Schwartz Financial Weekly Commentary 6/4/12

The Markets

It was a weak week in the world’s financial markets and these headlines from The Wall Street Journal, Saturday, June 2, and Sunday, June 3 editions, leave no doubt of that.

·         Grim Job Report Sinks Markets

·         Euro-Zone Reports Deepen Gloom

·         Asia Weakness Heightens Fears of Contagion

·         Brazil Loses Steam as World Slows

·         Dow Tumbles Into Red for the Year

·         Raw Materials in a Free Fall

·         Government-Bond Yields Sink to Record Lows

But, let’s keep something in mind. Headlines like these are designed to do one thing – get you to keep reading. By doing so, the publisher can sell more papers and charge higher rates for advertising. Fair enough.

Unfortunately, there’s an unintended consequence to this type of hyped headline. It has the potential to scare the public into doing the wrong thing at the wrong time for the wrong reason.

The fact is, scary things happen every day, however, that should not derail a well-thought out plan that has checks and balances in place to try and distinguish between short-term noise and long-term secular change.

Our job as a financial advisor is to dig beneath the screaming headlines and get to the crux of what’s happening. With a clearer understanding of the real issues, we can do a better job of discerning how changes in the economy impact the markets, and, ultimately, your goals and objectives. And, with that information in hand, we can make course corrections as needed to help keep you on track.

Data as of 6/1/12	1-Week	Y-T-D	1-Year	3-Year	5-Year	10-Year
Standard & Poor's 500 (Domestic Stocks)	-3.0%	1.6%	-1.7%	10.7%	-3.6%	2.1%
DJ Global ex US (Foreign Stocks)	-2.3	-5.3	-23.5	1.1	-8.2	3.5
10-year Treasury Note (Yield Only)	1.5	N/A	3.0	3.7	5.0	5.0
Gold (per ounce)	2.3	2.0	4.7	17.8	19.2	17.4
DJ-UBS Commodity Index	-4.4	-9.9	-23.1	-0.6	-6.1	2.7
DJ Equity All REIT TR Index	-2.8	5.7	3.3	25.1	-1.0	9.7

Notes: S&P 500, DJ Global ex US, 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.

IN THE CLASSIC MOVIE THE SOUND OF MUSIC, the nuns asked (or rather sang), “How do you solve a problem like Maria?” For the past couple years, the leaders of Europe have been asking, “How do you solve a problem like over-indebtedness?” So far, the debate has been framed as a choice between growth or austerity, according to the BBC. As the biggest member of the euro zone, Germany has been aggressive in acting as the enforcer of the austerity route for its weaker sister countries. Greece, for example, had to agree to major austerity measures in return for bailout money. The result? The economy hasn’t improved and the people are revolting.

Countries in favor of austerity believe spending cuts and general belt tightening are the ticket to lower budget deficits. The growth camp favors more government spending on things like infrastructure and energy technology as a way to create more jobs and help a country grow its way out of its debt problem.

Recently, with the election of Francois Hollande in France, and the popular support of Alexis Tsipras in Greece ahead of the upcoming Greek election, the support for austerity is starting to fade and is being replaced by a growth agenda, according to BusinessWeek. Germany, however, remains firmly in the austerity camp.

But, here’s a question, “Can we have austerity and growth?”

As complicated as our world is, the debate between austerity and growth might be a false choice so says Christine Lagarde, head of the International Monetary Fund, according to the BBC. She and others argue that given the precarious state of some countries, a two-pronged approach might be needed. First, spend more in the short-term to stabilize the economy, then gradually tighten the belt down the road when the economy is better able to handle it.

In theory, that sounds like a less painful way to solve the deficit conundrum. In reality, it may not be that easy.

For years, countries such as Greece and, yes, even the U.S., have lived on borrowed money and borrowed time. It appears the bill for this “living beyond your means” spending is coming due sooner rather than later as evidenced by the continuing economic stagnation in many countries.

While one can hope the politicians and economists will come up with a plan to steady the ship, we can’t bank on it. We have a responsibility to you, as our client, to help you meet your objectives regardless of what happens in Washington or Athens or Berlin. And, we take the responsibility very seriously. 

Weekly Focus – Think About It…

“When asked in surveys, most Americans believe that spending money on personal desires brings greater satisfaction than giving it away. But, when participants actually were given the chance to do that, to spend $20 on themselves or give it away, it was the act of generosity that led to greater happiness. To care is good.”

