Read about the Standing Ovation for the Federal Reserve and more in this Week's Peek of the Week Newsletter

Peek of the Week

March 24, 2015

The Markets

Financial markets gave the Federal Reserve a standing ovation last week. At least, that was Barron’s interpretation. What did the Fed do to deserve it?

“…the Fed did what everyone expected, signaling that it could raise interest rates at any meeting starting in June. Yet, Yellen and team still found a way to assure the market that it wouldn’t do anything rash, insisting that the labor market would need to strengthen further, and that inflation would have to be heading for its 2 percent target before they make a move. Even then, the projected path of interest-rate hikes would be slow and steady – and unlikely to undermine the market.”

Stock markets in the United States weren’t the only ones heading toward, or surpassing, new highs. The Fed’s reassurances about the pace at which it would normalize monetary policy pushed markets across the Eurozone higher, too. Reuters reported global investors were feeling confident a weaker euro could goose the region’s economy.

There is some optimism about shorter-term market potential. Experts cited by Barron’s suggested the chance for a stock “melt-up,” which would lift the Standard & Poor’s 500 Index (S&P 500) higher, were pretty good.

However, others believe the longer-term outlook for stocks, as a whole, may temper investors’ enthusiasm. Barron’s explained earnings growth for the S&P 500 is well below its 30-year average, dividend yields are well below their 20-year average, and the index’s valuation is “so high that it is projected to subtract 2.6 percent annualized from returns. Put it together and investors are likely to earn just 0.4 percent after inflation.”

One thing is for sure: It’s awfully difficult to predict the future with any accuracy. Barron’s warned about the quirks of market forecasts, offering an example from a decade ago. “In January 2005, expected returns were just 0.4 percent, yet the S&P 500 gained 5.6 percent annualized during the next 10 years.”

Data as of 3/20/15	1-Week	Y-T-D	1-Year	3-Year	5-Year	10-Year
Standard & Poor's 500 (Domestic Stocks)	2.7%	2.4%	12.6%	14.5%	12.6%	5.9%
10-year Treasury Note (Yield Only)	1.9	NA	2.8	2.4	3.7	4.5
Gold (per ounce)	2.7	-1.4	-10.8	-10.6	1.5	10.6
Bloomberg Commodity Index	2.0	-4.6	-25.3	-11.7	-5.5	-4.8
DJ Equity All REIT Total Return Index	5.4	6.8	28.4	15.3	15.8	9.7

S&P 500, 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.

It may seem like a good idea today... If anyone needs more evidence that focusing on short-term corporate performance can be detrimental to longer-term outcomes, look no further than the effect of the strengthening U.S. dollar on companies outside the United States that issued debt denominated in U.S. dollars. The Economist explained:

“Dollar borrowing is everywhere, but the biggest growth has been in emerging markets. Between 2009 and 2014 the dollar-denominated debts of the developing world, in the form of both bank loans and bonds, more than doubled, from around $2 trillion to some $4.5 trillion, according to the Bank for International Settlements (BIS)… Recent months have seen… an Indian property developer… a South African power generator, and… a Turkish firm that makes TV dinners, sell dollar-denominated bonds. By borrowing dollars at several percentage points below the prevailing interest rate in their domestic currency, CEOs have pepped up profits in the short term.”

As it turns out, dollar-denominated debt may not work out so well in the long run. In recent weeks, the value of currency in many countries has declined relative to the U.S. dollar which has been strengthening. As a result, the amount of interest owed on bonds issued and loans taken in U.S. dollars has increased significantly when measured in local currency terms. Unless a company has U.S. dollar earnings to help offset the expense, the higher cost of its debt can hurt the company.

The New York Times cited a leading electric utility in India that is selling facilities and renegotiating debt after its debts increased thirty-fold in just a few years. In Brazil, some sugar producers have declared bankruptcy, in part, because of U.S. dollar debt and falling sugar prices.

The Times also pointed out, “…the rising dollar and falling emerging-market currencies cut both ways for the economies in question. Even as companies that gorged on dollar debt run into trouble, falling currency values make exporters more competitive on global markets.” In January, the International Monetary Fund projected economic growth in emerging countries will increase from 4.3 percent in 2015 to 4.7 percent in 2016.

Weekly Focus – Think About It

“If you obey all the rules you miss all the fun.”

