer/research/gdpnow.aspx
http://theweek.com/articles/463959/why-are-there-two-pronunciations-letter-g
https://www.economist.com/blogs/graphicdetail/2017/06/daily-chart-21 (or go to https://s3-us-west-2.amazonaws.com/peakcontent/+Peak+Commentary/07-03-17_TheEconomist-How_Do_You_Pronounce_GIF-Footnote_11.pdf)
https://www.usconstitution.net/constmiss.html
https://www.merriam-webster.com/about-us/americas-first-dictionary
https://www.ted.com/talks/anne_lamott_12_truths_i_learned_from_life_and_writing/transcript

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