Schwartz Financial Weekly Commentary 12/191//

The Markets

If it feels like the stock market has been volatile this year, you’re right. Here are a few examples:

·         Three-month historic volatility for the “fear” gauge known as the VIX hit a record on  October 31, surpassing the prior peak from December 2008.

·         Intraday swings in the Dow Jones Industrial Average have averaged 261 points since    August 1, an exceptionally large number.

·         On four consecutive days back in August, the Dow Jones Industrial Average alternated between gains and losses of more than 400 points, the longest streak ever.

Source: Bloomberg

All this volatility and the lack of a clear, sustained direction in the market have frustrated many investors.

Even hedge fund managers are struggling. Overall, they’ve declined an average of 4.4 percent this year through November, according to Hedge Fund Research. As Mustafa Jama, chief investment officer at Morgan Stanley Alternative Investment Partners recently said to Bloomberg, “What we’re seeing now is a sustained period of high volatility that’s proving very challenging for a lot of hedge fund managers.”

The problems in Europe and the budget wrangling in the U.S. have kept investors in a risk-on, risk-off mode throughout much of this year. As a result, many stocks have traded in herd-like fashion without much regard to individual company fundamentals, according to investment manager Duke Buchan, III.

At times like this, it’s important to have patience and as Warren Buffett says, wait for that “fat pitch.”

Data as of 12/16/11	1-Week	Y-T-D	1-Year	3-Year	5-Year	10-Year
Standard & Poor's 500 (Domestic Stocks)	-2.8%	-3.0%	-2.0%	10.1%	-3.0%	0.7%
DJ Global ex US (Foreign Stocks)	-3.9	-18.8	-16.7	8.3	-5.5	4.3
10-year Treasury Note (Yield Only)	1.9	N/A	3.5	2.4	4.6	5.3
Gold (per ounce)	-6.7	13.0	16.9	23.9	21.0	19.1
DJ-UBS Commodity Index	-4.2	-15.6	-10.8	6.4	-3.8	4.4
DJ Equity All REIT TR Index	0.2	3.6	9.2	19.6	-2.0	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.

WHAT IS THE PRICE OF ECONOMIC GROWTH in China and how does it affect us in the U.S.? Ever since 1978 when Chinese leader Deng Xiaoping laid out a vision of economic reform, China has been on a growth spurt of massive proportion. However, that growth comes with a huge price in the form of limited freedom. Last week, Chinese leaders clamped down again on freedom of speech in an effort to control the spread of social unrest.

In China, the government blocks access to the microblog service “Twitter” and, instead, a Chinese version called “Weibo” has become popular. In total, more than 300 million Chinese people use microblogs, with Weibo the most popular, according to Bloomberg.

Regarding last week’s clampdown, Chinese officials announced that users of Weibo in Beijing will have to register their real names and be verified by government authorities before posting on the service. In addition, users are banned from posting anything that could lead to disrupting the social order, according to The Wall Street Journal.

This isn’t the first government crackdown on freedom of speech. Earlier in the year, the government blocked citizens’ access to searches on the “Arab Spring” that was rumbling through the Middle East. Prior to that, the government blocked access to Facebook, YouTube, and Google.

What’s the government’s problem with freedom of speech?

As the “Arab Spring” uprising in the Middle East demonstrated, social media can enable millions of people to communicate and mobilize in short order. China seems to be very afraid of letting its citizens have this capability for fear that a popular uprising could lead to chaos in a sprawling country of 1.3 billion people.

With China still a major growth engine for the world economy, we have to pay close attention to any social trends affecting the country. If the government clamps down too hard and its citizens rise up, it could quickly morph from a social/political movement to one that has major worldwide economic implications. On top of that, China is gearing up for a once in a decade leadership change in 2012 and, given the country’s history, a smooth transition is not guaranteed.

When investing money, you have to consider possible “black swan” events that have a low probability of occurring, but, if they do occur, could wreak havoc. A Chinese uprising could be one of those and we want you to know that it’s on our radar.

Weekly Focus – Think About It

“If the freedom of speech is taken away then dumb and silent we may be led, like sheep to the slaughter.” --George Washington, U.S. President

Value vs. Growth Investing (12/16/11)

Name	1-Week	YTD	4-Week	13-Week	1-Year	3-Year	5-Year
US Market	-2.86	-1.51	-1.41	0.57	-0.27	13.77	-0.41
Large Cap	-2.72	-0.55	-1.08	1.01	0.72	11.67	-0.95
Large Core	-2.37	0.40	-0.09	2.49	1.73	11.20	0.48
Large Growth	-3.60	-0.97	-3.68	-1.91	-0.14	16.69	0.75
Large Value	-2.16	-1.65	0.67	2.49	-0.05	7.29	-4.37
Mid Cap	-3.25	-3.72	-2.57	-1.18	-2.53	19.19	0.71
Mid Core	-2.73	-1.21	-1.76	1.25	0.57	20.70	1.47
Mid Growth	-4.80	-4.35	-5.20	-4.94	-4.34	20.50	1.78
Mid Value	-2.23	-5.79	-0.66	0.17	-4.00	16.24	-1.42
Small Cap	-3.24	-5.48	-1.67	0.85	-4.44	20.01	1.05
Small Core	-3.04	-7.92	-2.06	-1.05	-6.90	19.38	-0.28
Small Growth	-4.38	-3.21	-2.44	0.33	-2.91	20.55	2.15
Small Value	-2.26	-5.13	-0.45	3.49	-3.38	20.02	0.99
US Core	-2.48	-0.43	-0.52	2.03	0.97	13.65	0.78
US Growth	-3.89	-1.67	-3.89	-2.36	-1.05	17.81	1.13
US Value	-2.18	-2.77	0.31	2.08	-1.12	9.91	-3.38

©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:

Seasons Greetings

Once again it is that time of year where the executive committee and staff at Schwartz Financial wants to send you our Season's Greeting, but as usual after our attorneys get hold of it, this is all we are allowed to say...

Please accept with no obligation, implied or implicit, my best wishes for an environmentally conscious, socially responsible, low stress, non-addictive, gender neutral, celebration of the winter solstice holiday, practiced within the most enjoyable traditions of the religious persuasion of your choice or secular practices of your choice, with respect for the religious/secular persuasions and/or traditions of other, or their choice not to practice religious or secular traditions at all.  I also wish you a fiscally successful, personally fulfilling and medically uncomplicated recognition of the onset of the generally accepted calendar year 2012, but not without due respect for the calendars of choice of the other cultures whose contributions to society have helped make America great (not to imply that America is necessarily greater than any other country or is the only "America" in the western hemisphere), and without regard to the race, creed, color, age, physical ability, religious faith, or sexual preference of the wishee.

By accepting this greeting, you are accepting these terms:  This greeting is subject to clarification or withdrawal.  It is freely transferable with no alterations to the original greeting.  It implies no promise by the wisher to actually implement any of the wishes for her/himself or others, and is void where prohibited by law, and is revocable at the sole discretion of the wisher.  This wish is warranted to perform as expected within the usual application of good tidings for a period of one year, or until the issuance of a subsequent holiday greeting, whichever comes first, and warranty is limited to replacement of this wish or issuance of a new wish at the sole discretion of the wisher.

Ah Heck!................Please celebrate your holiday or holidays of choice and have a SUPER Holiday Season!

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.

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