Monday, March 2, 2015

Schwartz Financial Weekly Commentary (3/2/15)


Schwartz Financial Weekly Commentary

March 2, 2015

 

The Markets

 

“Well, I never heard it before,” said the Mock Turtle; “but it sounds uncommon nonsense.”

 

It was an Alice in Wonderland week. European countries, companies, and entrepreneurs were getting paid to borrow money, and ordinary Joes with money in some European banks got letters saying the banks would be charging to hold their money. The New York Times reported:

 

“The most profound changes are taking place in Europe’s bond market which has been turned into something of a charity, at least for certain borrowers. The latest example came on Wednesday when Germany issued a five-year bond worth nearly $4 billion with a negative interest rate. Investors were essentially agreeing to be paid back slightly less money than they lent.

 

Bonds issued by Switzerland, the Netherlands, France, Belgium, Finland, and even fiscally challenged Italy also have negative yields. Right now, roughly $1.75 trillion in bonds issued by countries in the eurozone are trading with negative yields which are equivalent to more than a quarter of the total government bonds…”

 

At the end of February, many European stock markets were showing high single-digit to low double-digit gains for the year.

 

Meanwhile, back in the United States, the background report that supported Fed Chair Janet Yellen’s semi-annual testimony before Congress highlighted the effects of the Fed’s EAT ME cake – also known as quantitative easing – which left its balance sheet at about $4.5 trillion (up from about $1 trillion in 2008). Barron’s speculated the effect of an unexpected rise in interest rates could negatively affect the Fed’s bond holdings with maturities greater than 10-years. “If long-term rates do rise faster than anyone now anticipates, the Fed may run into difficulties of navigation that could prove a tad destabilizing to the economy.”

 


Data as of 2/27/15
1-Week
Y-T-D
1-Year
3-Year
5-Year
10-Year
Standard & Poor's 500 (Domestic Stocks)
-0.3%
2.2%
13.5%
15.5%
13.5%
5.8%
10-year Treasury Note (Yield Only)
2.0
NA
2.6
1.9
3.6
4.4
Gold (per ounce)
0.5
1.2
-8.9
-11.8
1.7
10.8
Bloomberg Commodity Index
0.7
-0.9
-22.4
-11.5
-4.9
-4.1
DJ Equity All REIT Total Return Index
-1.2
2.9
22.8
15.0
17.2
9.2

S&P 500, 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.

 

A manufacturing renaissance in america... really? In the 1950s, manufacturing accounted for 30 percent of America’s gross domestic product (GDP), which is the value of all goods and services produced in the United States. Today, it comprises about 12 percent of GDP. That’s a big change and it was accompanied by a big shift in employment. In its heyday, manufacturing companies employed about 20 million people in America. Today, that number has fallen to about 12 million.

 

For decades, companies moved production facilities away from the United States to countries like China which offered lower manufacturing costs. Now, the trend is beginning to reverse. Lower energy prices and rising wages in emerging countries have companies moving manufacturing back to the United States. However, they’re running into a stumbling block – a shortage of skilled labor. A BBC report asked:

 

“…will Americans really contemplate going back to work on the factory floor? The companies all worried about a shortage of skilled workers. So, I went to meet students from the University of Tennessee. They told me they didn't see their future in manufacturing. Some wanted to finance those plants while others said that they weren't good enough at mathematics to work in advanced industries.”

 

The 2015 Manufacturing Institute and Deloitte Skills Gap study confirmed the shortage of skilled manufacturing labor here in the United States and reported little is expected to change during the next decade. Through 2025, close to 3.5 million manufacturing jobs are likely to open but just 1.4 million will be filled because there are not enough workers with the right skill sets. The study found:

 

·         60 percent of available skilled production positions remain open

·         80 percent of manufacturing companies are willing to pay more than the going rates to attract skilled workers

·         82 percent of executives believe the skilled labor shortage will affect their ability to meet customers’ needs

 

The Economist was skeptical about a renaissance in U.S. manufacturing. It reported for the industry to flourish, America needs investment in research and development, improved schools and colleges, and changes to the tax system.

 

Weekly Focus – Think About It

 

“Learn from yesterday, live for today, hope for tomorrow. The important thing is not to stop questioning.”

--Albert Einstein, Theoretical physicist

Value vs. Growth Investing (2/27/15)

-0.27
2.89
5.77
2.76
14.47
17.97
16.43
-0.25
2.54
5.75
2.16
15.54
17.79
15.93
-0.06
0.87
5.30
0.74
17.35
19.80
16.90
-0.18
6.18
6.63
4.95
18.58
18.85
17.53
-0.53
0.39
5.23
0.61
10.61
14.78
13.39
-0.45
4.08
5.78
4.34
12.72
18.79
17.91
-0.71
3.89
5.70
4.36
15.39
19.29
19.22
-0.07
6.11
6.87
5.43
11.30
16.88
17.44
-0.57
2.20
4.73
3.22
11.71
20.23
17.03
-0.04
3.07
5.96
4.70
8.12
17.18
16.87
-0.03
2.76
5.65
4.02
8.75
16.82
16.23
0.00
5.31
7.10
7.11
6.04
16.81
17.83
-0.09
1.27
5.18
3.09
9.48
17.91
16.55
-0.20
1.61
5.41
1.69
16.36
19.50
17.37
-0.15
6.11
6.70
5.18
16.25
18.31
17.60
-0.50
0.83
5.12
1.32
10.78
16.10
14.35

 

 ©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 Happenings

 

How to Protect Yourself—and Your Money—From Hackers

Do you remember these headlines?

