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Weekly Market Commentary – February 26, 2018

by Jack Reutemann | Feb 27, 2018 | Weekly Stock Market Commentary

U.S. Treasuries are offering a lesson in supply and demand.
Last week, the U.S. Treasury auctioned $258 billion in bonds. Treasury auctions are the way the United States government finances its debt. The Treasury sells short-, intermediate-, and long-term IOUs, known as bills, notes, and bonds. When investors and governments purchase bonds, they agree to lend money to the United States. In return, the United States agrees to pay an amount of interest over a certain period of time. At the end of that time, the government is expected to repay the money borrowed.

The price and interest paid on U.S. government debt is determined by supply and demand. When there are few bonds and a lot of demand, prices rise and interest rates fall. When there are a lot of bonds and little demand, prices fall and interest rates rise.
Last week, Barron’s reported, “The law of supply and demand meant that the glut of new Treasuries temporarily drove down prices and pushed up yields. The 10-year Treasury climbed during the week – brushing 2.95 percent – but ultimately lost half a basis point, ending at 2.87 percent. (A basis point is a hundredth of a percentage point.)”

The Treasury increased its debt issuance to fund tax reform and the two-year federal budget. Reuters reported, “…tax reform is expected to add as much as $1.5 trillion to the federal debt load, while the budget agreement would increase government spending by almost $300 billion over the next two years.”

A surplus of Treasury bonds, in tandem with decreased demand as the Federal Reserve reduces the holdings it accumulated during quantitative easing (an unconventional monetary policy in which a central bank purchases government securities in order to lower interest rates, increase the money supply, and stimulate the economy), could push Treasury rates higher. In addition, MarketWatch reported the Federal Reserve appears to be committed to gradually increasing the Fed funds rate to avoid an overheating economy and keep inflation down.

Higher interest rates may be coming.

Data as of 2/23/18	1-Week	Y-T-D	1-Year	3-Year	5-Year	10-Year
Standard & Poor’s 500 (Domestic Stocks)	0.6%	2.8%	16.3%	9.2%	13.1%	6.3%
Dow Jones Global ex-U.S.	0.1	1.6	19.3	4.9	4.6	0.7
10-year Treasury Note (Yield Only)	2.9	NA	2.4	2.1	1.9	3.9
Gold (per ounce)	-1.8	2.4	6.4	3.3	-3.5	3.5
Bloomberg Commodity Index	0.6	0.6	1.5	-4.5	-8.4	-8.2
DJ Equity All REIT Total Return Index	-0.3	-8.0	-3.6	2.2	7.4	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.

Olympic athletes have to pay the bills, too. Not every American Olympian and Paralympian is a household name. Money.com reported, “These athletes don’t have the same kind of lucrative sponsorship deals as Olympic standouts like snowboarder Shaun White or alpine skiing star Lindsey Vonn – so they have to make ends meet, which can often mean squeezing in extra shifts during the off season, heading to the gym early in the morning before work and moving from a full-time position to a part-time one with no replacement for those lost wages.”

So, how do lesser-known athletes pay the bills while training?

Sled hockey player Josh Pauls is a sales account executive. His teammate Steve Cash is a personal banker.
Pairs figure skater Chris Knierim works as an auto mechanic and wants to have his own auto shop someday.
Biathlon competitor Lowell Bailey is a singer and songwriter who plays in bluegrass bands.
Curling team member Nina Roth is a registered nurse. Her teammate Tabitha Peterson is a pharmacist.
Snowboarder Jonathan Cheever is a licensed plumber.
Luger Emily Sweeney is a member of the National Guard, and so is bobsledder Nick Cunningham.
Short track speed skater Jessica Kooreman has a real estate license.
Luger Justin Krewson is a firefighter.
Snowboarder Mike Schultz designs and engineers prosthetics.
Nordic skier Kendall Gretsch works in tech support.

There is a lot to admire about Olympic and Paralympic athletes.

Weekly Focus – Think About It
“There are only three ways to meet the unpaid bills of a nation. The first is taxation. The second is repudiation. The third is inflation.”
–Herbert Hoover, 31^st President of the United States

Best regards,

John F. Reutemann, Jr., CLU, CFP®

P.S. Please feel free to forward this commentary to family, friends, or colleagues. If you would like us to add them to the list, please reply to this email with their email address and we will ask for their permission to be added.

