Hagen Financial Network, Inc.: November 2015

Monday, November 23, 2015

IF THERE WERE A “PAGE SIX” FOR FINANCE AND ECONOMICS...That and more in today's PEEK of the WEEK Financial News from Hagen Financial Network

The Markets

Financial markets were remarkably calm last week.

Many stock markets in the United States, Europe, and Asia moved higher as investors chose to focus their attention on the minutes of the October 27-28, 2015 Federal Open Market Committee (FOMC) meeting, which were released on Wednesday, rather than recent terrorist attacks in Paris, Lebanon, Mali, and against Russia.

The FOMC minutes captured attention because they suggested even if the Federal Reserve does begin to tighten monetary policy in December, rate increases may be incremental and the target rate may not be as high as many imagined. Bloomberg reported:

“Fed officials received a staff briefing on the equilibrium real interest rate, or the policy rate that would keep the economy running at full employment with stable prices, according to the minutes. Fed officials discussed the possibility that the short-run equilibrium rate “would likely remain below levels that were normal during previous business cycle expansions,” the minutes said.”

Former Federal Reserve Chairman Ben Bernanke has written about the equilibrium real interest rate on his blog. The point he makes is the equilibrium rate – not the Fed – determines interest rates. The Fed uses its influence to move interest rates toward levels that are consistent with its estimate of the equilibrium rate. If the Fed pushes for rates that are too high, the economy may slow. If it pushes for rates that are too low, the economy may overheat. Not everyone agrees on this point, and that has led to debate between Mr. Bernanke and Former Treasury Secretary Lawrence Summers.

While the Fed is expected to begin tightening U.S. monetary policy, the European Central Bank (ECB) is expected to further loosen monetary policy in December. The Wall Street Journal reported the ECB is “prepared to deploy its full range of stimulus measures to fight low inflation…” The news was welcome. CNBC reported European markets closed the week at three-month highs.

Data as of 11/20/15	1-Week	Y-T-D	1-Year	3-Year	5-Year	10-Year
Standard & Poor's 500 (Domestic Stocks)	3.3%	1.5%	1.8%	14.6%	11.8%	5.2%
Dow Jones Global ex-U.S.	2.5	-3.9	-6.4	3.1	0.2	1.5
10-year Treasury Note (Yield Only)	2.3	NA	2.3	1.7	2.8	4.5
Gold (per ounce)	0.0	-9.8	-9.1	-14.5	-4.4	8.3
Bloomberg Commodity Index	-1.2	-22.0	-31.0	-17.1	-10.9	-6.8
DJ Equity All REIT Total Return Index	3.8	1.3	5.2	11.8	12.4	7.3

S&P 500, Dow Jones Global ex-US, Gold, Bloomberg 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.

if there were a “Page Six” for finance and economics, emerging markets would be splashed across it.

Remember the saying, “Buy low and sell high?” Well, emerging markets have not performed well for quite a long time, and that has a lot of people speculating about what may happen in the next few years.

Analysts at BlackRock opined, “Emerging-market (EM) equities are fighting an uphill battle, held back by an appreciating U.S. dollar, falling commodity prices, and flagging exports. These only add to their other medium-term struggles, such as dwindling corporate profits, declining productivity, and a dispirited investor base. With valuations of EM equities trading at the largest discount to their developed-market peers in 12 years, some opportunities are beginning to emerge.”

In fact, several economists and asset managers have begun to compare and contrast the attributes of various emerging markets. Some say China is a better bet than Latin America. Others like the opportunities in Southeast Asia. A Goldman Sachs analyst cited by Bloomberg cautioned, “…Colombia, South Africa, Turkey, and Malaysia still need to tackle their current-account imbalances; Russia, India, and Poland are among nations that have improved enough for their assets to rally…”

The point is there is a buzz building around emerging markets. Sometimes, when analysts begin to emphasize the potential of an asset class, investors are tempted to pile in. While emerging markets investments can be a valuable part of a well allocated and diversified portfolio, it’s a good idea to remember there are distinct risks which are not suitable for all investors associated with investing in emerging markets.

If you have questions about your financial strategy, please give contact your financial advisor.

Weekly Focus – Think About It

“All you need in this life is ignorance and confidence, and then success is sure.”

--Mark Twain

Best regards,

Leif M. Hagen

Leif M. Hagen, CLU, ChFC

LP Financial Advisor

Securities offered through LPL Financial Inc.,

Member FINRA/SIPC.

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* 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. 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 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.

* To unsubscribe from the “Peek of the Week”, please reply to this email with “Unsubscribe” in the subject line, or write us at: Hagen Financial Network, Inc. 4640 Nicols Road, Suite 203; Eagan, MN 55122.

Sources:

http://online.barrons.com/mdc/public/page/2_3064-466583.html (Click on “U.S. & Intl Recaps,” “Fed funds rate increase - on the horizon,” then scroll down to the chart) (or go to https://s3-us-west-2.amazonaws.com/peakcontent/+Peak+Commentary/11-23-15_Barrons-Global_Stock_Market_Recap-Footnote_1.pdf)

http://www.federalreserve.gov/newsevents/press/monetary/20151118a.htm

http://www.bloomberg.com/news/articles/2015-11-18/fed-inserted-language-to-stress-potential-for-december-liftoff

http://www.brookings.edu/blogs/ben-bernanke/posts/2015/03/30-why-interest-rates-so-low

http://www.brookings.edu/blogs/ben-bernanke/posts/2015/04/01-larry-summers-response