40 Million Target® Customers Affected by Data Breach1

Michaels® Breach Exposed Nearly 3 Million Cards2

Home Depot® Breach Hit 56 Million Credit and Debit Cards3

Staples® Hack Exposes 1.2 Million Credit Cards4

It seems that we have become more vulnerable than ever to hackers able to steal millions of debit and credit card numbers and other information quite easily.  In fact, a Homeland Security advisory issued on August 22, 2014 estimated that over 1,000 businesses have been affected by cyber attacks similar to the one that hit Target in 2013.5

27% of Americans say they or another household member have had information from a credit card stolen by hackers.  Fortunately, there are ways to protect yourself from joining that number. 

What can you do to protect yourself?

I have put together several suggestions you can implement that will dramatically reduce the risk of a bankcard breach affecting you.  Of course, it’s impossible to protect yourself against every scenario; however, you can reduce the risk of being affected by taking several precautions. 

1.  Choose a different way to pay. – Many merchants accept alternative ways to pay for goods and services, including Google® Wallet, Apple Pay®, or PayPal®.  These services provide an extra layer of protection because they keep your credit card information stored but do not actually provide it to retailers when you pay.   “Any technology that avoids you having your credit card in your hand in a store is safer,” states Craig Young, a security researcher for Tripwire®.

2.  Don’t use your bank cards online unless the site is secure and reputable. – Make sure you are purchasing from a reputable company and website.  Don’t trust a site just because it claims to be secure.  Use credit cards so you can dispute the charges if something goes wrong.  You can still be reimbursed for fraud on a debit card but the process often takes longer and your money is already gone.

3.  Avoid being skimmed. – Skimming occurs when thieves place an electronic device on an ATM or other card reader to gather bank card information.  The specific device used is often a realistic-looking card reader placed over the factory-installed card reader.  To avoid being skimmed you should examine the card reader for suspicious, loose or damaged equipment, avoid using your PIN number at the gas station (see #4 below), and use ATMs at an inside location.

4.  Protect your PIN number. – Your PIN is tied to your debit card.  When using your debit card simply ask the cashier to run the transaction as a credit or select credit on the PIN pad.  If you don’t enter your PIN it reduces the chances that a hacker can steal that information as well.

5.  Delete your saved payment methods from online shopping sites. – You will have to reenter your billing information each time you make a purchase, but it will protect your payment information if your account is breached or someone gains access to your login.

6.  Review statements and credit reports regularly. – Look for unauthorized charges or small amounts appearing on statements.  Check your credit report regularly.  Federal law allows you to get a free credit report every 12 months to review.  Make sure all information is correct.

In 2015, there is a major change in card technology coming to the U.S. that has been used in Europe for years.  This is the shift to EMV chip technology.  EMV, which stands for “Europay, MasterCard®, and Visa®,” is a global standard for credit cards equipped with computer chips and the related technology used to accept and authenticate chip-card transactions.  EMV technology will not stop hackers, but it will make the information they steal more difficult to use.

Although the implementation date for EMV card technology is October 20156 there may be many merchants that will not comply by that date.  It’s a surety that we will need to continue doing all we can to protect our personal information and finances.  The ongoing battle between the good guys and the bad guys will continue.

This information is designed to help protect the good guys.  I encourage you to protect yourself and your money by implementing the suggestions above.  However, as always, if you have any questions please feel free to give me a call.

Sources:

1 Kelly Clay, “40 Million Target Customers Affected By Data Breach,” Forbes.com, December 18, 2013

2  Bill Hardekopf, “Michaels Breach Exposed Nearly 3 Million Cards,” LowCards.com, April 18, 2014

3  Bill Hardekopf, “Home Depot Breach Hit 56 Million Credit and Debit Cards,” LowCards.com, September 19, 2014

4  Jose Pagliery, “Staples Hack Exposes 1.2 Million Credit Cards,” CNN.com, December 20, 2014

5 Alert (TA14-212A), “Backoff Point-of-Sale Malware,” us-cert.gov, July 31, 2014, revised August 27, 2014

6 Jeff Carelli, “Will Retailers be Ready for EMV by Oct 2015?,” paymentsleader.com, October 16, 2014

Joseph Pisani, “5 ways to protect yourself from data breaches,” USAToday.com, September 21, 2014

Kim Zetter, “How to Protect Yourself From Big Bank-Card Hacks,” Wired.com, September 10, 2014

 

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. 

 

Michael L. Schwartz, RFC, CWS, CFS, a registered principal offering securities and advisory services through Independent Financial Group, LLC., a registered broker-dealer and investment advisor.  Member FINRA-SIPC. Schwartz Financial and Independent Financial Group are unaffiliated entities.

 

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.

 

* To unsubscribe from our “market commentary” please reply to this e-mail with    “Unsubscribe” in the subject line, or write us at “mike@schwartzfinancial.com”.