Schwartz
Financial Weekly Market Commentary
July
28, 2014
The Markets
Anchors aweigh! Put
thoughts of the Frank Sinatra and Gene Kelly movie aside. If the Naval Academy
fight song is playing in your head, tune it out. The anchors being raised here
are setting adrift perceptions that government bonds are always low risk
investments.
Behavioral finance
– a field of study that looks at behavioral and cognitive psychology in tandem
with conventional economics and finance to explain why investors do what they
do – tells us investors have been known to make decisions based on faulty
reasoning. In some cases, they tend to classify new information based on
experience or knowledge.
For instance,
people who adhere to the idea U.S. government bonds are low-risk investments
might be inclined to take in stride the news that geopolitical tensions pushed
bond yields lower during the past two weeks. Who cares that yields are at a low
for the year? Government bonds are not risky investments, right?
Not necessarily. While
it’s true that U.S. Treasury bonds are backed by the full faith and credit of
the U.S. government, they are still subject to the unpredictable changes in the
markets. One thing to remember is interest rates and bond prices interact like
children on a seesaw. When interest rates go down, bond prices go up. When
interest rates go up, bond prices go down. Bond prices generally have been
going up since the early 1980s and rates are currently at very low levels. As
economies recover and rates start to rise again, bond prices are likely to fall
and could have a negative effect on the value of portfolios holding government
bonds, particularly those with longer durations.
Bond yields have
stayed low during recent years largely because of Federal Reserve monetary
policy. President of the Federal Reserve Bank of St. Louis James Bullard
recently said there is a mismatch between our macroeconomic goals and the
stance of monetary policy. While this mismatch is not currently causing
problems for the economy, it may in the future. This week,
Fed officials are expected to discuss when and how to begin lifting rates from
near zero – a level they’ve been at since 2008.
Data as
of 7/25/14
|
1-Week
|
Y-T-D
|
1-Year
|
3-Year
|
5-Year
|
10-Year
|
|
Standard
& Poor's 500 (Domestic Stocks)
|
0.0%
|
7.0%
|
17.0%
|
13.9%
|
15.0%
|
6.2%
|
|
10-year
Treasury Note (Yield Only)
|
2.5
|
NA
|
2.6
|
3.0
|
3.7
|
4.5
|
|
Gold
(per ounce)
|
-0.9
|
7.8
|
-2.4
|
-7.1
|
6.3
|
12.7
|
|
Bloomberg
Commodity Index
|
0.0
|
2.8
|
1.2
|
-7.7
|
0.9
|
-1.1
|
|
DJ Equity
All REIT Total Return Index
|
-0.7
|
17.8
|
10.7
|
10.9
|
21.7
|
9.9
|
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.
‘video gamer’ may soon join astronaut,
athlete, and super hero on children’s lists of what they want to be when they
grow up. Those who reach the top of the e-sport may do well financially since
video game competitions can be quite lucrative.
Okay,
first, let’s tackle the concept of e-sports. If you’re one of those people who have
a hard time thinking of chess or poker as sports, the idea of video games as sports
will probably throw you for a loop. However, last week ESPN.com featured The
International – the fourth annual world championships of the popular video game
‘Defense of the Ancient 2’ (Dota 2).
The event, which was held in KeyArena in Seattle, sold out. In addition, more
than 300,000 people watched the event on a popular video game streaming
website.
Total
prize money for the tournament was $10.9 million, a record for video game
competitions and all the more remarkable because fans raised much of the prize
money. That’s a big step up from the first championship. It was held in 2011 in
Cologne, Germany and the teams competed for a grand prize of $1 million.
The
League of Legends championship, another big gaming competition, is coming up in
October. Two teams will compete in Sangam Stadium in Seoul, South Korea for
bragging rights, the Summoner’s Cup, and $1 million in prize money. USA Today reported last year’s
championship “was watched by more people than the NBA Finals, World Series, and
BCS (Bowl Championship Series) National Championship [college football].” If
that seems like a stunning statistic, consider this: 67 million people play
League of Legends every month.
