Peek of
the Week
February 16, 2016
The Markets
Are markets suffering from excessive worry?
Last week, markets headed south because investors were
concerned about the possibility of negative interest rates in the United States
– even though the U.S. Federal Reserve has been tightening monetary policy
(i.e., they’ve been raising interest rates).
The worries appear to have taken root after the House
Financial Services Committee asked Fed Chair Janet Yellen whether the Federal
Reserve was opposed to reducing its target rate below zero should economic
conditions warrant it (e.g., if the U.S. economy deteriorated in a significant
way). Barron’s reported on the confab
between the House and the Fed:
“Another, equally remote scenario also
gave markets the willies last week: that the Federal Reserve could potentially
push its key interest-rate targets below zero, as its central-bank counterparts
in Europe and Japan already have. Not that anybody imagined it was on the
agenda of the U.S. central bank, which, after all, had just embarked on raising
short-term interest rates in December and marching to a different drummer than
virtually all other central banks, which are in rate-cutting mode.”
Worried investors may want to consider insights
offered by the Financial Times, which
published an article in January titled, “Why global economic disaster is an
unlikely event.” It discussed global risks, including inflation shocks,
financial crises, and geopolitical upheaval and conflict while pointing out:
“The innovation-driven economy that emerged in the
late 18th and 19th centuries and spread across the globe in the 20th and 21st
just grows. That is the most important fact about it. It does not grow across
the world at all evenly – far from it. It does not share its benefits among
people at all equally – again, far from it. But it grows. It grew last year.
Much the most plausible assumption is that it will grow again this year. The
world economy will not grow forever. But it will only stop when…resource constraints
offset innovation. We are certainly not there yet.”
Markets bounced at the end of the week when the
Organization of Petroleum Exporting Countries (OPEC) indicated its members were
ready to cut production. The news pushed oil prices about 12 percent higher and
alleviated one worry – for now.
Data as of 2/12/16
|
1-Week
|
Y-T-D
|
1-Year
|
3-Year
|
5-Year
|
10-Year
|
Standard & Poor's 500 (Domestic Stocks)
|
-0.8%
|
-8.8%
|
-10.7%
|
7.1%
|
7.0%
|
4.0%
|
Dow Jones Global ex-U.S.
|
-4.6
|
-12.2
|
-19.9
|
-5.4
|
-4.0
|
-1.0
|
10-year Treasury Note (Yield Only)
|
1.8
|
NA
|
2.0
|
2.0
|
3.6
|
4.6
|
Gold (per ounce)
|
7.8
|
16.7
|
1.4
|
-9.0
|
-1.9
|
8.5
|
Bloomberg Commodity Index
|
-0.2
|
-4.0
|
-26.8
|
-18.5
|
-14.1
|
-7.4
|
DJ Equity All REIT Total
Return Index
|
-4.1
|
-9.5
|
-11.7
|
5.1
|
8.2
|
5.6
|
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.
Capital has been
leaving china…When Federal Reserve
Chair Janet Yellen testified before the House Financial Services Committee last
week, she made no bones about the fact the Fed is keeping an eye on economic
developments in China and evaluating the ways in which changing circumstances in
the country, including currency devaluation, could affect global growth and the
U.S. economy.
Yellen is not the only one worried about currency
devaluation in China. The New York Times
reported Chinese companies and wealthy citizens have been pulling money out of the
country because they’re worried the purchasing power of their savings will
decline significantly if the government further devalues the renminbi. Some
have been using renminbi to invest in real estate abroad, buy overseas
businesses, or pay off dollar-denominated debt.
Others have been avoiding China’s capital controls,
which are measures designed to regulate flows from capital markets, by engaging
in ‘smurfing.’ The New York Times
described the practice of smurfing this way, “…Individuals are asking friends
or family members to carry or transfer out $50,000 apiece, the annual legal limit
in China. A group of 100 people can move $5 million overseas.”
According to the
Institute of International Finance, cited by CNBC:
“The 2015 outflows largely reflected efforts by
Chinese corporates to reduce dollar exposure after years of heavy dollar
borrowing as expectations of persistent renminbi appreciation were replaced by
rising concerns about a weakening currency.”
During the final six months of 2015, capital flowed
out of China at a rate of about one trillion U.S. dollars annualized, according
to The Economist.
Weekly
Focus – Think About It
“Do not dwell
in the past, do not dream of the future, concentrate the mind on the present
moment.”
--Buddha,
Religious leader
Best
regards,
Leif M. Hagen
Leif M. Hagen, CLU, ChFC
LP Financial Advisor
Securities offered through LPL Financial Inc.,
Member
FINRA/SIPC.
P.S.S. Also,
please remind your friends and family members becoming Medicare eligible that
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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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