Hagen Financial Network, Inc.

Thursday, September 17, 2015

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by Leif Hagen

Hagen Financial Network Inc.

Monday, September 14, 2015

Will the Federal Reserve begin to raise rates this week?

Weekly Market Commentary

September 14, 2015

The Markets

The market is as streaky as a slice of bacon.

U.S. stock markets have been sliding higher. They’ve been sliding lower.

Barron’s reported the Standard & Poor’s 500 Index has tumbled from gains to losses and back again for 10 weeks in a row. The Dow Jones Industrial Index has tagged along with nine weeks of flip-flops. You’d almost think they were running for office.

There are market optimists. There are market pessimists.

The American Association of Individual Investors (AAII) weekly survey of investor sentiment reported 34.6 percent of respondents were bullish. That’s up from the previous week. Thirty-five percent of respondents were bearish. That’s also up from last week. What’s down? Neutral sentiment. More people are forming opinions about the possible direction of the market.

There are questions that need to be answered.

Will the Federal Reserve begin to raise rates this week? Some say yes. Some say no. Barron’s said it’s too close to call. There is no clear consensus, Fed officials have given mixed signals, and the bond market has not priced in a rate hike. If the Fed does raise rates, experts cited by Barron’s said markets could get ugly for a little while or they could remain calm. A lot depends on the wording of the Fed’s statement.

Have Chinese markets stabilized? MarketWatch reported the Shanghai Composite Index finished last week higher. It was the first positive weekly outcome in a month. Chinese authorities, once again, are taking steps to stabilize markets. The Economist offered this thought, “As China’s financial markets develop, its stock market will become less bumpy. For now, investors must remember that many things are bigger in China, including the daily ups and down of its stock market.”

Will the U.S. government shut down again? It’s in the hands of our elected officials.

Data as of 9/11/15	1-Week	Y-T-D	1-Year	3-Year	5-Year	10-Year
Standard & Poor's 500 (Domestic Stocks)	2.1%	-4.8%	-1.8%	11.0%	12.1%	4.7%
Dow Jones Global ex-U.S.	1.8	-7.2	-14.1	1.7	0.8	1.2
10-year Treasury Note (Yield Only)	2.2	NA	2.5	1.7	2.8	4.2
Gold (per ounce)	-1.6	-8.3	-11.4	-14.1	-2.4	9.4
Bloomberg Commodity Index	0.5	-14.8	-26.9	-15.7	-8.3	-6.1
DJ Equity All REIT Total Return Index	2.2	-7.0	0.2	7.2	10.8	6.3

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.

Are we seeing the big picture? It’s safe to say many people are worried about whether economic growth – in the United States and abroad – will be stifled by changing monetary policy in the United States. As a result, all eyes have been on the Federal Reserve, which is expected to begin raising the Fed funds rates sometime soon.

However, the Federal Reserve’s monetary policy isn’t the only game in town. Fiscal policy – the actions taken by our government – can also have a profound effect on economic growth. A July Brookings’ blog post ‘Fiscal Headwinds are Abating,’ reported:

“Tight fiscal policy by local, state, and federal governments held down economic growth for more than four years, but that restraint finally appears to be over… Fiscal policy is no longer a source of contraction for the economy, but neither is it a source of strength.”

The blog post discusses the reasons that government spending has held back economic growth. At the federal level, contraction was attributed to “…tight caps on annually appropriated spending and the automatic spending cuts known as sequestration.” The organization’s Federal Impact Measure (FIM), which estimates the effect of federal, state, and local spending (and taxes) on gross domestic product growth, suggests federal spending caused economic growth to be 0.35 percentage points lower per year, on average, between 2011 and 2013.

There is talk of a government shutdown at the end of September. If it happens, it could have an effect on economic growth. The last time the government shut down was in 2013. Experts cited by the BBC reported the 2013 shutdown cost the U.S. economy about $24 billion and reduced quarterly economic growth by 0.6 percent. That shutdown lasted 16 days.

It is possible economic growth may slow for some period of time. It’s also possible monetary policy, fiscal policy, and other factors may be responsible.

Weekly Focus – Think About It

“My best friend is the man who in wishing me well wishes it for my sake.”

--Aristotle, Greek philosopher

Best regards,

Leif M. Hagen

Leif M. Hagen, CLU, ChFC

LP Financial Advisor

Securities offered through LPL Financial Inc.,

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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://www.barrons.com/articles/u-s-stocks-rise-2-1-ahead-of-federal-reserve-meeting-1442036643?mod=BOL_hp_we_columns (or go to http://peakclassic.peakadvisoralliance.com/app/webroot/custom/editor/09-14-15_Barrons-US_Stocks_Rise_2.1_Percent_Ahead_of_Federal_Reserve_Meeting-Footnote_1.pdf)

http://www.aaii.com/sentimentsurvey

http://www.barrons.com/articles/barrons-fed-rate-hike-too-close-to-call-1442036635 (or go to http://peakclassic.peakadvisoralliance.com/app/webroot/custom/editor/09-14-15_Barrons-Fed_Rate_Hike_is_Too_Close_to_Call-Footnote_3.pdf)

http://www.marketwatch.com/story/asian-stocks-waver-ahead-of-fed-decision-2015-09-11

http://www.economist.com/blogs/freeexchange/2015/08/chinas-stockmarket-0 (or go to http://peakclassic.peakadvisoralliance.com/app/webroot/custom/editor/09-14-15_TheEconomist-Was_the_Crash_that_Big-Footnote_5.pdf)

http://www.brookings.edu/blogs/up-front/posts/2015/07/31-fiscal-impact-measure

Tuesday, September 08, 2015

Who or what is to blame for recent market weakness?

Peek of the Week

Sept. 8, 2015

The Markets

Who’s the culprit?

Speculating on who or what is to blame for recent market weakness is a popular pastime right now. Last week, Barron’s said the search for someone to blame is a lot like a game of Clue. So far, the most common conclusions are “the People's Bank of China with a devalued currency in Beijing,” and “Janet Yellen with a potential interest-rate hike in Washington.”

The article pointed out those theories might be flawed. After all, China’s slowdown wasn’t a surprise. Analysts have been factoring slower growth into their calculations for some time. U.S. rate hikes are highly anticipated and, even though some fear they could tip the American economy into recession (and argue recent stock price movement supports the claim), relatively strong economic data casts doubt on the idea. Some analysts believe the stock market can help predict where a country’s economy is headed. A significant drop in stock prices could be indicative of a future recession and a significant increase could suggest future economic growth.

So, why have markets headed south? Barron’s offered an alternative answer: Investors with volatility trading strategies (and/or a case of nerves) across the globe. The article pointed out the CBOE Volatility Index (VIX), a.k.a. the fear gauge, popped from a low of 13 to a high of 53 between August 18 and
August 24:

“That’s higher than when Standard & Poor's cut the credit rating of the United States in 2011, or at the peak of the European debt crisis in 2010, and seems extreme given the evidence. But volatility isn’t simply a measure of fear. It has been used to manage risk in portfolios that employ sophisticated trading schemes… Although each type of fund adjusts to market changes at a different speed, they all respond in the same way – by selling stocks… Don’t just blame the professionals. For months now, there have been warnings about overcrowding in the market’s best-performing stocks. And, when the market started to tumble in August, these stocks were among the hardest hit…”

So, who caused the market downturn? Take your pick.

Data as of 9/4/15	1-Week	Y-T-D	1-Year	3-Year	5-Year	10-Year
Standard & Poor's 500 (Domestic Stocks)	-3.4%	-6.7%	-3.8%	11.0%	12.0%	4.5%
Dow Jones Global ex-U.S.	-4.1	-8.8	-17.0	2.3	1.0	1.0
10-year Treasury Note (Yield Only)	2.1	NA	2.5	1.6	2.6	4.1
Gold (per ounce)	-1.5	-6.8	-12.1	-13.0	-2.2	9.6
Bloomberg Commodity Index	-1.0	-15.2	-29.0	-15.5	-8.2	-6.4
DJ Equity All REIT Total Return Index	-4.6	-9.0	-3.0	6.5	10.6	6.0

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 travails of emerging markets. Just a few years ago, emerging markets were the toast of the town. In general, emerging countries recovered much faster than developed countries following the financial crisis and global recession. The MSCI Emerging Markets Index delivered pretty remarkable (and highly volatile) performance during the past decade. According to the MSCI fact sheet, annual returns have ranged from down 53.33 to up 78.51:

Annual Returns (%)

2005 34.00

2006 32.14

2007 39.42

2008 -53.33

2009 78.51

2010 18.88

2011 -18.42

2012 18.22

2013 -2.60

2014 -2.19

Through September 4, the Emerging Markets Index was down 17.54 percent. While that’s a significantly smaller swing than some we’ve experienced during the past 10 years, any double-digit dip demands attention. The Wall Street Journal explained the downturn like this:

“China’s economic slowdown is having broad implications, hitting regional economies like Taiwan, Malaysia, and Vietnam where manufacturing data showed declines for August. Emerging markets are also nervous about the possibility of an interest-rate increase in the United States, which would encourage global investors to invest more there. China’s Shanghai Composite Index is down 39 percent after hitting a seven-year high in June.”

Indeed, money is moving back into the United States. Experts cited by The Economist said about $44 billion has been pulled from emerging markets since mid-July.

Christine Lagarde, Managing Director of the International Monetary Fund (IMF), indicated the IMF’s outlook for global growth was likely to be revised downward, in part, because emerging economies are at risk of being negatively affected by commodity price weakness, China’s slowdown, and America’s monetary policy.

How bad will it get in emerging markets? The IMF’s July projection was that emerging market and developing countries would grow by 4.2 percent in 2015 and 4.7 percent in 2016. Developed economies, on the other hand, were expected to grow by 2.1 percent in 2015 and 2.4 percent in 2016.

Please keep in mind, international investing involves special risks such as currency fluctuation and political instability and may not be suitable for all investors. These risks are often heightened for investments in emerging markets.

Weekly Focus – Think About It

“I never blame myself when I'm not hitting. I just blame the bat and if it keeps up, I change bats. After all, if I know it isn't my fault that I'm not hitting, how can I get mad at myself?”

--Yogi Berra, Baseball player