Schwartz Financial Weekly Commentary (11/25/13)

 
The Markets

 Really?!

 

Okay. Okay. If you’ve been trekking through Siberia or Patagonia for about a year, then maybe it surprised you to hear the minutes from the Federal Reserve Open Market Committee meeting showed it expects to begin tapering Quantitative Easing (QE) in the coming months.

 

However, since the Fed has been telling anyone who will listen – telling them over and over and over again – that its intent is to slow the pace at which it buys bonds as the U.S. economy strengthens (and since most people haven’t been exploring the hinterlands where the convenience of modern communications may not be readily available), it’s difficult to understand why that information was so surprising that it pushed stock and bond markets significantly lower.

 

It might have been easier to understand market declines if they had occurred on Tuesday after the Organization for Economic Cooperation and Development (OECD) released its revised economic outlook. In his speech, OECD Secretary-General Angel Gurría said:

 

“The recovery of the global economy is progressing at a moderate and uneven pace. World GDP growth, which averaged about 4 percent per year in the decade up to the onset of the global crisis, is expected to reach only 2.7% in 2013, the lowest rate since 2009. While we expect global growth rates to move again towards 4 percent in 2015, the world will continue to be affected by the harsh social legacy of the crisis… The recovery itself is exposed to potential downside risks, including fiscal brinkmanship in the United States, unresolved banking problems in the euro area, the high debt burden in Japan, and financial vulnerabilities in some large emerging-market economies.

 

Gurría also said, in the OECD’s long-term view, economic weakness was the result of investment remaining anemic, credit growth remaining subdued, trade growth gaining sluggishly, and growth in emerging economies faltering.

 

Regardless, the markets’ downward foray was short-lived. On Friday, the Standard & Poor’s 500 Index closed above 1800 for the very first time. Other U.S. markets moved higher as well.

 


Data as of 11/22/13
1-Week
Y-T-D
1-Year
3-Year
5-Year
10-Year
Standard & Poor’s 500 (Domestic Stocks)
0.4%
26.5%
28.1%
14.6%
16.2%
5.6%
10-year Treasury Note (Yield Only)
2.8
NA
1.7
2.8
3.3
4.2
Gold (per ounce)
-3.2
-26.4
-28.0
-2.8
8.7
12.3
DJ-UBS Commodity Index
0.5
-11.0
-14.1
-5.1
0.0
-0.1
DJ Equity All REIT TR Index
-2.1
2.8
6.9
11.5
21.3
9.2

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.

 

an oh-so-brief brief on digital money… If you read or watched the news during the past few months, you may already know this, but there has been an explosion of interest in digital money. That’s the reason you may be hearing and reading about dozens of companies that are rushing to coin virtual currency that has real value. It just seems so 21st Century, doesn’t it?

 

Odds are you’ve already used digital money. For example, you used it the last time you purchased something online. Digital money is what we use when we pay or are paid electronically. Think smart phones and credit cards. Digital money is not tangible; however, it is possible to convert digital money that is part of a large centralized banking system into paper money by making a withdrawal from an ATM.

 

In the United States, the Federal Reserve is responsible for maintaining the integrity of U.S. bills and coins by setting monetary policy. Digital currency companies offer a parallel currency universe; a means of transferring electronic money from one person to another without using traditional banking or money-transfer systems.

 

Digital money companies appear to be delivering American economist Milton Friedman’s dream, according to The Economist. Years ago, Friedman suggested the Federal Reserve be abolished and replaced by an automated system that would increase money supply at a steady, pre-set rate. He believed such a system would better control inflation, making spending and investment decisions more certain. The Economist article said:

 

“In theory, then, the system ought to keep a lid on inflation – making it attractive to critics of interventionist monetary policy of the sort practiced since 2008 by America’s Federal Reserve under the label quantitative easing… It offers other apparent benefits, too. The currency can be used by anyone (unlike credit cards, for instance), anywhere. Transaction costs are also likely to be lower than those for traditional payment systems, though these are not in fact zero…”

 

The Economist goes on to point out a key difference between central-bank-controlled currencies (which often offer both bills and coins and digital currencies) and digital currency companies is the former are backed by a country’s regulations and laws; the latter are answerable to online communities using the currencies.

 

Weekly Focus – Think About It

 

“A business that makes nothing but money is a poor business.”

