Peek of the Week
 |
| July 6, 2015 |
The Markets
It’s been a wild, wild quarter.
In early April, stock markets were doing so well (14
of 47 national benchmark indices
hit all-time highs) that global market
capitalization — the value of stocks trading on
exchanges throughout the world
— pushed past $70 trillion, according to
Bloomberg
Business. The publication attributed the climb to stimulus programs.
About
two-dozen countries’ central banks were either engaged in quantitative
easing
or had committed to lower interest rates.
Rate hike
speculation
Since the start of the year, analysts have been avidly
seeking clues about when
the Federal Reserve may begin to tighten monetary
policy. Would it happen in June?
In September? In December? In 2016?
After a mid-June policy meeting, The Wall Street Journal reported that Fed
officials expect to raise
rates during 2015. However, the latest turn of events in
Greece, turmoil in
Chinese markets, a strong dollar (which could slow U.S. growth),
and other
factors may cause that signal to change.
China’s bull
market ends
By late May, China’s Shanghai and Shenzhen Stock
Exchanges were valued at
about $10.3 trillion dollars. The Shanghai Composite
Index was up about 60 percent
from the start of the year, and the Shenzhen was
up about 120 percent for the
same period. Markets were pushed higher by
enthusiastic Chinese investors.
In
April, the Financial Times described
it like this:
“After years of poor performance, confidence in the
stock market has returned in
China with a vengeance. Savers have switched
hundreds of billions of dollars
out of property, deposits, and wealth
management products in the hope of making
a fast buck in stocks.”
Those hopes may have been dashed when Chinese markets
headed south late in
the quarter. During the last three weeks, Chinese markets have
lost about
$2.8 trillion in value, bringing the longest bull market in that
nation’s history
to a rather abrupt end.
Angst in the
European Union
The European Central Bank’s 2015 quantitative easing
(QE) program was a
shot in the arm for Europe. Expectations that QE would spur
economic growth
and help the region conquer deflation helped push some stock
markets to all-time highs.
Late in second quarter, however, the high gloss of QE
was dulled by Greek
gamesmanship. After a stellar first quarter, the Stoxx 600
Index, which includes
stocks of companies in 18 European countries, saw its
first-half gains fall to
11 percent, according to Bloomberg Business.
Crowdfunding
for Greece?
You may be familiar with crowd funding. If not, boiled
down, it comes to this:
Someone has an idea, sets up an online campaign, and
raises money to fund
the concept. Often perks are offered for contributions.
Late in the second quarter, a 29-year-old shoe
salesman in York, England,
set up the Greek Bailout Fund. He wrote, “All this
dithering over Greece is
getting boring…The European Union (EU) is home to 503
million people,
if we all just chip in a few Euro then we can get Greece sorted
and hopefully
get them back on track soon. Easy.”
You’ve got to admire his audacity. The goal? Raise €1.6
billion. As of July 5, 2015,
€1.8 million had been pledged.
A no vote in
Greece
We may be in for more excitement during third quarter,
which began with the Greek
voters rejecting the EU’s bailout offer.
Data as of 7/2/15
|
1-Week
|
Y-T-D
|
1-Year
|
3-Year
|
5-Year
|
10-Year
|
Standard & Poor's 500 (Domestic Stocks)
|
-1.2%
|
0.9%
|
4.6%
|
14.8%
|
15.1%
|
5.6%
|
Dow Jones Global ex-U.S.
|
-1.8
|
3.7
|
-7.3
|
7.0
|
5.2
|
3.3
|
10-year Treasury Note (Yield Only)
|
2.4
|
NA
|
2.7
|
1.6
|
3.0
|
4.1
|
Gold (per ounce)
|
-0.2
|
-2.6
|
-11.4
|
-10.3
|
-0.7
|
10.6
|
Bloomberg Commodity Index
|
1.3
|
-3.1
|
-25.8
|
-8.3
|
-4.6
|
-4.4
|
DJ Equity All REIT Total Return
Index
|
0.2
|
-4.0
|
5.9
|
8.9
|
15.0
|
7.0
|
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.
the European
central bank is no U.S. federal reserve or people’s bank of china or Bank of england…
Recent matters in Greece have
highlighted some of the problems
with the European Union. One of the most important
is the EU does not have a single
government pursuing a coherent fiscal policy. Nope.
As The Economist suggests, it’s a conglomeration of countries with
disparate
economic goals and circumstances.
A writer at Forbes
captured the essence of the problem in a Tweet: “No currency-issuing
national
central bank would freeze the money supply in a depression. But that's what
the
[European Central Bank] ECB has done to Greece.”
The lesson about money supply was learned during the
Great Depression. The Federal
Reserve began tightening monetary policy in 1928.
It allowed money supply in the
United States to shrink by about one-third from
1929 to 1933, and that had a disastrous
effect on the American economy. It’s
hard to grow when you have less and less money.
In 2002, then-Fed Chairman Ben
Bernanke fessed up, “…the Great Depression can
reasonably be described as
having been caused by monetary forces.”
But the heart of the Forbes Tweet is the observation that no national central bank
would
freeze money supply. The Economist
pointed out that the ECB is not a national
central bank. It is an international
central bank, and that is problematic.
“The ECB, of course, doesn't derive its mandate from
the Greek government, but from
all euro zone member governments. And here there
is a clear conflict of interest; Greece
owes money, not just to the rest of the
EU, but to the ECB itself. When the ECB provides
liquidity to Greek banks, it
increases the bank's exposure to a government that may
not repay it. This works
both ways; neither the British nor the American government
would want the
credibility of their central banks to be undermined. But the Greeks
don't have
any interest in maintaining the reputation of the ECB.”
If the interests of the various countries in the EU
don’t align, how does the region
pursue a coherent fiscal policy? How does the
ECB implement effective monetary
policy? Should one country’s pension or
healthcare system be more generous than
another’s? How does the United States
do it?
Eurozone countries have a complex relationship. We’re
likely to learn a lot about
its long-term sustainability in coming weeks.
Weekly Focus – Think About It
“It's not what happens to you, but how you
react to it that matters.
-- Epictetus,
Greek Philosopher
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.
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