http://www.wsj.com/articles/draghi-vows-to-use-all-instruments-if-price-stability-goal-at-risk-1448009389 (or go to https://s3-us-west-2.amazonaws.com/peakcontent/+Peak+Commentary/11-23-15_WSJ-Draghi_Keeps_Options_Open_to_Fight_Low_Inflation-Footnote_6.pdf)

http://www.cnbc.com/2015/11/20/european-markets-set-for-downbeat-tone-as-commodities-battered.html

http://www.imf.org/external/pubs/ft/weo/2015/02/pdf/exesum.pdf

https://www.blackrock.com/investing/literature/market-commentary/investment-directions-en-us.pdf

http://blogs.barrons.com/emergingmarketsdaily/2015/11/18/2015-outlook-china-attractive-vs-latin-america-t-rowe-says/ (or go to https://s3-us-west-2.amazonaws.com/peakcontent/+Peak+Commentary/11-23-15_Barrons-Outlook_2016-China_Attractive_vs_Latin_America_T_Rowe_Says-Footnote_10.pdf)

http://mobius.blog.franklintempleton.com/2015/11/13/are-emerging-markets-turning-a-corner/

http://www.bloomberg.com/news/articles/2015-11-19/goldman-says-three-years-of-emerging-markets-doldrums-is-over

http://www.investopedia.com/articles/basics/11/risks-investing-in-emerging-markets.asp

http://www.brainyquote.com/quotes/quotes/m/marktwain125616.html

Monday, November 16, 2015

WHAT WILL HAPPEN AFTER THE FEDERAL RESERVE BEGINS TO RAISE RATES? That and more in today's PEEK of the WEEK from Hagen Financial

Peek of the Week

November 16, 2015

The Markets

Attacks on Paris by the Islamic State were an appalling exclamation point at the end of a difficult week for stock markets.

World stock markets tumbled as investors braced for a possible rate hike by the Federal Reserve in December. Many national indices across the United States, Europe, and Asia experienced downturns of more than 2 percent. The Dow Jones Industrial Average lost 3.7 percent and the Standard & Poor’s 500 Index gave back 3.6 percent. The exception was Japan’s Nikkei 225, which gained 1.7 percent, largely because its weakening currency benefitted Japanese exporters.

The chances are pretty good the Federal Reserve will lift rates during December. A Reuters’ poll of 80 economists asserted there is “a 70 percent median chance the U.S. central bank would raise its short-term lending rate at its final meeting of the year...” A survey taken by The Wall Street Journal found 92 percent of academic and business economists expect Fed liftoff in December.

Even if the Fed does raise rates, it’s important to remember that market forces determine interest rate levels. Raising the Fed funds rate is the Fed’s way of encouraging higher interest rates and tighter monetary policy, but it may not have the intended affect. Crain’s Chicago Business reported, “The Fed is moving into uncharted territory. It has never tried to raise the federal funds rate – that is, make money harder to get – when the banking system was flush with $2.5 trillion of excess reserves, as it is now.”

In the U.S., investors digested weaker-than-expected retail sales data. U.S. retail sales remained in positive territory in October (up 0.1 percent); however, economists were anticipating an increase of 0.3 percent. Regardless of the discrepancy, there are signs consumer spending will remain steady through the last quarter, according to Reuters. As a result, retail sales data are unlikely to affect decisions being made by the Federal Reserve.

It’s likely markets will continue to rumble and roil next week as the world processes the horrific Islamic State strikes in Paris, in Lebanon, and against Russia.

Data as of 11/13/15	1-Week	Y-T-D	1-Year	3-Year	5-Year	10-Year
Standard & Poor's 500 (Domestic Stocks)	-3.6%	-1.7%	-0.8%	13.8%	11.0%	5.1%
Dow Jones Global ex-U.S.	-2.2	-6.3	-8.3	2.4	-0.4	1.3
10-year Treasury Note (Yield Only)	2.3	NA	2.4	1.6	2.8	4.6
Gold (per ounce)	-0.7	-9.8	-6.9	-14.4	-4.6	8.8
Bloomberg Commodity Index	-3.3	-21.0	-28.9	-16.4	-11.2	-6.8
DJ Equity All REIT Total Return Index	-2.1	-2.4	1.0	10.4	11.4	7.1

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 will hAPPEN after the federal reserve begins to raise rates? If the Fed’s efforts to raise interest rates are successful, what will happen next? It all depends on whom you ask:

Dr. David P. Kelly, CFA, Managing Director Chief Global Strategist, JPMorgan: “Looking back at prior Fed rate hikes suggests that at first, investors have a tough time stomaching the idea of higher yields. However, as it becomes increasingly apparent that the Fed is hiking rates for all of the right reasons, markets re-price in line with their underlying fundamentals. For that reason, it is important for investors to prepare for a likely uptick in volatility around Fed liftoff.”

Robert C. Doll, CFA, Chief Equity Strategist, Nuveen: “First, higher rates would likely trigger higher bond yields, which would be a negative for Treasuries. Additionally, an increase would likely put upward pressure on the U.S. dollar. A strong dollar is usually a negative for oil prices… Finally, we think the combination of higher rates and a stronger dollar could hurt U.S. companies that do most of their business overseas.”

The Financial Times: “Almost every asset class on the planet exhibits some evidence of frothiness these days, but some seem more vulnerable to higher interest rates. Although stocks look expensive, higher interest rates indicates that economic growth is firm, and that is good for listed companies. Gold typically loses its shine when interest rates climb, as the metal doesn’t pay any interest like a bank account will, but has already been beaten up heavily recently. The bond market looks more exposed.”

The Fed is expected to raise rates slowly and cautiously. We won’t know when rates will increase or by how much until the next Federal Open Market Committee meeting. That meeting takes place on December 15, 2015.