Schwartz Financial Weekly Commentary 6/2/14

 

Schwartz Financial Weekly Commentary

June 2, 2014

 

The Markets

 

If you’re a fan of home renovation TV shows then you’re probably familiar with the types of bad news home inspections can uncover. Last week, the Commerce Department inspected its previous estimate for real gross domestic product (GDP) growth during the first quarter of 2014 and found some bad news. As it turns out, the rate of economic growth in the United States declined by 1 percent rather than increasing slightly, as previously thought.

 

The revision sparked debate among economists and politicians about the health of the U.S. economy. According to The Guardian, some economists found the revised numbers difficult to reconcile because they seem to contradict other first quarter economic data – such as expansion of non-farm payrolls, healthy manufacturing activity, and stronger retail sales – which indicate a more positive growth trend.

 

News that the U.S. economy might have shrunk slightly didn’t deter investors at all. The Standard & Poor’s 500 Index finished the week at a new record high. This could mean investors are confident economic growth will rebound in the second quarter of 2014 or it may reflect a belief economic weakness in the United States will encourage a more stimulative monetary policy.

 

The Wall Street Journal suggests signs of slower growth in the United States and Europe are behind the resurgent popularity of emerging markets. If you recall, investors pulled about $60 billion from emerging countries early in 2014 as they worried these markets would be affected negatively by the U.S. Federal Reserve’s less stimulative monetary policy. In May, a Reuters’poll found 51 investment houses in the United States, Japan, and Europe had reduced their cash positions to the lowest levels since last November and invested the proceeds in emerging markets.

 

One expert cited by The Wall Street Journal called the rush into emerging markets a “global chase for yield.” No matter what you call it, last Friday, Morgan Stanley Capital International’s emerging markets stock index rose to its highest level since October 2013. It was up 3 percent for the year.

 


Data as of 5/30/14
1-Week
Y-T-D
1-Year
3-Year
5-Year
10-Year
Standard & Poor’s 500 (Domestic Stocks)
1.2%
4.1%
16.3%
12.7%
15.3%
5.6%
10-year Treasury Note (Yield Only)
2.5
NA
2.1
3.1
3.7
4.7
Gold (per ounce)
-3.2
4.1
-11.5
-6.6
5.0
12.2
DJ-UBS Commodity Index
-1.4
6.4
1.9
-7.0
0.7
-1.5
DJ Equity All REIT Total Return Index
0.9
15.1
8.0
10.3
21.3
10.0

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 Total Return 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 make a peanut butter and jelly sandwich? If you’ve ever been asked to write clear instructions for a seemingly simple task, you know the challenge is in the details. To illustrate how to make a PB&J, you start with bread, peanut butter, jelly (in a squeezable bottle), and a knife. Then you need to remember to tell the reader to open the bread bag, unscrew the top of the peanut butter jar, and turn the jelly bottle upside down before squeezing it. You have to provide a lot of very concise information.

 

Communicating financial and investment ideas effectively also can be challenging. It appears a significant number of Americans are not receiving all of the information they may need. For several years, the Financial Industry Regulatory Authority’s (FINRA) Investor Education Foundation has employed a five-question quiz to evaluate financial literacy. The questions include fundamental concepts related to financial knowledge and decision-making. If you want to test yourself, take the quiz at www.financialcapability.org.

 

In 2012, about 30 percent of Americans were able to answer three of the five quiz questions correctly. That was about the same number of questions that were answered correctly when the quiz was first offered in 2009. The percentage of respondents who were able to answer four or five quiz questions correctly varied significantly by generation:

 

·         24 percent of Millennials (born between early 1980s to early 2000s)

·         38 percent of Gen Xers (born between early 1960s to early 1980s)

·         48 percent of Baby Boomers (born between 1943 to early 1960s)

·         55 percent of the Silent Generation (born between 1925 to 1942)

 

When a similar quiz was offered to people in countries throughout the world, financial literacy was linked (in all countries) to retirement planning or participation in private pension plans. In most countries, people who were financially literate were more likely to plan for retirement which requires an understanding of interest rates, risk, and diversification.

 

If someone you care about would benefit by knowing more about financial matters, please give us a call. We would be happy to sit down and talk with them about a specific topic or recommend some good reading materials.

 

Weekly Focus – Think About It

 

Courage is the most important of all the virtues, because without courage you can’t practice any other virtue consistently. You can practice any virtue erratically, but nothing consistently without courage.

