Schwartz Financial Weekly Commentary 3/25/13

The Markets

Like a not-quite-dead villain in a horror film, the Eurozone crisis raised its ugly head again last week, scaring investors and causing many stock markets to close flat or slightly down for the week, according to Barron’s. Investors’ worries strengthened demand for Treasuries, pushing the yield on the benchmark 10-year bond lower.

 

The hero of last week’s drama might have been the United States which delivered a plethora of stronger economic data that included a steady decline in unemployment claims, an increase in factory activity, and a rise in existing home sales. The positive news suggested that the U.S. economy was gaining momentum. In addition, Federal Reserve Chairman Ben Bernanke reiterated the Fed’s commitment to accommodative monetary policy. He set the expectation short-term interest rates will stay at exceptionally low levels until unemployment falls to 6.5 percent. Some believe that could happen in 2015.

 

Signs of strength in the U.S. economy were overwhelmed by another crisis in the Eurozone. This time the issue was Cyprus, an island nation that accounts for a tiny portion of the Eurozone’s economic production. Cyprus has relatively robust growth and boasts a small budget deficit, so why did it ask for a bailout? According to The Economist, the issue is the country’s banks are bigger than its domestic economy. Since a bank deposit guarantee is only as good as the country providing it, Cyprus needed assistance. Cyprus is a microcosm of the Eurozone which has about “€8 trillion of deposits and only €4.5 trillion of annual government revenues,” according to BCA Research cited in The Economist.

 

Eurozone leaders responded to the Cypriot bailout request by suggesting the country impose a tax on bank deposits. The Cypriot parliament rejected the suggestion and the European Central Bank responded with an ultimatum: accept a bailout by Monday or else. The government’s decision will affect Cyprus’ largest banks and, possibly, the country’s participation in the Euro.

 

All eyes will be on Cyprus on March 25.

              

Data as of 3/22/13	1-Week	Y-T-D	1-Year	3-Year	5-Year	10-Year
Standard & Poor's 500 (Domestic Stocks)	-0.2%	9.2%	11.8%	10.1%	2.3%	6.1%
10-year Treasury Note (Yield Only)	1.9	N/A	2.3	3.7	3.5	4.0
Gold (per ounce)	0.8	-5.1	-1.7	13.6	11.6	17.2
DJ-UBS Commodity Index	-0.3	-0.8	-3.5	1.5	-7.1	2.1
DJ Equity All REIT TR Index	-0.3	6.4	17.9	16.3	5.9	12.4

Notes: S&P 500, 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.

 

you may hate filing taxes, but identity thieves don’t. That’s probably because they expect to get refunds. The Internal Revenue Service (IRS) reports tax refund identity fraud is a rapidly growing crime. During fiscal year (FY) 2011 (which started October 2010), 276 investigations were initiated. For FY2012, that number had increased to 898. During just the first three months of FY2013, 542 investigations have been opened.

 

How does it work? According to the IRS, identity thieves use stolen personal information to file fake tax returns and collect undeserved refunds. In one case, a criminal filed false returns in the names of deceased taxpayers. In another, criminals broke into a tax preparation office, stole files containing personal information, and filed tax returns claiming fraudulent refunds.

 

The IRS reports it is taking steps to protect taxpayers. They suggest taxpayers take basic steps to protect themselves, as well:

 

• Don’t carry your Social Security card with you
• Don’t give your Social Security number or Individual Taxpayer Identification Number  to businesses (verbally or in writing) unless it is required
• Check your credit report at least once each year
• Protect your personal computers with firewalls, anti-virus software, and updated security patches
• Choose hard-to-break passwords and change them frequently
• Don’t provide personal information to anyone unless you know them well and understand how they plan to use it

Source: Internal Revenue Service

 

If you have aging parents, it’s important to discuss identity theft and encourage them to take necessary precautions. Developing good habits – such always keeping your personal identification numbers and financial documents in a secure place – can go a long way toward keeping personal information safe. 

 

Weekly Focus – Think About It

 

“When you are courting a nice girl, an hour seems like a second. When you sit on a red-hot cinder, a second seems like an hour. That's relativity.”