--Dacher Keltner, professor of psychology at the University of California-Berkeley, commencement address at UC-Berkeley on May 14, 2012

Value vs. Growth Investing (6/1/12)

Name	1-Week	YTD	4-Week	13-Week	1-Year	3-Year	5-Year
US Market	-3.15	2.56	-9.07	-6.93	-1.61	13.52	-1.06
Large Cap	-2.81	2.99	-8.61	-6.05	0.60	12.51	-1.34
Large Core	-2.80	2.92	-8.33	-5.69	1.40	12.06	0.15
Large Growth	-3.00	7.20	-8.95	-5.84	5.31	15.10	1.09
Large Value	-2.62	-0.76	-8.60	-6.68	-4.98	10.49	-5.45
Mid Cap	-4.16	1.57	-10.54	-9.42	-7.25	15.97	-0.71
Mid Core	-4.12	2.79	-9.86	-8.23	-3.12	17.79	0.25
Mid Growth	-4.87	1.68	-11.82	-11.16	-9.87	15.56	0.08
Mid Value	-3.51	0.25	-9.99	-8.95	-8.85	14.40	-2.78
Small Cap	-3.87	0.77	-9.77	-8.98	-7.89	16.17	-0.06
Small Core	-3.97	1.02	-10.20	-9.40	-10.01	14.86	-1.30
Small Growth	-4.36	0.07	-10.39	-9.86	-8.66	15.62	0.43
Small Value	-3.30	1.16	-8.73	-7.72	-4.89	17.96	0.38
US Core	-3.13	2.77	-8.74	-6.42	-0.27	13.49	0.23
US Growth	-3.47	5.57	-9.62	-7.21	1.08	15.32	0.90
US Value	-2.85	-0.41	-8.89	-7.22	-5.78	11.76	-4.49

©2004 Morningstar, Inc. All Rights Reserved. The information contained herein: (1) is proprietary to Morningstar; (2) is not warranted to be accurate, complete or timely. Morningstar is not responsible for any damages or losses arising from any use of this information and has not granted its consent to be considered or deemed an “expert” under the Securities Act of 1933. Past performance is no guarantee of future results.  Indices are unmanaged and while these indices can be invested in directly, this is neither a recommendation nor an offer to purchase.  This can only be done by prospectus and should be on the recommendation of a licensed professional.

Office Notes:

Help Protect Your Assets

Lawsuits have become increasingly common in our society. From 1951 through 2009, the cost of torts (civil suits) rose at more than double the annual rate of general inflation and even surpassed the annual increase in medical expenses (see chart).

In this litigious environment, it is especially important to protect your assets and your future income. If you entertain often, have a dog or a swimming pool, or employ workers in your home, you may have additional exposure to a potential civil suit.

Standard homeowners and automobile insurance policies generally offer coverage in the event of a personal liability lawsuit. However, the policy limits may not be high enough to pay a substantial jury award. If you would like extra coverage at a relatively low cost, you might consider an umbrella insurance policy.

Typically, you can obtain $1 million in coverage for a few hundred dollars a year. However, you must usually purchase the maximum liability coverage on your homeowners and automobile policies; they serve as a deductible for the umbrella policy, which can provide additional coverage (up to the policy limits). Umbrella policies may also cover situations that are not included in standard policies, such as libel, slander, invasion of privacy, defamation of character, and other personal injuries.

Although umbrella policies have long been a staple for wealthy households, many middle-income households have substantial home equity, retirement savings, and current and future income that could be used to satisfy a large judgment. Qualified retirement plan assets may have some protection from creditors under federal and/or state law (depending on the type of plan and jurisdiction), but even if your retirement savings may be protected, you would still be liable for any judgments.

You’ve worked hard to establish a solid financial base. In a world where it sometimes seems to be raining lawsuits, it might be wise to carry an umbrella.

Best regards,     

Michael L. Schwartz, RFC®, CWS®, CFS

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. 

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This information is provided for informational purposes only and is not a solicitation or recommendation that any particular investor should purchase or sell any security. The information contained herein is obtained from sources believed to be reliable but its accuracy or completeness is not guaranteed.  Any opinions expressed herein are subject to change without notice.  An Index is a composite of securities that provides a performance benchmark.  Returns are presented for illustrative purposes only and are not intended to project the performance of any specific investment.  Indexes are unmanaged, do not incur management fees, costs and expenses and cannot be invested in directly.  Past performance is not a guarantee of future results.

* The Standard & Poor's 500 (S&P 500) is an unmanaged group of securities considered to be representative of the stock market in general.

* The DJ Global ex US is an unmanaged group of non-U.S. securities designed to reflect the performance of the global equity securities that have readily available prices. 

* 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 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.

* Past performance does not guarantee future results.

* You cannot invest directly in an index.

* Consult your financial professional before making any investment decision.

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