–Henry Ford, American Industrialist

Value vs. Growth Investing (11/22/12)

0.31
29.50
2.59
9.29
33.56
17.25
21.36
0.43
28.42
3.03
9.61
31.73
17.10
19.48
0.35
32.76
3.54
9.40
36.22
19.14
19.89
0.21
27.03
2.01
11.03
29.12
16.70
22.43
0.76
26.07
3.62
8.36
30.55
15.51
16.42
-0.14
31.99
1.47
8.34
37.77
17.54
26.40
-0.16
28.80
1.86
8.76
34.05
18.31
27.50
-0.25
29.02
0.58
7.12
33.85
15.26
25.77
-0.03
38.39
1.98
9.20
45.75
18.97
25.81
0.38
33.60
1.46
8.80
41.17
17.66
26.89
0.59
32.27
1.76
8.83
39.87
16.56
26.66
-0.21
37.84
0.82
9.55
45.39
18.79
27.24
0.81
30.83
1.85
8.06
38.36
17.64
26.74
0.27
31.85
3.07
9.23
35.96
18.82
21.76
0.09
28.09
1.63
10.11
31.03
16.59
23.46
0.59
28.87
3.14
8.52
34.10
16.36
18.98

 

 ©2004 Morningstar, Inc. All Rights Reserved. The information contained herein: (1) is proprietary to Morningstar; (2) is not warranted to be accurate, complete or timely. Morningstar is not responsible for any damages or losses arising from any use of this information and has not granted its consent to be considered or deemed an “expert” under the Securities Act of 1933. Past performance is no guarantee of future results.  Indices are unmanaged and while these indices can be invested in directly, this is neither a recommendation nor an offer to purchase.  This can only be done by prospectus and should be on the recommendation of a licensed professional.

 

Office Notes:

 

Keep Your Fork . . .

There was a woman who had been diagnosed with a terminal illness and had been given three months to live.  So as she was getting her things “in order,” she contacted her pastor and had him come to her house to discuss certain aspects of her final wishes.

She told him which songs she wanted sung at the service, what scriptures she would like read, and what outfit she wanted to be buried in.  The woman also requested to be buried with her favorite Bible.  Everything was in order and the pastor was preparing to leave when the woman suddenly remembered something very important to her. 

“There’s one more thing,” she said excitedly.

“What’s that?” came the pastor’s reply.

“This is very important,” the woman continued, “I want to be buried with a fork in my right hand.”

The pastor stood looking at the woman, not knowing quite what to say.

“That surprises you, doesn’t it?” the woman asked.

“Well to be honest, I’m puzzled by the request,” said the pastor.

The woman explained.  “In all my years of attending church socials and potluck dinners, I always remember that when the dishes of the main course were being cleared, someone would inevitably lean over and say, “Keep your fork.”  It was my favorite part because I knew that something better was coming . . .like velvety chocolate cake or deep-dish apple pie.  Something wonderful, and with substance!  So, I just want people to see me there in that casket with a fork in my hand and I want them to wonder, ‘What’s with the fork?’  Then I want you to tell them:  ‘Keep your fork.  The best is yet to come.’”

The pastor’s eyes welled up with tears of joy as he hugged the woman good-bye.  He knew this would be one of the last times he would see her before her death.  But he also knew that the woman had a better grasp of heaven than he did.  She knew that something better was coming.

At the funeral, people were walking by the woman’s casket and they saw the pretty dress she was wearing and her favorite Bible and the fork placed in her right hand.  Over and over the pastor heard the question:  “What’s with the fork?”  and over and over he smiled.

During his message, the pastor told the people of the conversation he had with the woman shortly before she died.  He also told them about the fork and about what it symbolized to her.  The pastor told the people how he could not stop thinking about the fork and told them that they probably would not be able to stop thinking about it either.  He was right.

So the next time you reach down for your fork, let it remind you, oh so gently, that the best is yet to come.

PLEASE THIS YEAR, HAVE A VERY HAPPY THANKSGIVING!

 

Regards,

,

Michael L. Schwartz, RFC®, CWS®, CFS

 

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 email with their email address and we will ask for their permission to be added. 

 

Michael L. Schwartz, RFC®, CWS®, CFS, offers securities and advisory services through Independent Financial Group, LLC., A Registered Broker/Dealer,  Member FINRA-SIPC. 

 

This information is provided for informational purposes only and is not a solicitation or recommendation that any particular investor should purchase or sell any security. The information contained herein is obtained from sources believed to be reliable but its accuracy or completeness is not guaranteed.  Any opinions expressed herein are subject to change without notice.  An Index is a composite of securities that provides a performance benchmark.  Returns are presented for illustrative purposes only and are not intended to project the performance of any specific investment.  Indexes are unmanaged, do not incur management fees, costs and expenses and cannot be invested in directly.  Past performance is not a guarantee of future results.

 

* 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.

 

* To unsubscribe from our “market commentary” please reply to this e-mail with    “Unsubscribe” in the subject line, or write us at “mike@schwartzfinancial.com”.

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