--Albert Einstein, theoretical physicist

Value vs. Growth Investing (3/22/13)

Name	1-Week	YTD	4-Week	13-Week	1-Year	3-Year	5-Year
US Market	-0.27	10.05	3.01	9.84	14.66	12.87	6.26
Large Cap	-0.15	9.35	2.86	9.09	13.93	12.30	5.24
Large Core	0.07	11.68	3.30	11.02	18.24	13.50	6.45
Large Growth	-0.11	6.45	2.27	6.43	7.75	11.99	6.59
Large Value	-0.40	10.31	3.05	10.15	16.42	11.51	2.55
Mid Cap	-0.56	11.76	3.34	11.65	16.24	14.34	8.49
Mid Core	-0.33	11.92	3.36	11.80	17.51	16.38	9.73
Mid Growth	-0.88	9.42	2.30	9.28	10.77	13.65	7.25
Mid Value	-0.46	14.06	4.37	13.98	20.71	12.92	8.33
Small Cap	-0.61	12.35	3.62	12.47	17.70	14.02	9.87
Small Core	-0.61	12.33	3.85	12.76	17.33	13.31	9.04
Small Growth	-0.93	10.78	2.98	11.06	14.09	14.60	9.57
Small Value	-0.32	13.87	3.97	13.49	21.72	14.08	10.87
US Core	-0.06	11.78	3.36	11.32	18.10	14.15	7.40
US Growth	-0.32	7.30	2.32	7.28	8.72	12.58	6.98
US Value	-0.41	11.30	3.38	11.14	17.62	11.97	4.27

©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:

Barrel Of Bricks

 

Long-term care is one of those unexpected expenses everyone should plan for but few people actually do.

Consider this humorous accident report from someone who should have considered long-term care sooner.

I am writing in response to your request for additional information on my accident report.  In block number three of the accident reporting form I wrote, “Trying to do the job alone,” as the cause of my accident.  You said in your letter that I should explain more fully and I trust the following details will be sufficient.

I am a bricklayer by trade.  On the day of the accident I was working alone on the roof of a new six-story building.  When I completed my work I discovered that I had about 500 pounds of brick left over.  Rather than carry the bricks down by hand, I decided to lower them in a barrel by using a pulley, which fortunately was attached to the side of the building at the sixth floor.

Securing the rope at ground level, I went up to the roof, swung the barrel out, and loaded the bricks into it.  Then I went back to the ground level and untied the rope, holding tightly to it to ensure a slow decent of the 500 pounds of brick.  You will note in block eleven of the accident report that I weigh 135 pounds.

Due to my surprise at being jerked off the ground so suddenly, I lost my presence of mind and forgot to let go of the rope.  Needless to say, I proceeded at a rather rapid rate up the side of the building.

In the vicinity of the third floor I met the barrel coming down.  This explains the fractured skull and broken collarbone.

Slowing down slightly, I continued my rapid ascent, not stopping until the fingers of my right hand were two knuckles deep into the pulley.  Fortunately, by this time I had regained my presence of mind and was able to hold tightly to the rope in spite of my pain.

At approximately the same time, however, the barrel of bricks hit the ground and the bottom fell out of the barrel.  Devoid of the weight of the bricks, the barrel now weighed approximately 50 pounds.  I refer you again to my weight in block eleven.  As you might imagine, I began a rapid decent down the side of the building.  In the vicinity of the third floor I met the barrel coming up.  This accounts for the two fractured ankles and the lacerations of my legs and lower body.

The encounter with the barrel slowed me enough to lessen my injuries when I fell onto a pile of bricks and, fortunately, only three vertebrae were cracked.

I am sorry to report, however, that as I lay there on the bricks in pain, unable to stand, and watching the empty barrel six stories above me I again lost my presence of mind.  I let go of the rope.

Moral of this tale:  It doesn’t pay to try to do the job alone.

Maybe you should take a serious look at long-term care now to prepare for the time when you or your loved ones might need it.  I can help you evaluate your options and needs to avoid your “barrel of bricks.”

 

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, offers securities through First Allied Securities, Inc., A Registered Broker/Dealer,  Member FINRA-SIPC.  Advisory Services offered through First Allied Advisory Services, A Registered Investment Advisor.

Schwartz Financial Service is not an affiliate of First Allied Securities, Inc.

 

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.

 

* This newsletter was prepared by Peak Advisor Alliance. Peak Advisor Alliance is not affiliated with the named broker/dealer.

                           

* 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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* Opinions expressed are subject to change without notice and are not intended as investment advice or to predict future performance.

 

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