--Katharine Hepburn, Actress

Best regards,

Leif  M. Hagen

Leif  M. Hagen, CLU, ChFC                                                                       

LP Financial Advisor

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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/articles/time-to-bail-on-the-market-1426895825?mod=BOL_hp_we_columns (or go to http://peakclassic.peakadvisoralliance.com/app/webroot/custom/editor/03-23-15_Barrons-Time_to_Bail_on_the_Market-Footnote_1.pdf)

http://online.barrons.com/articles/SB52018153252431963983004580522151660304116?mod=trending_now_5 (or go to http://peakclassic.peakadvisoralliance.com/app/webroot/custom/editor/03-23-15_Barrons-Fed_Still_Playing_a_Waiting_Game-Footnote_2.pdf)

http://online.barrons.com/mdc/public/page/9_3063-economicCalendar.html?mod=BOL_Nav_MAR_hpp (Click on U.S. & Intl Recaps, “The Fed throws its weight,” scroll down to “Global Stock Market Recap” chart) (or go to http://peakclassic.peakadvisoralliance.com/app/webroot/custom/editor/03-23-15_Barrons-Global_Stock-Market_Recap-Footnote_3.pdf)

http://www.reuters.com/article/2015/03/20/markets-stocks-europe-idUSL6N0WM4AD20150320

http://www.economist.com/news/finance-and-economics/21646803-debt-ridden-emerging-markets-are-heading-nasty-dollar-hangover-feeling-green (or go to http://peakclassic.peakadvisoralliance.com/app/webroot/custom/editor/03-23-15_TheEconomist-Feeling_Green-Footnote_5.pdf)

http://www.nytimes.com/2015/03/17/upshot/how-a-rising-dollar-is-creating-trouble-for-emerging-economies.html?_r=0&abt=0002&abg=0 (or go to http://peakclassic.peakadvisoralliance.com/app/webroot/custom/editor/03-23-15_TheNYTimes-How_a_Rising_Dollar_is_Creating_Trouble-Footnote_6.pdf)

http://www.imf.org/external/pubs/ft/weo/2015/update/01/pdf/0115.pdf

http://www.brainyquote.com/quotes/quotes/k/katharineh100041.html

Long-Term Care Insurance: Understand Your Options Before You Buy

Long-Term Care Insurance: Understand Your Options Before You Buy

With America aging at a rapid pace -- and with the average cost of nursing home care continuing to skyrocket -- long-term care insurance can be a solid investment for individuals who have assets they want to protect or who want to avoid becoming a financial burden to their family.

What exactly is long-term care insurance? Unlike other types of insurance that offer straightforward policy features, long-term care insurance is complex and policies vary widely. In general, long-term care coverage helps to pay for assistance with daily activities such as bathing, eating, and dressing; skilled nursing care or rehabilitative services either in a nursing facility or home setting; and cognitive impairments such as Alzheimer’s disease.

Long-term care insurance can be expensive -- so the younger you are when you purchase a policy, the lower the overall premium cost to you. Luckily, there are many organizations and resources available to help individuals research the long-term care industry as well as individual policies. Before making any decisions, compare several policies, paying special attention to the company’s financial stability and reputation in the industry, coverage details, eligibility requirements, and premium costs.

The aging of America is one of the biggest factors contributing to the growing interest in long-term care (LTC) insurance. According to U.S. Census Bureau data, the median age in America has been rising and the last of the 76 million Baby Boomers will reach age 65 by 2030 -- doubling the elderly population in America.

The U.S. Department of Health and Human Services estimates that about 40% of people aged 65 or older have at least a 50% lifetime risk of entering a nursing home. For its part, the Health Insurance Association of America estimates that by 2020, 12 million people may require long-term care.¹
At a time when the average cost of a private room at a nursing home tops $90,000 a year,² long-term care insurance can be a solid investment for individuals who have assets they want to protect or who want to avoid becoming a financial burden to their family. But unlike other types of insurance, in which policies are standardized or fairly straightforward, long-term care policies are complex and vary widely. Virtually every company's policy differs on such matters as who qualifies for coverage, when the policyholder can begin receiving benefits, the amount of coverage, the term of the policy, and premium costs.
Before you begin comparing policies on a feature-by-feature basis, it is important to understand some of the basics.