According
to PCWorld.com, “Playing PC (personal
computer) games has become a bona fide career option and right now business is
booming… A confluence of events occurred at just the right time in 2010 to
reinvigorate the PC’s strong legacy of hardcore competitive gaming. Most
significantly, the PC’s return as professional gaming’s platform of choice is
tied to the economic rise of Asia along with huge missed opportunities by
console game manufacturers.”
Weekly Focus – Think About It
“The best time to
plant a tree was 20 years ago. The second best time is now.”
--Chinese Proverb
Value
vs. Growth Investing (7/25/14)
|
-0.01
|
7.66
|
0.71
|
6.40
|
19.04
|
16.18
|
17.91
|
|
|
0.00
|
8.20
|
1.19
|
6.84
|
19.30
|
16.47
|
17.02
|
|
|
-0.49
|
7.70
|
0.52
|
5.32
|
16.81
|
18.45
|
17.57
|
|
|
0.33
|
8.36
|
1.58
|
8.91
|
25.32
|
16.43
|
17.84
|
|
|
0.14
|
8.57
|
1.46
|
6.24
|
15.83
|
14.59
|
15.74
|
|
|
0.10
|
7.64
|
0.02
|
5.88
|
19.91
|
15.84
|
20.45
|
|
|
-0.35
|
9.68
|
0.56
|
6.64
|
21.78
|
16.89
|
21.39
|
|
|
0.61
|
4.58
|
-0.36
|
5.79
|
16.53
|
12.00
|
18.91
|
|
|
0.06
|
8.97
|
-0.14
|
5.16
|
21.80
|
18.82
|
21.05
|
|
|
-0.35
|
2.04
|
-2.50
|
3.23
|
13.62
|
13.87
|
19.36
|
|
|
-0.86
|
3.74
|
-2.45
|
3.38
|
14.54
|
13.01
|
18.78
|
|
|
0.13
|
-2.47
|
-3.39
|
3.27
|
11.13
|
12.32
|
17.99
|
|
|
-0.28
|
4.82
|
-1.67
|
3.06
|
15.02
|
16.37
|
21.32
|
|
|
-0.49
|
7.81
|
0.32
|
5.44
|
17.63
|
17.78
|
18.48
|
|
|
0.37
|
6.87
|
0.87
|
7.91
|
22.53
|
15.25
|
18.12
|
|
|
0.10
|
8.40
|
0.93
|
5.81
|
17.02
|
15.58
|
17.21
|
©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:
Lincoln’s Whisker’s
File this story
under “Kids, charming.” It’s the story
of an eleven year-old girl who influenced a president and maybe even won him
his election.
The day was
October 15th, the year 1860.
The entire nation was gripped with tension as one of the most important
election seasons of all time drew to a close.
As storm clouds gathered on the horizon, Abraham Lincoln grappled with
one of the most famous politicians of the day, Stephen A. Douglas. The country was threatening to split in two,
and a civil war looked more and more likely.
More than anything, what people needed was a little childlike innocence.
Step forward,
Miss Grace Bedell.
Lincoln’s Picture
Grace’s father
was a follower of national politics, and as Grace later described it, “a
zealous champion of Mr. Lincoln.” One
day, her father brought home a picture of Lincoln for Grace to see. To the girl, it was “one of those coarse
exaggerated likenesses … the high forehead over those sadly pathetic eyes, the
angular lower face with the deep cut lines about the mouth.” In her opinion, Lincoln looked thin and
morose … hardly fitting for such an important figure.
With the fate
(face?) of the country at stake, it was clear that something had to be
done. Grace recalled, “As I regarded the
picture, I said to my mother ‘He would look better if he wore whiskers, and I
mean to write and tell him so.’”
Eleven year old
Grace decided that it was up to her to take a stand.
