Weekly Market
Commentary
July 13,
2015
The Markets
It’s a
cautionary tale…
Many Chinese investors were so optimistic about the
prospects for Chinese stock markets they
bought on margin, meaning they
borrowed money to buy stocks. Borrowing to invest has
been so popular that the
amount of margin loans doubled in just six months to about
$320 billion, according
to Barron’s. Experts cited in the
article said, “…margin financing
in China is equal in size to Indonesia’s
entire stock market valuation and as high a portion
as it has been in any
market at any time…”
The problem with buying on margin is repaying the loan
if stocks move in the wrong direction.
Since the middle of June, Chinese stock
markets have lost more than $3 trillion, reported
CNN.com. Barron’s
explained how margin works:
“In China, a typical investor can borrow $1.25 for
every dollar of cash she has,
giving her what China calls a “guarantee ratio”
of 180 percent, or $2.25
(cash and stock bought on margin) divided by $1.25
(loan value). But, as
her stock loses value, the guarantee ratio also falls. At
150 percent, the broker
will start to issue margin calls. When the ratio hits
130 percent, the brokerage
will force the liquidation of the position to meet
the loan.”
About 80 percent of the investors in China’s markets
live in China. Many have suffered
significant losses as markets have moved
lower.
The BBC
reported China’s market regulator responded to the market downturn by making
it
even easier for people to borrow money to invest. Apparently, the hope is small
investors
will put more money in stocks. Regulators also banned investors who
hold 5 percent or more
of a company’s stock from selling their shares for six
months.
By the middle of last week, Chinese markets had
stopped losing value. Only time will tell
whether they have truly stabilized.
Closer to home, the New York Stock Exchange (NYSE)
suffered a computer glitch that halted
trading for several hours last week. The
NYSE tweeted, “The issue we are experiencing is an
internal technical issue and
is not the result of a cyber breach.”
Data as of 7/10/15
|
1-Week
|
Y-T-D
|
1-Year
|
3-Year
|
5-Year
|
10-Year
|
Standard & Poor's 500 (Domestic Stocks)
|
0.0%
|
0.9%
|
5.7%
|
15.7%
|
14.0%
|
5.5%
|
Dow Jones Global ex-U.S.
|
-1.5
|
2.2
|
-6.7
|
7.5
|
4.3
|
3.0
|
10-year Treasury Note (Yield Only)
|
2.4
|
NA
|
2.5
|
1.5
|
3.1
|
4.1
|
Gold (per ounce)
|
-0.7
|
-3.3
|
-13.5
|
-10.1
|
-0.8
|
10.6
|
Bloomberg
Commodity Index
|
-2.5
|
-4.8
|
-24.3
|
-10.3
|
-4.6
|
-4.5
|
DJ Equity
All REIT Total Return Index
|
1.8
|
-2.3
|
6.8
|
10.1
|
14.2
|
6.9
|
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.
Big data is
making the news. A well-known search
engine company has introduced
a cloud-based big data service and a news
laboratory which provides data about trends to
journalists. During 2014 and
2015, it provided:
·
The Economist
with information about the employers and industry sectors that were most
popular
with American job seekers.
·
TIME with five
of the top trending people and topics for 2014: Ebola, the Ice Bucket
Challenge, Ferguson [Missouri], Vladimir Putin, and Dilma Rousseff.
·
The New York Times with a state-by-state assessment of popular Thanksgiving foods. In
California they like persimmon bread; in Texas it was sopapilla cheesecake; in
Minnesota
they were searching for wild rice casserole; and in New York the
favorite was stuffed
artichokes.
The Washington Post with data on depression, pain, anxiety, stress, and fatigue,
so it
could create a daily misery index for the year.
· Buzzfeed and
Vocativ with British and American
political data, including the most searched candidate names and questions most frequently
asked of candidates.
The search engine also tracks what we don’t know or
can’t remember. For instance, it has
created a cocktail tool to provide
instructions for making the drinks most frequently sought
in online searches and
a nutrition comparison tool to facilitate food smack downs (mashed
potatoes
beat sweet potatoes for sugar, but sweet potatoes win when it comes to Vitamin
A, potassium, and calcium).
Always remember: When you go online and use certain
search engines, your data is being
stored and sorted. It’s important to know.
Weekly Focus – Think About It
“We think too small, like the frog at the
bottom of the well. He thinks the sky is only as big
as the top of the well. If
he surfaced, he would have an entirely different view.”
--Mao Zedong, Former Chairman of the Communist
Party of China
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*
These views are those of Peak Advisor Alliance, and not the presenting
Representative or the Representative’s Broker/Dealer, and should not be
construed as investment advice.
*
This newsletter was prepared by Peak Advisor Alliance. Peak Advisor Alliance is
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with the named broker/dealer.
*
Government bonds and Treasury Bills are guaranteed by the U.S. government as to
the timely
payment of principal and interest and, if held to maturity, offer a
fixed rate of return and fixed principal value.
However, the value of fund shares is not guaranteed and will fluctuate.
*Corporate
bonds are considered higher risk than government bonds but normally offer a
higher
yield and are subject to market, interest rate and credit risk as well
as additional risks based on
the quality of issuer coupon rate, price, yield,
maturity, and redemption features.
*
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 Dow Jones Global ex-U.S. Index covers approximately 95% of the market
capitalization of
the 45 developed and emerging countries included in the
Index.
*
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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Sources:
