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Market Commentary
November 25, 2013
The Markets
Really?!
Okay. Okay. If you’ve been trekking through Siberia or Patagonia for about a year,
then maybe it surprised you to hear the minutes from the Federal Reserve Open
Market Committee meeting showed it expects to begin tapering Quantitative Easing
(QE) in the coming months.
However, since the Fed has been telling anyone who will listen – telling them over
and over and over again – that its intent is to slow the pace at which it buys bonds
as the U.S. economy strengthens (and since most people haven’t been exploring
the hinterlands where the convenience of modern communications may not be
readily available), it’s difficult to understand why that information was so surprising
that it pushed stock and bond markets significantly lower.
It might have been easier to understand market declines if they had occurred on
Tuesday after the Organization for Economic Cooperation and Development
(OECD) released its revised economic outlook. In his speech, OECD SecretaryGeneral Angel Gurría said:
“The recovery of the global economy is progressing at a moderate
and uneven pace. World GDP growth, which averaged about 4
percent per year in the decade up to the onset of the global crisis, is
expected to reach only 2.7% in 2013, the lowest rate since 2009.
While we expect global growth rates to move again towards 4 percent
in 2015, the world will continue to be affected by the harsh social
legacy of the crisis… The recovery itself is exposed to potential
downside risks, including fiscal brinkmanship in the United States,
unresolved banking problems in the euro area, the high debt burden
in Japan, and financial vulnerabilities in some large emerging-market
economies.”
Gurría also said, in the OECD’s long-term view, economic weakness was the result
of investment remaining anemic, credit growth remaining subdued, trade growth
gaining sluggishly, and growth in emerging economies faltering.
Regardless, the markets’ downward foray was short-lived. On Friday, the Standard
& Poor’s 500 Index closed above 1800 for the very first time. Other U.S. markets
moved higher as well.
Data as of 11/22/13
Standard & Poor's 500
(Domestic Stocks)
10-year Treasury Note (Yield
Only)
Gold (per ounce)
DJ-UBS Commodity Index
DJ Equity All REIT TR Index
113510Week Y-T-D Year
Year
Year Year
0.4% 26.5% 28.1% 14.6% 16.2% 5.6%
2.8
NA
1.7
2.8
3.3
4.2
-3.2
0.5
-2.1
-26.4
-11.0
2.8
-28.0
-14.1
6.9
-2.8
-5.1
11.5
8.7
0.0
21.3
12.3
-0.1
9.2
Notes: S&P 500, Gold, DJ-UBS 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 TR 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.
AN OH-SO-BRIEF BRIEF ON DIGITAL MONEY
If you read or watched the news during the past few months, you may already know
this, but there has been an explosion of interest in digital money. That’s the reason
you may be hearing and reading about dozens of companies that are rushing to
coin virtual currency that has real value. It just seems so 21st Century, doesn’t it?
Odds are you’ve already used digital money. For example, you used it the last time
you purchased something online. Digital money is what we use when we pay or are
paid electronically. Think smart phones and credit cards. Digital money is not
tangible; however, it is possible to convert digital money that is part of a large
centralized banking system into paper money by making a withdrawal from an ATM.
In the United States, the Federal Reserve is responsible for maintaining the integrity
of U.S. bills and coins by setting monetary policy. Digital currency companies offer
a parallel currency universe; a means of transferring electronic money from one
person to another without using traditional banking or money-transfer systems.
Digital money companies appear to be delivering American economist Milton
Friedman’s dream, according to The Economist. Years ago, Friedman suggested
the Federal Reserve be abolished and replaced by an automated system that would
increase money supply at a steady, pre-set rate. He believed such a system would
better control inflation, making spending and investment decisions more certain.
The Economist article said:
“In theory, then, the system ought to keep a lid on inflation – making it
attractive to critics of interventionist monetary policy of the sort
practiced since 2008 by America's Federal Reserve under the label
quantitative easing… It offers other apparent benefits, too. The
currency can be used by anyone (unlike credit cards, for instance),
anywhere. Transaction costs are also likely to be lower than those for
traditional payment systems, though these are not in fact zero…”
The Economist goes on to point out a key difference between central-bankcontrolled currencies (which often offer both bills and coins and digital currencies)
and digital currency companies is the former are backed by a country’s regulations
and laws; the latter are answerable to online communities using the currencies.
Weekly Focus – Think About It
“A business that makes nothing but money is a poor business.” Henry Ford,
American Industrialist
Keep the Faith. Faith is the Spirit.
Carl
G. Carl Mahler, Jr., CFP®
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*Securities and investment advisory services offered exclusively through Raymond James, Member FINRA/SIPC
* 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.
* Quantitative easing is a government monetary policy occasionally used to increase the money supply by buying government securities
or other securities from the market. Quantitative easing increases the money supply by flooding financial institutions with capital in an
effort to promote increased lending and liquidity.
* Gold represents the London afternoon gold price fix as reported by the London Bullion Market Association.
* The DJ 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 TR 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.
*Stock investing involves risk including loss of principal.
* Past performance does not guarantee future results.
* You cannot invest directly in an index.
* Consult your financial professional before making any investment decision.
Sources:
http://www.nytimes.com/2013/11/21/business/daily-stock-market-activity.html?_r=0
http://www.oecd.org/about/secretary-general/oecd-global-economic-outlook.htm
http://online.wsj.com/news/articles/SB10001424052702304337404579213362199412366
http://www.investopedia.com/terms/d/digital-money.asp
http://www.minneapolisfed.org/community_education/teacher/history.cfm
http://www.reuters.com/article/2013/05/31/us-digitalcurrency-regulation-bitcoin-idUSBRE94U17X20130531
http://www.economist.com/blogs/babbage/2011/06/virtual-currency
http://www.brainyquote.com/quotes/topics/topic_money.html#1E8TcF3HWirjdW91.99