Investment advice offered through Research Financial Strategies, a registered investment advisor.

* This newsletter and commentary expressed should not be construed as investment advice.

* 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.

* All indexes referenced are unmanaged. 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.

* Stock investing involves risk including loss of principal.

* Consult your financial professional before making any investment decision.

Sources:

https://www.barrons.com/articles/treasuries-undergo-a-glut-check-1519438243 (or go to https://s3-us-west-2.amazonaws.com/peakcontent/+Peak+Commentary/02-26-18_Barrons-Treasuries_Undergo_a_Glut_Check-Footnote_1.pdf)

https://www.treasurydirect.gov/instit/auctfund/work/work.htm

http://www.morningstar.com/cover/Classroom.html (Click on Bond Curriculum, Buying Bonds, Things to Consider When Buying Bonds) (or go to https://s3-us-west-2.amazonaws.com/peakcontent/+Peak+Commentary/02-26-18_Morningstar-Things_to_Consider_When_Buying_Bonds-Footnote_3.pdf)

https://www.investopedia.com/university/economics/economics3.asp

https://www.reuters.com/article/us-usa-auctions/jittery-u-s-bond-market-braces-for-supply-wave-idUSKCN1G20UH

https://www.marketwatch.com/story/fed-minutes-stronger-outlook-increases-the-chance-of-more-rate-hikes-2018-02-21

http://time.com/money/5116734/winter-olympic-athletes-with-jobs/

http://teamusa.usahockey.com/news_article/show/843629

https://www.aol.com/article/finance/2018/02/12/12-day-jobs-of-the-winter-olympics-athletes/23359714/#slide=7241016#fullscreen (or go to https://s3-us-west-2.amazonaws.com/peakcontent/+Peak+Commentary/02-26-18_AOL-Day_Jobs_of_the_Winter_Olympics_Athletes-Footnote_9.pdf)

https://www.engadget.com/2018/02/05/us-paralympian-designed-team-usa-snowboard-prosthetics/

https://www.teamusa.org/News/2018/January/19/Kendall-Gretsch-Is-On-Her-Way-To-Being-The-Next-Two-Sport-Paralympic-Star

https://www.brainyquote.com/quotes/herbert_hoover_753183

Weekly Market Commentary – February 19, 2018

by Jack Reutemann | Feb 23, 2018 | Weekly Stock Market Commentary

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.

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,
John F. Reutemann, Jr., CLU, CFP®

P.S. Please feel free to forward this commentary to family, friends, or colleagues. If you would like us to add them to the list, please reply to this email with their email address and we will ask for their permission to be added.

Investment advice offered through Research Financial Strategies, a registered investment advisor.

* These views and commentary expressed should not be construed as investment advice.
* This newsletter was prepared by Carson Group Coaching. Carson Group Coaching is not affiliated 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.
* All indexes referenced are unmanaged. 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.
* Stock investing involves risk including loss of principal.
* Consult your financial professional before making any investment decision.
* To unsubscribe from the Weekly Market Commentary please reply to this e-mail with “Unsubscribe” in the subject line.

Sources:
https://www.cnbc.com/2018/02/14/us-consumer-price-index-jan-2018.html

http://fortune.com/2017/12/28/us-inflation-economists-2017/

https://www.bls.gov/news.release/cpi.nr0.htm

https://www.barrons.com/articles/the-ghost-of-inflation-reappears-1518837372

https://finance.yahoo.com/quote/%5ETNX/history?p=%5ETNX

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)

https://wordplay.blogs.nytimes.com/2013/12/10/whats-taken-home/

https://www.fastcompany.com/section/world-changing-ideas

https://www.fastcompany.com/40528502/this-school-focuses-on-teaching-students-happiness-not-math

http://www.levyinstitute.org/pubs/rpr_2_6.pdf (Pages 6 and 50)

https://www.fastcompany.com/40525347/timberland-is-helping-rebuild-haitis-cotton-industry

https://www.brainyquote.com/quotes/martin_luther_king_jr_402936

Weekly Market Commentary – February 5, 2018

by Jack Reutemann | Feb 5, 2018 | Weekly Stock Market Commentary

It was not a good week for stocks. Last week, stock markets around the world lost value. In the United States, the Standard & Poor’s 500 Index (S&P 500), Dow Jones Industrial Index (Dow), and NASDAQ all finished lower.