What Long-Term Care Insurance Is -- And Is Not

Long-term care insurance is not life insurance, disability insurance, or health insurance. Instead, LTC includes a range of nursing, social, and rehabilitative services for people who need ongoing assistance due to a chronic illness or disability. LTC insurance can be used by anyone at any age who suffers an accident or debilitating illness, but its most frequently used by older adults who need assistance with essential physical needs, such as bathing, dressing, or eating.
For the most part, those who need long-term care are left to foot the bill on their own. Neither Medicare, nor Medicare supplemental coverage, also known as Medigap insurance, nor standard health insurance policies fully cover long-term care. That leaves most of us with two options when faced with such expenses: pay out-of-pocket or rely on private long-term care insurance.
Most LTC policies are "expense incurred" or indemnity policies, which pay a fixed-dollar amount toward the cost of daily care. Policies tend to cover a variety of care settings, including nursing homes, home health care, assisted living facilities, and adult day care. Since premium costs increase depending on your age at the time of enrollment, the younger you are when you purchase a policy, the lower the premium you'll pay during the life of the plan.
Once you purchase a policy, premiums generally remain the same each year, so experts recommend that individuals start thinking about long-term care long before they need it. Because long term care insurance premiums are based on age at the time of purchase, the younger you are when you purchase a policy, the less expensive it typically will be.

Shopping for Long-Term Care Insurance: Consumer Guidelines

When shopping for long-term care insurance make sure you take your time and compare the features of several policies. State insurance regulators and the American Council of Life Insurance, and the American Health Care Association recommend that you pay special attention to the following features.
Company Reputation and Legitimacy. Make sure the insurance companies under consideration are licensed in your state and that they carry favorable financial ratings from well-known ratings agencies such as A.M. Best Company, Duff & Phelps, Inc., Standard & Poor's Insurance Rating Services, and Moody's Investor Services, Inc.
Coverage Parameters. Policies will differ in the types of services they support. Some cover nursing home care, others cover custodial or personal care in a variety of settings such as assisted living, adult day care, and home health care. Some include a combination of services. Be sure to choose a policy that best meets your particular needs.
Benefits Payout. How much does the policy pay per day for care in a particular setting (e.g., nursing home, assisted living)? How does the policy pay out services (e.g., a fixed daily amount, as reimbursement for the cost of care up to a daily maximum)? Does the policy have a maximum lifetime limit? If so, what is it for nursing home care? Home health care?
Waiting Period. How long must the insured wait before he or she can begin receiving benefits? Most policies range from zero to 180 days. Typically the longer the period, the lower the cost of the policy.
Eligibility. Does the policy use certain benefit triggers to determine when you will be eligible to receive benefits? Such triggers could include activities of daily living that the insured needs help with, such as bathing, eating, and dressing; cognitive impairment, such as Alzheimer's disease; or a prerequisite hospital stay for nursing home benefits.
Benefits Protection. The policy should include an inflation adjustment feature to ensure that benefits stay in line with rising care costs. Determine what the rate of increase is, how often it is applied, and for how long. Additional protections include a "guaranteed renewable" clause, which states that the policy cannot be canceled when you get older or if you suffer physical or mental deterioration, and a non-forfeiture benefit, which ensures that some portion of your benefits are still available to you if you cancel your policy or unintentionally let it lapse.
Tax Implications. Premiums paid on long-term care policies sold today (and related out-of-pocket expenses) generally are deductible as an itemized deduction to the extent that those expenses (and other qualifying medical expenses) exceed the 7.5% adjusted gross income threshold. Additionally, long-term care benefits received are subject to tax, up to certain limits. Consult with a tax advisor to learn more about the tax implications of long-term care insurance.
Because of the many variables involved in determining whether long-term care coverage is right for you, it is important to do your research. Luckily there is a wealth of information available to consumers on long-term care and related health care issues. A good starting point is the American Health Care Association.

Points to Remember

1.    The aging of America and the increasing health care expenses that will follow are the biggest factors contributing to the growing interest in long-term care insurance.

2.    Demographers predict that a third of all people who reach age 65 will need to enter a nursing home at some point in time.

3.    Today the average cost of private nursing home care in America tops $90,000 a year,² making private long-term care insurance a potentially smart investment for individuals who want to protect assets and avoid burdening their family.

4.    In general, long-term care insurance covers a range of nursing home and community-based personal care services for individuals who need ongoing assistance due to illness or disability.

5.    Neither Medicare, Medicare supplemental coverage, nor standard health insurance cover long-term care expenses.

6.    Premium costs increase as you age, so the younger you are when you purchase a policy, the lower the premiums you'll pay during the life of the policy.

¹Source: Medicare.gov, Long-Term Care.
²Source: MetLife Market Survey of Nursing Home and Assisted Living Costs, 2012.

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The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. To determine which investment(s) may be appropriate for you, consult your financial advisor prior to investing. Investing involves risk, including loss of principal.

This information is not intended to be a substitute for specific individualized tax advice. We suggest that you discuss your specific tax issues with a qualified tax advisor.

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