PEEK OF THE WEEK
February 20, 2018
Leif Hagen & Donna Roberts
The Markets
As New York
Fashion Week ended, inflation strutted its stuff.
Ever since the Federal Reserve
began raising the Fed funds rate in 2015, analysts have been anticipating
higher inflation. The fact that price increases remained relatively small was a
perplexing mystery. Then, last week, inflation increased faster than expected.
The Bureau of Labor Statistics
reported the Consumer Price Index (CPI), one measure of inflation, rose 0.5
percent in January. As you might expect, the cost of some items rose faster
than others. For example, energy costs rose by 3.0 percent, while the cost of
food was up 0.2 percent. In total, during the last 12 months, the all-items
index rose 2.1 percent. When food and energy are excluded, the increase was 1.8
percent.
Barron’s reported, “Leaving aside the month-to-month squiggles, the
real story is that inflation is closing in on the Fed’s 2 percent target…And
even if January’s rise in the CPI was overstated, a real cyclical uptrend is
under way…Deflation in the prices of consumer goods we like to buy is ending;
the rate of increase in the cost of things we have to buy either is rising, as
for food and energy, or remains high, as for services or rent.”
Higher prices are one side of
the inflation coin; the other side is higher interest rates. Inflation is one
of the data points the Federal Reserve considers when determining how well the
economy is performing. Rising inflation signals a robust economy. That may
encourage the Fed to raise rates more aggressively during 2018 to prevent the
economy from overheating. The possibility of more concerted Fed tightening
helped bump U.S. treasury rates higher last week.
Higher interest rates could
become a boon for income-oriented investors. For years, persistently low rates
have caused some investors to accept higher risk than they might have
otherwise. As interest rates move higher, there may be opportunities to reduce
portfolio risk and still generate attractive levels of income.
Despite inflation-inspired volatility
mid-week, stock markets around the world moved higher. In the United States,
major indices once again moved into positive territory for 2018.
Data as of 2/16/18
|
1-Week
|
Y-T-D
|
1-Year
|
3-Year
|
5-Year
|
10-Year
|
|
Standard & Poor's 500
(Domestic Stocks)
|
4.3%
|
2.2%
|
16.4%
|
9.2%
|
12.3%
|
7.3%
|
|
Dow Jones Global ex-U.S.
|
4.2
|
1.4
|
19.4
|
5.3
|
4.5
|
0.9
|
|
10-year Treasury Note (Yield
Only)
|
2.9
|
NA
|
2.5
|
2.1
|
2.0
|
3.9
|
|
Gold (per ounce)
|
2.9
|
4.3
|
9.0
|
3.2
|
-3.4
|
4.1
|
|
Bloomberg Commodity Index
|
3.0
|
0.0
|
-0.3
|
-5.3
|
-8.7
|
-6.3
|
|
DJ Equity All REIT Total
Return Index
|
2.0
|
-7.8
|
-1.6
|
2.4
|
6.9
|
7.4
|
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.
ridiculous? silly? strange? some ideas may seem that
way. Albert Einstein is famous for having said, “If at first the
idea is not absurd, then there is no hope for it.” In recent weeks, Fast Company has reported on some “world-changing ideas,” including:
·
Teaching
happiness in school. The mandate of a school being built in India will be
teaching children how to be happy. One of the co-founders said, “It’s our view
that happiness – or emotional intelligence, or balance, or confidence, or
self-esteem, or any other word for feeling good about ourselves and our place
in the world – is the foundation on which great lives and great achievements
are built.”
·
Cancelling
student debt. “Collectively, [Americans] owe nearly $1.4 trillion on
outstanding student loan debt. Research shows that this level of debt hurts the
U.S. economy in a variety of ways, holding back everything from small business
formation to new home buying, and even marriage and reproduction,” according to
a February report from the Levy Economics
Institute at Bard College.
The research estimates if the U.S. government purchased and cancelled
student loan debt the U.S. economy would increase real gross domestic product –
the value of all goods and services produced – by $861 billion to $1,083
billion over 10 years. Also, the step could lead to the creation of more than a
million new jobs every year.
·
Revitalizing
Haiti with blockchain. The details are still being hammered out, but the
Blockchain Cotton Project hopes to use distributed digital ledgers (blockchain)
to manage supply chains, making it easier and less expensive to source organic
cotton. One member of the project said, “We’re still figuring out how the
farmers do the live reporting. But we hope it will replace the normal organic
or fair trade certification through a radical transparency approach.”
What do you
think? Do they pass the absurdity test? Or are these ideas too tame?
Weekly
Focus – Think About It
“The function of education is to teach one to think
intensively and to think critically. Intelligence plus character – that is the
goal of true education.”
--Martin
Luther King, Jr., American Baptist minister and activist
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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* 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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Sources:
https://www.barrons.com/articles/the-ghost-of-inflation-reappears-1518837372 (or go to https://s3-us-west-2.amazonaws.com/peakcontent/+Peak+Commentary/02-20-18_Barrons-The_Ghost_of_Inflation_Reappears-Footnote_4.pdf)
https://www.globalbankingandfinance.com/tighter-monetary-policy-will-put-brake-on-corporate-profits/
http://www.barrons.com/mdc/public/page/9_3063-economicCalendar.html (Click on U.S. & Intl Recaps,
“Equities regain composure,” scroll down to “Global Stock Market Recap” chart)
(or go to https://s3-us-west-2.amazonaws.com/peakcontent/+Peak+Commentary/02-20-18_Barrons-Global_Stock_Market_Recap-Footnote_7.pdf)
http://www.levyinstitute.org/pubs/rpr_2_6.pdf (Pages 6 and 50)