–Maya Angelou, American author and poet

Value vs. Growth Investing (5/31/14)

1.17
4.56
2.26
3.07
20.46
14.90
18.85
1.24
4.93
2.44
4.11
20.21
15.30
17.83
1.35
5.46
2.35
4.76
19.00
17.05
18.62
1.31
4.70
3.96
2.23
25.22
16.34
18.94
1.05
4.63
0.93
5.53
16.44
12.58
16.02
1.03
4.62
2.03
0.90
21.84
14.17
21.60
0.96
6.37
2.67
1.91
22.00
15.29
22.45
0.93
1.63
1.75
-2.89
18.79
10.98
19.93
1.21
6.25
1.72
4.20
25.13
16.35
22.42
0.77
0.38
1.03
-1.52
18.81
12.68
21.16
0.73
2.10
1.34
-0.15
19.19
11.96
20.51
0.57
-4.18
0.65
-5.83
17.70
11.31
20.05
1.01
3.16
1.07
1.35
19.42
14.79
22.88
1.23
5.40
2.34
3.84
19.59
16.36
19.57
1.19
3.50
3.31
0.66
23.41
14.89
19.28
1.08
4.84
1.09
4.96
18.41
13.50
17.77

 ©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:

 

A Kid With A Ball

 

A great philanthropist once said, “You don’t have to be a celebrity or a certain age to make a difference.”  That philanthropist’s name is Ethan King, and as of this writing, he is fourteen years old. 

Ethan is a kid from Michigan who likes to play soccer.  He’s also the founder of a global charity, who decided to ignore the fact that kids his age don’t normally found charities, and that people can’t singlehandedly fix the world.  Instead, he decided to focus on what he could do, what he can fix, and that the word normally means absolutely nothing. 

As Ethan himself tells it, it all started in 2009 in a village called Ntette in Mozambique.1  Ethan had traveled to the southern African country with his Dad, who was working to repair water wells in the area.  Before the trip started, Ethan decided to bring a soccer ball along, thinking he might get the chance to play pick-up games with local kids. 

When he went out into the street, little did he know that a simple kick-about with a ball would lead to so much more. 

“When we arrived at the village of Ntette,” Ethan says, “I threw my ball and in a matter of seconds, 50 kids were playing.” 

Soccer is the most popular sport in the world, but the irony is that there are thousands of children all over the globe who don’t get a chance to play it.  Kids in rural or impoverished countries often don’t have the access to real soccer balls, or the money to pay for them.  As a result, they’re forced to improvise. 

“I’ve discovered that many kids in poor countries want to play soccer,” Ethan explains, “but they can’t because they don’t have a ball.  If they do have a ball, it’s typically a bunch of plastic garbage bags wadded up and wrapped with twine and it doesn’t last very long.”  Even the legendary Pelé learned to play using a rolled-up sock stuffed with rags, or by playing with a grapefruit.  (Yes, a grapefruit.) 

While playing with the local kids, Ethan noticed how delighted they were to play with a real ball.  So when it was time to go, he decided to leave the ball with them.  “As I watched the kids play, it was hard for me to think that I would be heading back to the States where I had several soccer balls in my garage just sitting there.  These kids in the village had none.” 

So Ethan decided to leave the ball as a gift. 

As he walked away, one of the boys took the ball and ran up to him, offering it back.  “I said to him, ‘No, this is yours.  I’ve given it to you.’  Immediately they ran, laughed, and cheered like they had just won the lottery!” Ethan says.  The gift of a simple, actual ball was enough to bring joy to their lives. 

So Ethan decided, why stop at one? 

When he returned home, he personally began to call up corporations, asking for donations.2  He spoke to other kids and parents while at soccer games.  His own organization, Charity Ball, was born.  With a $25 donation, Charity Ball hand-delivers a brand new soccer ball to kids around the world who can’t afford to buy one.  In the past four years, over 4,000 balls have been delivered in 22 countries. 

Some people may ask, “Why start a charity based on delivering soccer balls when there are so many other causes that deserve attention?”  Ethan’s philosophy is simple: because it brings joy.  And joy is a commodity the world can never have too much of.  Furthermore, the children in many of these countries have to contend with disease, war, and other hardships.  While there are many charities helping to combat these miseries, too few provide an escape from them.  The simple act of playing soccer, of having fun, is that escape. 

Joy can’t remove hardship.  But it can help people cope with hardship.  Sounds like a worthy cause to me. 

Not all of us will have the ability to start our own charity, but we can all follow this young man’s example.  Spreading joy is as valuable an endeavor as anything else we do in this life.  And as a wise philanthropist once said, “You don’t have to be a celebrity or a certain age to make a difference.” 

Words to live by.

 

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, a registered principal offering securities and advisory services through Independent Financial Group, LLC., a registered broker-dealer and investment advisor.  Member FINRA-SIPC. Schwartz Financial and Independent Financial Group are unaffiliated entities.

 

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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