February 29, 2016
It wasn’t as entertaining as the Fantastic Four, The
Magnificent Seven, or Ocean’s 11 but,
last week, we had an opportunity to watch the Group of 20 (G20).
The G20 stars finance ministers and central bankers
from 19 countries and the European Union as well as representatives from the International
Monetary Fund (IMF) and World Bank. The group meets periodically to discuss the
global economy.
At their most recent meeting, the G20 made a
commitment to continue to pursue global growth through monetary policy. They
also emphasized governments around the world need to do more. The IMF’s report stated:
“In
advanced economies, securing higher and sustainable growth requires a mix of
mutually-reinforcing demand and supply policies. On the demand side,
accommodative monetary policy remains essential where inflation is still well
below central banks’ targets. However, a comprehensive approach is needed to
reduce over-reliance on monetary policy. In particular, near-term fiscal policy
should be more supportive...”
In other words, the world has
been depending on monetary policies, which are determined by central banks, to
encourage growth. Now it’s time for fiscal policies, which are measures
implemented by governments (e.g., tax cuts, government spending), to strengthen
economies.
BloombergBusiness reported the event might have disappointed investors who were hoping
for a finale featuring a coordinated stimulus plan for the global economy. If
so, it didn’t reflect in the performance of U.S. stock markets. ABC News reported an oil price rally helped
push stock prices higher last week and so did some positive economic data.
Fourth quarter’s U.S. gross domestic product, the value of all goods and
services produced in the United States, was revised upward from 0.7 percent to
1.0 percent.
All major U.S. indices
finished in positive territory for the second consecutive week.
Data as of 2/26/16
|
1-Week
|
Y-T-D
|
1-Year
|
3-Year
|
5-Year
|
10-Year
|
|
Standard &
Poor's 500 (Domestic Stocks)
|
1.6%
|
-4.7%
|
-7.7%
|
9.2%
|
8.0%
|
4.2%
|
|
Dow Jones Global
ex-U.S.
|
0.2
|
-8.2
|
-18.2
|
-3.3
|
-3.3
|
-0.9
|
|
10-year Treasury
Note (Yield Only)
|
1.8
|
NA
|
2.0
|
1.9
|
3.4
|
4.6
|
|
Gold (per ounce)
|
-0.4
|
15.5
|
1.5
|
-8.3
|
-2.8
|
8.3
|
|
Bloomberg Commodity Index
|
0.5
|
-4.0
|
-26.1
|
-18.0
|
-14.6
|
-7.3
|
|
DJ Equity All REIT Total Return Index
|
2.2
|
-3.8
|
-3.2
|
7.7
|
9.1
|
6.0
|
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 you like fast
food and a good deal, you can find a really cheap big mac in russia. The Economist created The Big Mac Index 30 years ago as a
rough-and-ready gauge of world currencies. The index is based on the idea when
currencies are aligned correctly, the same product (in this case, a Big Mac®) should have the same
price in different countries when that price is denominated in a single
currency. This is called purchasing power parity (PPP).
For the purposes of this commentary, we looked at the
price of a Big Mac in U.S. dollars. Early in 2016, a Big Mac cost a hungry
American about $4.93. In Russia, it cost about a $1.53, in the Euro area $4.00,
and in Switzerland, about $6.44. These prices indicate the Russian ruble is
undervalued by about 69 percent, the Euro is undervalued by about 19 percent, and
the Swiss franc is overvalued by almost 31 percent. Switzerland is an outlier,
according to The Economist:
“Americans hunting for cut-price burgers abroad are
spoilt for choice: the index shows most currencies to be cheap relative to the
greenback. This is partly owing to the Federal Reserve’s decision to raise
interest rates when the central banks of the euro zone and Japan are loosening
monetary policy... Another force weakening many currencies, including the ruble,
has been the ongoing slump in commodity prices since mid-2014. Shrinking demand
from China and a glut of supply have sapped the value of exports from
Australia, Brazil, and Canada, among other places, causing their currencies to
wilt, too.”
In theory, when a country’s
currency depreciates relative to that of its trading partners, the country’s
exports should become more attractive because they are less expensive and should
boost economic growth. However, depreciation hasn’t produced the results many
expected.
One explanation, offered by
both the World Bank and the IMF, is globalization. If a country’s exports are
part of a global supply chain, then the cost of materials imported to create
the exports may offset gains from currency depreciation. According to The Economist, “The IMF thinks this
accounts for much of the sluggishness of Japan’s exports; the World Bank argues
that it explains about 40 percent of the diminished impact of devaluations
globally.”
Weekly Focus –
Think About It
“If a man does not keep
pace with his companions, perhaps it is because he hears a different drummer.
Let him step to the music which he hears, however measured or far away.”
--Henry David
Thoreau, American author
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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please remind your friends and family members becoming Medicare eligible that
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For more information and resources visit our website at www.HagenFN.com
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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
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Sources:
http://www.economist.com/content/big-mac-index (or go to https://s3-us-west-2.amazonaws.com/peakcontent/+Peak+Commentary/02-29-16-TheEconomist-The_Big_Mac_Index-Footnote_6.pdf)
http://www.economist.com/news/finance-and-economics/21685489-big-currency-devaluations-are-not-boosting-exports-much-they-used-after (or go to https://s3-us-west-2.amazonaws.com/peakcontent/+Peak+Commentary/02-29-16_TheEconomist-After_the_Dips-Footnote_7.pdf)
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