Grace’s Letter
A few days later,
Abraham Lincoln, presidential candidate, received one of the most remarkable
and important letters of his lifetime.
It read:
Hon A B Lincoln...
Dear Sir
My father has just
home from the fair and brought home your picture and Mr. Hamlin’s. I am a
little girl only 11 years old, but want you should be President of the United
States very much so I hope you wont think me very bold to write to such a great
man as you are. Have you any little girls about as large as I am if so give
them my love and tell her to write to me if you cannot answer this letter. I
have yet got four brothers and part of them will vote for you anyway and if you
let your whiskers grow I will try and get the rest of them to vote for
you. You would look a great deal better
for your face is so thin. All the ladies like whiskers and they would tease
their husbands to vote for you and then you would be President. My father is
going to vote for you and if I was a man I would vote for you to but I will try
to get every one to vote for you that I can I think that rail fence around your
picture makes it look very pretty. I have got a little baby sister she is nine
weeks old and is just as cunning as can be. When you direct your letter direct
to Grace Bedell Westfield Chautauqua County New York.
I must not write
any more answer this letter right off Good bye
Grace Bedell
An ordinary
politician might have tossed the letter aside, but Lincoln was no ordinary
politician. Only four days later, he
sent a reply … but it was clear he had doubts.
After all, he had been clean-shaven his entire life.
Springfield, Ill
Oct 19, 1860
Miss Grace Bedell
My dear little Miss
Your very agreeable
letter of the 15th is received. I regret the necessity of saying I have no
daughters. I have three sons—one seventeen, one nine, and one seven, years of
age. They, with their mother, constitute my whole family. As to the whiskers,
having never worn any, do you not think people would call it a silly affection
if I were to begin it now?
Your very sincere
well wisher
A. Lincoln
Lincoln’s Whiskers
Despite his
concerns about what “the people” would think, Lincoln was impressed by his
youngest campaign advisor’s suggestion.
For almost immediately after replying, he put away his razor and allowed
his beard to grow. He kept it going
through the rest of the election, and by the time he started his trip to
Washington, had acquired his famous beard … perhaps the most famous beard in
U.S. political history.
Since his beard
had clearly won him the election, Lincoln decided to thank his little kingmaker
in person. His trip to the capital
stopped in Westfield, New York on February 19, 1861. A correspondent from the New York World covered the entire event.
“At Westfield an interesting
incident occurred. Shortly after his nomination, Mr. Lincoln had received from
that place a letter from a little girl, who urged him, as a means of improving
his personal appearance, to wear whiskers. Mr. Lincoln at the time replied,
stating that although he was obliged by the suggestion, he feared his habits of
life were too fixed to admit of even so slight a change as that which letting
his beard grow involved. To-day, on reaching the place, he related the
incident, and said that if that young lady was in the crowd he should be glad
to see her. There was a momentary commotion, in the midst of which an old man,
struggling through the crowd, approached, leading his daughter, a girl of
apparently twelve or thirteen years of age, whom he introduced to Mr. Lincoln
as his Westfield correspondent. Mr. Lincoln stooped down and kissed the child,
and talked with her for some minutes. Her advice had not been thrown away upon
the rugged chieftain. A beard of several months’ growth covers (perhaps adorns)
the lower part of his face. The young girl’s peachy cheek must have been
tickled with a stiff whisker, for the growth of which she was herself
responsible."
Almost 75 years
later, Grace related her own memory of that day:
“He climbed down and sat down with
me on the edge of the station platform ‘Gracie,’ he said, ‘look at my whiskers.
I have been growing them for you.’ Then he kissed me. I never saw him again.’
Okay, so Grace
Bedell’s letter probably wasn’t the cause of Lincoln’s election. But it certainly led to his change in
grooming habits. More than anything, the
story of Grace Bedell and her letter shows what kind of man our 16th
president was, and how children can inspire even the greatest of the
great.
Regards,
,
Michael L. Schwartz, RFC®, CWS®, CFS
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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
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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
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