Some pundits have been drawing comparisons between the performance of the Dow last Friday and Black Monday, the memorable day in 1987 when the index shed 508 points in a single day.

They may be barking up the wrong tree. Yes, the Dow lost more than 600 points on Friday. That was about 2.5 percent of its value. On Black Monday a lesser drop equated to a 22 percent loss for the Dow. In addition, Black Monday was widely attributed to program trading gone awry. The culprit behind last Friday’s fall is likely to be bonds, according to Barron’s.

Last week, the U.S. Treasury announced it would begin selling more short-term government bonds to fund the rising budget deficit. That sparked concerns about the impact of a bigger bond supply on interest rates. When bond supply exceeds demand, interest rates typically go up to attract investors. The United States already has ample bond supply since the Federal Reserve curtailed its bond buying program. Financial Times reported:

“Equity investing involves a delicate balance of three things: earnings, interest rates and valuation. Over the past decade, low long-term bond yields have played a crucial role in helping elevate equity valuations… ‘You have to consistently show economic and earnings growth to justify these valuations at higher rates,’ says Nicholas Colas, cofounder at DataTrek. ‘People forget how closely tied economic and profit growth is to rising rates – it is a horse race and profit growth has to win – even if just by a little.’”

News about employment and wage gains added fuel to the fire of investor worries. In January, the United States experienced its strongest wage growth since 2009. While that’s good news for workers, it may cause the Fed to raise rates more aggressively in an effort to keep inflation manageable.

Data as of 2/2/18	1-Week	Y-T-D	1-Year	3-Year	5-Year	10-Year
Standard & Poor’s 500 (Domestic Stocks)	-3.9%	3.3%	21.1%	11.0%	13.1%	7.2%
Dow Jones Global ex-U.S.	-2.9	3.9	21.9	7.0	5.0	0.9
10-year Treasury Note (Yield Only)	2.9	NA	2.5	1.7	2.0	3.7
Gold (per ounce)	-1.6	2.7	8.9	1.5	-4.4	4.1
Bloomberg Commodity Index	-1.9	1.1	0.8	-4.2	-9.0	-7.4
DJ Equity All REIT Total Return Index	-2.9	-5.7	2.5	2.7	7.7	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.

What does success mean to you? For some, having a big following on social media translates as success. NASA, which has more followers than any other government organization worldwide (28 million), may be considered successful. Of course, NASA doesn’t hold a candle to Katy Perry, who has close to 106 million followers.

It will surprise few to learn the U.S. Treasury, which manages the money resources of the United States, doesn’t have many followers (770,000); however, it has more than the Federal Reserve (446,000).

It’s almost enough to make you wonder whether Americans care about money. They do, but on a more personal level. A corporate survey, Making It in America, queried Americans about what it means to reach “…a level of success, comfort, and security that you find wholly satisfying.” As you might expect, there were a variety of answers.

One gauge of success is income, according to about two-thirds of the respondents. The group’s average income was $57,426 a year. They would know they’d ‘made it’ when they earned about $147,000 a year. According to CNBC, annual income of $150,000 would put many people in the middle class, depending on where they lived and the size of their households. It’s notable few people aspire to join the ranks of the wealthiest Americans. More than three-fourths said they would not want to earn more than one million dollars a year.

Of course, money is not the only measure of success. A Pew Research study found just 11 percent of those surveyed thought wealth was an essential part of the American dream. Far more important were:

Freedom of choice in how to live (77 percent)
Having a good family life (70 percent)
Retiring comfortably (60 percent)
Contributing to their communities (48 percent)
Owning a home (43 percent)
Having a successful career (43 percent)

One participant said, “Even though I truly believe that having money is freedom, money is really just a tool to make experiences in life possible.”

Weekly Focus – Think About It

“You can’t reach for anything new if your hands are still full of yesterday’s junk.”

–Louise Smith, NASCAR driver

Best regards,

John F. Reutemann, Jr., CLU, CFP®

P.S. Please feel free to forward this commentary to family, friends, or colleagues. If you would like us to add them to the list, please reply to this email with their email address and we will ask for their permission to be added.

Investment advice offered through Research Financial Strategies, a registered investment advisor.

* The views and commentary expressed should not be construed as investment advice.