Schwartz Financial Weekly Commentary 5/28/13

  

The Markets

 

Like guests feeling the first rain drops at a Memorial Day barbeque, markets responded uncertainly to Federal Reserve Board Chairman Ben Bernanke’s congressional testimony and the newly released Federal Open Market Committee (FOMC) minutes last week.

 

Generally, both Bernanke’s comments and the FOMC minutes reiterated what the Fed has been saying for some time. According to FOMC minutes, quantitative easing – the Fed’s purchase of $40 billion of mortgage-backed securities and $45 billion of longer-term Treasury securities each month – will continue “until the outlook for the labor market has improved substantially in a context of price stability.” The minutes also suggested the Fed’s other method for stimulating the economy – low interest rates – “will remain appropriate for a considerable time after the asset purchase program ends and the economic recovery strengthens.”

 

Initially, stock market investors responded positively to these messages. On Wednesday morning, both the Dow Jones Industrial Average and the Standard & Poor’s 500 Indices gained more than 1 percent. By afternoon, the indices had lost more than 1 percent each. By week’s end, the indices had experienced their first weekly losses since late April.

 

Uncertainty about the future of quantitative easing affected bond and gold markets, as well. By Friday, the yield on benchmark 10-year U.S. Treasury note had risen above 2 percent, reaching its highest level in two months. Gold prices firmed during the week.

 

Fed policymakers will meet twice before Labor Day – in mid-June and late-July. The minutes of those meetings will be released three weeks after each meeting. If markets respond as they did last week, investors may experience a bumpy ride this summer.

 

Data as of 5/24/13	1-Week	Y-T-D	1-Year	3-Year	5-Year	10-Year
Standard & Poor's 500 (Domestic Stocks)	-1.1%	15.7%	25.0%	15.4%	3.6%	5.7%
10-year Treasury Note (Yield Only)	2.0	N/A	1.8	3.2	3.8	3.4
Gold (per ounce)	1.6	-18.0	-11.4	5.4	8.9	14.1
DJ-UBS Commodity Index	0.2	-5.1	-0.3	2.1	-9.5	1.1
DJ Equity All REIT TR Index	-3.6	14.0	24.8	20.8	7.0	11.9

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.

 

the taxman cometh. If your ears are burning, it may be because the people who run state and federal governments have been discussing where to find revenue to fill budget shortfalls. Currently, the solutions they’re pursuing focus primarily on U.S.-based companies.

 

As corporate profits have increased, the tax strategies employed by U.S.-based multinational corporations have come under Internal Revenue Service scrutiny. According to The Economist, America’s corporate profits are at an all-time high. Yet, corporate contributions to Uncle Sam’s coffers have been far lower than they were in the past. In 1947, corporate profits were about 10 percent of Gross Domestic Product (GDP) and corporate taxes were about 4 percent. Last year, corporate profits were about 12 percent of GDP and corporate taxes less than 2 percent.

 

The United States government recently called a U.S.-based multinational to task because it had employed “a complex web of offshore entities to pay little or no tax on tens of billions of dollars it had earned outside America.” The company responded to the inquiry by pointing out it paid billions of dollars in American taxes during fiscal 2012 and was probably one of the biggest corporate taxpayers in the country.

 

Internet retailers and catalogue companies also are becoming part of the hunt for tax revenue. Under current law, states cannot compel out-of-state retailers to collect the sales and use taxes owed by residents and businesses. It is up to individuals to declare and pay those taxes. The National Conference of State Legislatures estimates the inability to have Internet businesses collect taxes resulted in about $23 billion in lost tax revenue during 2012. In an effort to help states collect these taxes, Congress created the Marketplace Fairness Act. If it becomes law, states that adopt a simplified tax code will be able to enforce sales and use tax collection by Internet retailers and catalogue companies. The Act was passed by the Senate early in May.

 

Weekly Focus – Think About It

 

“Adversity is the diamond dust Heaven polishes its jewels with.”

--Thomas Carlyle, Scottish philosopher

Value vs. Growth Investing (5/24/13)

Name	1-Week	YTD	4-Week	13-Week	1-Year	3-Year	5-Year
US Market	-1.16	16.71	4.65	9.25	27.91	18.14	6.48
Large Cap	-0.92	16.42	4.61	9.50	27.12	17.88	5.82
Large Core	-0.73	20.82	4.64	11.76	33.85	19.32	7.94
Large Growth	-1.32	12.29	4.98	7.88	19.48	17.54	5.90
Large Value	-0.70	16.77	4.23	9.08	28.99	16.96	3.47
Mid Cap	-1.85	17.86	4.64	8.98	30.31	18.98	7.64
Mid Core	-1.85	17.27	4.54	8.30	29.08	20.89	8.67
Mid Growth	-1.95	15.23	4.76	7.74	24.83	18.14	5.46
Mid Value	-1.75	21.22	4.61	10.92	37.47	17.81	8.75
Small Cap	-1.60	16.45	5.04	7.40	29.41	17.93	9.16
Small Core	-1.82	17.10	5.36	8.25	29.99	16.80	8.24
Small Growth	-1.53	15.05	5.98	6.95	25.96	19.01	8.25
Small Value	-1.42	17.09	3.83	6.91	32.28	17.99	10.96
US Core	-1.05	19.78	4.67	10.76	32.61	19.52	8.25
US Growth	-1.46	13.04	4.99	7.79	20.93	17.84	6.02
US Value	-0.97	17.68	4.28	9.31	30.89	17.20	5.04

©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:

All the Good Things
by: Sister Helen P. Mrosia

He was in the first third grade class I taught at Saint Mary's School in Morris, Minn. All 34 of my students were dear to me, but Mark Eklund was one in a million. Very neat in appearance, but had that happy-to-be-alive attitude that made even his occasional mischievousness delightful.

