Schwartz Financial Weekly Commentary
September 12, 2011
The Markets
Are we heading toward a “currency war?”
When there’s turmoil in the stock market or in the geopolitical environment, investors sometimes flee toward perceived “safe havens” in the hope of protecting a portion of their assets. While there’s no guarantee that any investment will be free from risk, the following assets have sometimes been on the receiving end when times get tough:
· U.S. dollar
· Swiss franc
· Japanese yen
· U.S. Treasury securities
· Gold
Sources: Goldline.com , U.S.
For example, Europe ’s debt woes have soured investors on the euro (the European common currency) and pushed investors to the Swiss franc. This flight to the franc has been so strong that in early August, the franc hit a record high against the euro, according to The Wall Street Journal.
Unfortunately for the Swiss, the high value of the franc created countrywide economic problems. The Wall Street Journal said the soaring franc, “pushed some weaker Swiss exporters into bankruptcy, and sent others scrambling to slash prices to hold onto business.” In addition, “Tourists, an important source of income for the Swiss economy, now find it more expensive than ever.” Essentially, the strong franc created domestic havoc.
Well, last week, the Swiss National Bank decided enough was enough. The bank announced that it would cap the value of the soaring franc and, “buy euros in ‘unlimited quantities’ whenever the single currency fell below 1.20 francs,” according to The Wall Street Journal. Within minutes of that announcement, the value of the franc plunged 8 percent against the euro, according to Bloomberg.
Without getting bogged down in the details, this was an extremely bold move by the Swiss and could lead to, “a currency war, in which a growing band of countries seek to lower the values of their currencies to protect their economies,” as reported by The Wall Street Journal.
Dramatic currency intervention like this adds one more wrinkle to the uncertain worldwide economic environment. While we can’t control situations like this, it’s on our radar and we’ll monitor it and adjust for it on your behalf as best we can.
Data as of 9/9/11 | 1-Week | Y-T-D | 1-Year | 3-Year | 5-Year | 10-Year |
| Standard & Poor's 500 (Domestic Stocks) | -1.7% | -8.2% | 4.0% | -2.0% | -2.3% | 0.6% |
| DJ Global ex US (Foreign Stocks) | 2.9 | -11.5 | -0.5 | -1.4 | -1.5 | 5.4 |
| 10-year Treasury Note (Yield Only) | 2.0 | N/A | 2.8 | 3.6 | 4.8 | 4.8 |
| Gold (per ounce) | -1.3 | 31.3 | 47.5 | 33.3 | 25.8 | 21.2 |
| DJ-UBS Commodity Index | -1.2 | -1.1 | 18.9 | -3.0 | -0.3 | 4.7 |
| DJ Equity All REIT TR Index | -0.6 | 0.0 | 8.4 | 0.0 | -0.8 | 9.8 |
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 or not available.
9/11 – 10 YEARS LATER
The past week was filled with remembrances of that tragic day 10 years ago when we lost nearly 3,000 of our loved ones and the country lost its feeling of peace and security. We will never forget the grief, the heroism, and the pulling together of the nation as we all tried to heal in the days and months following that fateful event.
Much has changed since then and, in a way, we all lost some of our innocence and perhaps some of our optimism. But, as Americans, we are a resilient nation. We’ve endured tragedy and war before and we always found the strength and the courage to overcome. The pain of the terrorist attacks is still with us, the images still vivid, the effects still lingering, but persevere we do and prevail we will.
While it pales in comparison to the human toll of 9/11 and its aftermath, the U.S.
· Over the 10 years between September 10, 2001 and September 9, 2011, the S&P 500 index rose only 5.6 percent -- that’s a compound average annual return of only 0.6 percent excluding dividends. Source: Yahoo! Finance
· Over the 10 years between September 10, 2001 and September 9, 2011, the price of one ounce of gold rose 581.8 percent -- that’s a compound average annual return of a whopping 21.2 percent. The rise partly reflects inflation concerns, currency debasement, and a general flight to safety. Source: London
· The U.S.
From the terrorist attacks and their aftermath to the sluggish economy, it’s been a difficult 10 years for our country. And, just like it has taken time to process the 9/11 tragedy, it will take time for our global financial system to deleverage and cleanse itself. As this unwinding continues, there will be setbacks. But, over time, our human spirit will strengthen, our economy will improve, and the world will be a better place.
Weekly Focus – Think About It
“Enjoy the little things, for one day you may look back and realize they were the big things.”
--Robert Brault
Value vs. Growth Investing (9/9/11)
| -1.56 | -7.12 | -1.19 | -10.42 | 7.59 | 0.94 | 0.45 | |
| -1.67 | -6.58 | -1.41 | -9.44 | 6.97 | -0.06 | -0.25 | |
| -2.02 | -7.18 | -1.21 | -9.97 | 5.45 | -1.04 | 0.90 | |
| -0.78 | -4.69 | -0.63 | -5.75 | 13.14 | 3.02 | 2.03 | |
| -2.22 | -8.27 | -2.54 | -12.79 | 2.54 | -2.03 | -3.90 | |
| -1.27 | -7.62 | -0.17 | -12.65 | 9.19 | 3.43 | 2.17 | |
| -1.01 | -7.36 | -0.23 | -12.54 | 10.40 | 3.97 | 2.44 | |
| -1.18 | -4.93 | 0.39 | -11.58 | 14.67 | 4.86 | 4.11 | |
| -1.66 | -10.64 | -0.68 | -13.85 | 2.64 | 1.34 | -0.29 | |
| -1.16 | -11.56 | -1.69 | -14.26 | 8.67 | 2.95 | 1.94 | |
| -1.20 | -11.78 | -1.67 | -14.73 | 8.87 | 2.42 | 1.13 | |
| -1.41 | -9.76 | -1.63 | -13.65 | 13.38 | 3.38 | 2.92 | |
| -0.87 | -13.17 | -1.75 | -14.42 | 3.70 | 2.89 | 1.44 | |
| -1.78 | -7.49 | -1.06 | -10.78 | 6.74 | 0.35 | 1.36 | |
| -0.90 | -4.97 | -0.50 | -7.50 | 13.67 | 3.50 | 2.59 | |
| -2.01 | -9.12 | -2.10 | -13.14 | 2.61 | -1.03 | -2.79 |
©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:
Is Your Spouse In Your Investment Loop?
In an interview on MsMoney.com, Kerry Hannon, author of Suddenly Single: Money Skills for Divorcees and Widows, said she wrote her latest book after seeing loved ones face financial difficulties after becoming widowed or divorced.
“Some didn’t even know where their investments, insurance policies and the like were, or have a grip on their cost of living,” Hannon told MsMoney.com.
Being clueless about the family finances isn’t a gender issue. Plenty of men rely on their wives to pay bills, put money aside for savings and retirement, and keep important documents safely stored.
If you’re the one responsible for the household investing and finances, you need to make sure you are keeping your spouse in the loop. That includes:
- Knowing the names, firms and phone numbers for key advisors including your investment manager, accountant and estate attorney.
- Knowing where key documents, such as insurance policies, copies of your wills and investment account statements, are stored.
- Having an overall idea of your financial situation.
- Knowing where all banking and investment accountants are held.
Even a non-working spouse should have an estate plan that includes cash and investments, real estate and insurance proceeds. If one spouse does not work, the working spouse should have not only life insurance but disability insurance. Life insurance on the non-working spouse can also help offset costs such as childcare that may be needed after her death.
If you have an elderly parent who is widowed or divorced, you may want to have the same discussion (although it may be more difficult than with a spouse.) If a parent plans to leave a sizable estate to a child, it’s important that the heir know where documents have been kept and which key advisors to contact.
If you have trouble figuring out what your spouse does and does not need to know, ask yourself this question: If tomorrow I were killed in an accident, what would my spouse need to know to ensure the family could survive financially?
Best regards,
Michael L. Schwartz, RFC®, CWS®, CFS
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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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