Mark talked incessantly. I had to remind him again and again that talking without permission was not acceptable. What impressed me so much, though, was his sincere response every time I had to correct him for misbehaving—“Thank you for correcting me, Sister!” I didn't know what to make of it at first, but before long I became accustomed to hearing it many times a day.

One morning my patience was growing thin when Mark talked once too often, and then I made a novice-teacher's mistake. I looked at him and said, “If you say one more word, I am going to tape your mouth shut!”

It wasn't ten seconds later when Chuck blurted out, “Mark is talking again.” I hadn't asked any of the students to help me watch Mark, but since I had stated the punishment in front of the class, I had to act on it.

I remember the scene as if it had occurred this morning. I walked to my desk, very deliberately opened my drawer and took out a roll of masking tape. Without saying a word, I proceeded to Mark's desk, tore off two pieces of tape and made a big X with them over his mouth. I then returned to the front of the room. As I glanced at Mark to see how he was doing he winked at me. That did it! I started laughing. The class cheered as I walked back to Mark's desk, removed the tape and shrugged my shoulders. His first words were, “Thank you for correcting me, Sister.”

At the end of the year I was asked to teach junior-high math. The years flew by, and before I knew it Mark was in my classroom again. He was more handsome than ever and just as polite. Since he had to listen carefully to my instructions in the “new math,” he did not talk as much in ninth grade as he had in the third.

One Friday, things just didn't feel right. We had worked hard on a new concept all week, and I sensed that the students were frowning, frustrated with themselves—and edgy with one another. I had to stop this crankiness before it got out of hand. So I asked them to list the names of the other students in the room on two sheets of paper, leaving a space between each name. Then I told them to think of the nicest thing they could say about each of their classmates and write it down. It took the remainder of the class period to finish the assignment, and as the students left the room, each one handed me the papers. Charlie smiled. Mark said, “Thank you for teaching me, Sister. Have a good weekend.”

That Saturday, I wrote down the name of each student on a separate sheet of paper, and I listed what everyone else had said about that individual. On Monday I gave each student his or her list. Before long, the entire class was smiling. “Really?” I heard whispered. “I never knew that meant anything to anyone!” “I didn't know others liked me so much!” No one ever mentioned those papers in class again. I never knew if they discussed them after class or with their parents, but it didn't matter. The exercise had accomplished its purpose. The students were happy with themselves and one another again.

That group of students moved on. Several years later, after I returned from vacation, my parents met me at the airport. As we were driving home, Mother asked me the usual questions about the trip—the weather, my experiences in general. There was a light lull in the conversation. Mother gave Dad a side-ways glance and simply said, “Dad?” My father cleared his throat as he usually did before something important. “The Eklunds called last night,” he began. “Really?” I said. “I haven't heard from them in years. I wonder how Mark is.”

Dad responded quietly. “Mark was killed in Vietnam,” he said. “The funeral is tomorrow, and his parents would like it if you could attend.” To this day I can still point to the exact spot on I-494 where Dad told me about Mark.

I had never seen a serviceman in a military coffin before. Mark looked so handsome, so mature. All I could think at that moment was, Mark, I would give all the masking tape in the world if only you would talk to me. The church was packed with Mark's friends. Chuck's sister sang “The Battle Hymn of the Republic.” Why did it have to rain on the day of the funeral? It was difficult enough at the graveside. The pastor said the usual prayers, and the bugler played taps. One by one, those who loved Mark took a last walk by the coffin and sprinkled it with holy water.

I was the last one to bless the coffin. As I stood there, one of the soldiers who had acted as a pallbearer came up to me. “Were you Mark's math teacher?” he asked. I nodded as I continued to stare at the coffin. “Mark talked about you a lot,” he said.

After the funeral, most of Mark's former classmates headed to Chuck’s farmhouse for lunch. Mark's mother and father were there, obviously waiting for me. “We want to show you something,” his father said, taking a wallet out of his pocket. “They found this on Mark when he was killed. We thought you might recognize it.”

Opening the billfold, he carefully removed two worn pieces of notebook paper that had obviously been taped, folded and refolded many times. I knew without looking that the papers were the ones on which I had listed all the good things each of Mark's classmates had said about him. “Thank you so much for doing that,” Mark's mother said. “As you can see, Mark treasured it.”

Mark's classmates started to gather around us. Charlie smiled rather sheepishly and said, “I still have my list. It's in the top drawer of my desk at home.” Chuck's wife said, “Chuck asked me to put this in our wedding album.” “I have mine too,” Marilyn said. “It's in my diary.” Then Vicki, another classmate, reached into her pocketbook, took out her wallet and showed her worn and frazzled list to the group. “I carry this with me at all times,” Vicki said without batting an eyelash. “I think we all saved our lists.”

That's when I finally sat down and cried. I cried for Mark, and for all his friends who would never see him again.

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.

 

* 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”.